Financial Information
Buy municipal bond now, or wait for CD rates to increase?
Question : Buy municipal bond now, or wait for CD rates to increase?
We have 10,000 to invest, and were just offered a Vermont Municipal Bond at 4.36% for 17 years…wondering if it’s a good buy, or if it’s likely for CD rates to skyrocket soon as a result of the current banking situation? Investor is in late 40′s with moderate savings in place mostly in form of other bonds and IRA…sources for any answers would be greatly appreciated
ira cd rates
Best answer:
Answer by bud68
I doubt that CD rates will “skyrocket.” The muni sounds like a good deal assuming that it is tax-exempt.
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#4 written by muncie birder 1 year ago
Do you have any idea what inflation is currently running at? There is some argument between what the government say it is and what it might really possibly be, but in either case it is more than 4.36%. My guess is that it is somewhere between 6% and 8%. I might be wrong but that is my guess. Buy a 4.36% 17 year bond opening you to two extreme risks. The first is that inflation is going to continually eat away your pricipal. The 2nd is that interest rates are going to rise and your bond will loose value and you will be stuck with 4.36% when new bonds are being issued paying 14%. Muncis payed 14% during the 80s, a period with similarities to today.
Actually, it does not really sound as if you would be a prime candidate for muni bonds anyway. They are generally purchased by folks in the 34% income bracket or by people attempting to stay out of that bracket. Does Vermont have a very high state tax?
If you are a conservative investor, go with the 1 year CD for now or perhaps 6 months T-bills as an alternative that are state tax exempt.
There are a few investments that are somewhat riskier but which do have a recent history of providing much better current and potential returns. They are in general better suited to an IRA account because of the tax consequences. I am referring to gas pipeline LPs which are taxed at the full tax rate but some of which currently pay above 8% dividends and have in the past also returned a fair amount of capital gains in addition and frequently raise their dividends. PAA, ETP, MMP, and SXL are a few.
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#5 written by jsforex.blogspot.com 1 year ago
4.36% and your money is tied up for 17 years? Inflation is going to eat away the value of your money at the end of that term.
If I were in your shoes, I’d put that in corporate bonds, or shop around for something that’s less long term, and with higher yield.
Good luck!
- Jim http://jsforex.blogspot.com - Comment Feed for this Post
Don’t stick your money in a bond for only 4.36 in return that locks you in for 17 years. I would do one of the following:
- CDs : Anything ranging from 1-5 years can yield you 3.5 to 5% return. Rates won’t be going down that much, if at all, anytime soon due to inflation. Check http://www.bankaround.com or http://www.bankrate.com.
- Mutual Funds : Average rate of return for funds are definitely a lot better than the 4.36% you’ll get with the bonds.