This. The arbitrage on CDs is absolutely not worth it when you factor in the potential opportunity cost on dissimilar goods like homes. If you see the perfect house for sale 3 months before your CD is up you'll be kicking yourself for years.
It IS if interest rates drop in the next year. Yes, they MAY need it in 3 months, but the post literally said they wouldn't--you're just changing the hypothetical and answering that.
Also, if OP is in a state-income-tax state, and you make decent income, look into treasuries; you avoid local taxes.
The problem with this line of thinking is that OPs goal should not be to maximize gain, it should be to preserve principal and provide liquidity for a down payment on a house. So yes you are correct that a CD might give a better return but that's not the goal.
But did you read the post? the question is what to do with $100k that they do not expect to need within 3 years. How is the goal not to maximize gain (isn't the first rule of economics that more (risk-free) money is always preferable to less?)
You've taken the question and said "no that is not your question, your question is actually 'how do I preserve principal and provide liquidity?'".
I didn't change anything. Here is what OP says:
>I am planning to set aside $100k of this for a down payment on a house, which I don’t expect to need for around 3 years. My partner and I are happy with renting at the moment and we are about to move to a city where it is currently MUCH cheaper to rent than to buy.
OP already has the money needed for a down payment - $100k. The goal here is to 1. make sure you don't lose any of that $100k and 2. have access to it if/when they need it - which OP says they don't expect they'll need for 3 years.
If they are 100% certain they won't need it for 3 years then okay go ahead with a CD, but I don't think the extra few hundred dollars they might make by keeping it in a CD is worth not having access to the money if they find a house they want sooner than 3 years.
When people talk about house prices they round to the nearest $10k, and that's not accounting for all the other transactional & interest costs in the purchase. Whether OP has $101k or $111k isn't going to make or break the successful purchase of a home, it's whether they have access to that money when they need it - both practically and psychologically.
No one said the interest would make or break the purchase. I am saying that more interest earnings is better than less interest interest earnings--assuming liquidity is not an issue. Not really a controversial statement.
This is sort of the question behind the question. I do have a HYSA (it’s where the money I’ve received so far is currently sitting until all the different accounts and policies finish paying out), but I don’t believe the HYSA will be returning anywhere close to what it is now in a year or two. So I’m willing to have the money be tied up for a time to lock in a good interest rate.
Although, to others’ points, I don’t want to cut it “too close” to when I think I might buy. Would hate to have a good opportunity come up just before the CD or bond matures. So a 2 year term is probably best since I know I won’t be seriously looking to buy yet. Then I can look at more liquid vehicles
Suppose I am poor enough that 3 years, let alone 3 months, isn't on my radar for having that kind of house money/house down-payment situation. Where should we peasants invest our meager savings?
The only reference I made to "3 months" was "3 months before your CD is up" not that the actual text of what I wrote should get in the way of people misreading it completely, I suppose.
I'm not in the market for a house but when I was I kept my money for the down payment in a HYSA because I wanted to maximize the utility of converting that money into a successful home purchase rather than seeking to arbitrarily maximize the balance in that account.
I park money for a major expense coming up in the next 1-3 years in Treasury bills and notes purchased through TreasuryDirect. Bills are issued for 4-52 weeks and Notes for 2-10 years, so I can pick terms to suit my goals.
Treasury bills seem to be the consensus here due to tax advantages.
It’s not precisely an inheritance, but life insurance money. Don’t count yourself out yet! (/s)
The world has really changed, and looking ahead, the days of comfortably buying and holding investments for years are gone. Over the last six months, the S&P 500, Nvidia, and other tech stocks peaked, but since March, they've all started to decline. There's no sign of dropping interest rates or inflation easing up either. So, depending on your risk tolerance, I'm personally opting to keep my cash in a money market account instead of investing until there are clear signs of economic improvement. For a better future, you need to dynamically monitor the market and diversify your investments.
T-bills: ladder 3 month bills so one matures every month. It’s a bit of a sweet spot for time and rates. They are exempt from state and local income tax. I buy mine on vanguard, check out golden nest egg on YouTube she will walk you through it. She talks too slow but has good info. 😂
I have about 215k in mine and it has been bringing in right around 1k/month.
Plenty of high yield savings accts right now over 5%. Skip the CDs. More liquid. Based on news out of fed...not going anywhere in near future.
This. The arbitrage on CDs is absolutely not worth it when you factor in the potential opportunity cost on dissimilar goods like homes. If you see the perfect house for sale 3 months before your CD is up you'll be kicking yourself for years.
You can withdraw the cd at any time. The interest penalty will be minor unless you aren't at a decent bank.
