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Subject:  Re: Newbie Advice & IRA Dividends/Gains Question Date:  3/29/2002  5:10 PM
Author:  Mark0Young Number:  34070 of 88542

I am going to put my short term savings into a Money Market Account which is currently paying 3.1% (the best I could find).

Right now that is a good rate for a Money Market Account. My credit union is paying only 1.61%APY on money market accounts with at least $10,000 in that account. (My credit union pays different interest rates for different amounts in the account, and $10K gives the top rate.)

I use my money market account for short-term savings for saving up for the annual property tax bill, my annual Roth IRA contribution, and the more liquid half of my emergency fund. I also have my credit union automatically divert part of each payroll direct deposit into this account so, if I do withdraw from the account (e.g., to pay the property tax bill, or handle a major car repair), the account will automatically be rebuilt.

I'm also considering putting some funds into a 5 year cd with ING direct (5%). I don't see much talk about CDs are they a worthwhile investment or should I put that money somewhere else?

Can you redeem the 5-year CD before maturity? (Some issuers will allow it with penalty, some won't allow it.)

I generally have mixed feelings about CDs--one one hand they do usually give better yields than a money market account or a money market fund. On the other end, CDs generally tend to be inflexable. I used to keep some long-term money and the less liquid half of my emergency fund in CDs, but I have since moved the less liquid half of my emergency fund to I-Bonds ( and I have moved longer-term money into stock funds and (ahem) bond funds. I still use CDs where I want the money available on a specific date (e.g., I have a couple CDs that mature near January 1 that I can use for a Roth IRA contribution if need be, and in the recent past I have used CDs to boost yields of money I have set aside for property taxes but made sure they would mature just before I expect the property tax statement to arrive).

Right now the FOMC has the overnight rate pretty low and many people expect those rates to rise sometime in the next few months to a year, and when they do, it is expected that money market rates and CD rates would rise. Unfortunately, most 5-year CDs don't give you the benefit of the increased rates, pretty much locking you into the lower rate.

You can get more opinions about CDs, I-Bonds, and other fixed-rate instruments over in The "Bonds & Fixed Income Investments" board (

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