This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Tuesday, February 19, 2008

Recession coming? Time to lock in rates?

Posted By Paul

So there has been a lot of talk of a recession coming, which got me thinking.

I have an emergency fund that I use for rainy days (see my various other posts on my experience with a recent layoff), and I'm trying to figure out what to do with it.

I currently keep it in an internet savings account but all this talk of recession had me wondering.

Over the past months the interest rate for my savings account has been gradually dropping little by little.

It seems like there have been numerous interest rate cuts related to the possibility of a recession coming. Perhaps I should assume that interest rates will continue to fall, and lock in a rate now with a CD?

Also if you've read my article:

Financial Choices, Good vs Better

You know that I generally don't worry too much about squeezing a little more return out of an investment, but this idea struck me as essentially harmless and something that might make sense.

What do people think? Good idea? Bad idea?


Kacie said...

Harmless, well maybe. Maybe not.

If you actually need to tap into that money, you could be slammed with penalties and fees.

I'd suggest calculating exactly how much money in interest we're talking.

Say you're earning 3.5 percent APY on your savings. You might be able to get a 6-month CD for say, 4 percent.

Over the course of that period, how much more would .5 earn you?

Maybe find a calculator on Bankrate.com to help you crunch numbers.

Kacie said...

So...what did you end up deciding?

Paul said...

I've been doing a little research and it looks like through my ISP that the penalty for cashing in a CD early is 6 months of interest, which really isn't too bad. I'm contemplating setting up a second CD ladder with some of the funds I have.