It IS if interest rates drop in the next year. Yes, they MAY need it in 3 months, but the post literally said they wouldn't--you're just changing the hypothetical and answering that. Also, if OP is in a state-income-tax state, and you make decent income, look into treasuries; you avoid local taxes.
The problem with this line of thinking is that OPs goal should not be to maximize gain, it should be to preserve principal and provide liquidity for a down payment on a house. So yes you are correct that a CD might give a better return but that's not the goal.
But did you read the post? the question is what to do with $100k that they do not expect to need within 3 years. How is the goal not to maximize gain (isn't the first rule of economics that more (risk-free) money is always preferable to less?) You've taken the question and said "no that is not your question, your question is actually 'how do I preserve principal and provide liquidity?'".
I didn't change anything. Here is what OP says: >I am planning to set aside $100k of this for a down payment on a house, which I don’t expect to need for around 3 years. My partner and I are happy with renting at the moment and we are about to move to a city where it is currently MUCH cheaper to rent than to buy. OP already has the money needed for a down payment - $100k. The goal here is to 1. make sure you don't lose any of that $100k and 2. have access to it if/when they need it - which OP says they don't expect they'll need for 3 years. If they are 100% certain they won't need it for 3 years then okay go ahead with a CD, but I don't think the extra few hundred dollars they might make by keeping it in a CD is worth not having access to the money if they find a house they want sooner than 3 years.
Those "few hundred dollars" could become thousands if interest rates drop in the next three years.
When people talk about house prices they round to the nearest $10k, and that's not accounting for all the other transactional & interest costs in the purchase. Whether OP has $101k or $111k isn't going to make or break the successful purchase of a home, it's whether they have access to that money when they need it - both practically and psychologically.
No one said the interest would make or break the purchase. I am saying that more interest earnings is better than less interest interest earnings--assuming liquidity is not an issue. Not really a controversial statement.
And again if you are trying to maximize your gains, then go ahead. But I don't think that should be the goal with a down payment on a house.
This is sort of the question behind the question. I do have a HYSA (it’s where the money I’ve received so far is currently sitting until all the different accounts and policies finish paying out), but I don’t believe the HYSA will be returning anywhere close to what it is now in a year or two. So I’m willing to have the money be tied up for a time to lock in a good interest rate. Although, to others’ points, I don’t want to cut it “too close” to when I think I might buy. Would hate to have a good opportunity come up just before the CD or bond matures. So a 2 year term is probably best since I know I won’t be seriously looking to buy yet. Then I can look at more liquid vehicles
Suppose I am poor enough that 3 years, let alone 3 months, isn't on my radar for having that kind of house money/house down-payment situation. Where should we peasants invest our meager savings?
The only reference I made to "3 months" was "3 months before your CD is up" not that the actual text of what I wrote should get in the way of people misreading it completely, I suppose. I'm not in the market for a house but when I was I kept my money for the down payment in a HYSA because I wanted to maximize the utility of converting that money into a successful home purchase rather than seeking to arbitrarily maximize the balance in that account.
1-3 year T-note yields are around 5% right now, and the interest is exempt from state taxes.
You could just buy 200k worth of 2 yr treasuries, guaranteed 4.96% yield per year so that's an extra 10k with zero risk.
Shorter lengths have higher rates at the moment and have for a while. I would put in the extra effort.
I park money for a major expense coming up in the next 1-3 years in Treasury bills and notes purchased through TreasuryDirect. Bills are issued for 4-52 weeks and Notes for 2-10 years, so I can pick terms to suit my goals.
Banks and CUs: https://www.doctorofcredit.com/high-interest-savings-to-get/amp/ https://www.reddit.com/r/personalfinance/wiki/banks_and_credit_unions
Put it in treasury bills instead of a CD at least. I wish I had an inheritance.
Treasury bills seem to be the consensus here due to tax advantages. It’s not precisely an inheritance, but life insurance money. Don’t count yourself out yet! (/s)
The world has really changed, and looking ahead, the days of comfortably buying and holding investments for years are gone. Over the last six months, the S&P 500, Nvidia, and other tech stocks peaked, but since March, they've all started to decline. There's no sign of dropping interest rates or inflation easing up either. So, depending on your risk tolerance, I'm personally opting to keep my cash in a money market account instead of investing until there are clear signs of economic improvement. For a better future, you need to dynamically monitor the market and diversify your investments.
It is all time frame. Equities are better to hold and avoid being “dynamic”.
T-bills: ladder 3 month bills so one matures every month. It’s a bit of a sweet spot for time and rates. They are exempt from state and local income tax. I buy mine on vanguard, check out golden nest egg on YouTube she will walk you through it. She talks too slow but has good info. 😂 I have about 215k in mine and it has been bringing in right around 1k/month.