Bargainman said:I can refer a couple of more people to the 8 month 8% CD promo from Chartway. Please PM if you are interested, first come first serve.
Isn't this promo already expired on 7/31?

hawaiirob said:I have a question on the tax treatment of CDs. Specifically, is it true that tax on CD interest is not due until the CD matures?

For instance, if I buy a one-year CD in September 2006:
A). There will be no taxes due for the 2006 tax year, and the entire interest income from the CD will be taxable for tax year 2007?
Or
B). Some tax will be due for tax year 2006, and some for tax year 2007.

I found a source that says A). is the right answer:

"The interest on both standard CDs and brokered CDs is not paid until the CD matures. For tax purposes, there is no tax liability until interest is paid. Thus you can defer taxes on the interest for the length of the CD plus the number of months until your estimated tax payments or final tax payments are due."
(page 175, How To Retire Early And Live Well, Gillette Edmunds)

Mr. Edmunds has a Masters of Law in Taxation from New York University, so he should know what he's talking about.

This matters to me because my 2007 tax bracket will (sadly) be much lower than my 2006 bracket.

It depends on how the interest is credited and on the term of the CD.

If for example, you get a CD where the interest is credited monthly -- even if it reinvested and allowed to compound -- you will pay taxes on the interest in the year it is credited.

If you get a CD of one-year or less where the interest is not credited until maturity, you will pay tax in the year of maturity. For example, ING Direct and Netbank offer one-year CDs that pay and credit no interest until maturity. You will not have to pay taxes until maturity for these CDs. Most banks do not have such CDs, however, and credit your interest monthly or quarterly. Some banks will ask you on the application how often you want interest paid (Capital One used to do this, I don't know if they still do since I haven't opened one in a long time), choosing the annual option could allow you to defer taxes a little bit.

I doubt that you will ever find a CD that pays interest less often than once a year. But in the unlikely event that you should ever encounter such a beast, the tax code requires that CDs that pay interest less than once a year be treated as Original Issue Discount (OID) securities. That means you will be required to declare as income and pay taxes on the imputed interest each year. You will have to pay tax on the theoretical annual growth in value of the CD even though you do not receive any payments.

I suspect that you are reading the paragraph you quote out of context. I bet that the sentence "The interest on both standard CDs and brokered CDs is not paid until the CD matures" is the title of the paragraph and the rest of the paragraph describes how to treat CDs where the interest is not paid until the CD matures. I am sure you realized that there are CDs that pay interest before they mature. And I suspect that the discussion you are reading is refering to CDs of one year or less.

Thanks for the reply frootmall.

frootmall said:I suspect that you are reading the paragraph you quote out of context. I bet that the sentence "The interest on both standard CDs and brokered CDs is not paid until the CD matures" is the title of the paragraph and the rest of the paragraph describes how to treat CDs where the interest is not paid until the CD matures. I am sure you realized that there are CDs that pay interest before they mature. And I suspect that the discussion you are reading is refering to CDs of one year or less.Actually the book I quoted is just plain wrong.

Here's the full context:
"The interest on both standard CDs and brokered CDs is not paid until the CD matures. For tax purposes, there is no tax liability until interest is paid. Thus you can defer taxes on the interest for the length of the CD plus the number of months until your estimated tax payments or final tax payments are due. For example, if you buy an eighteen-month CD on July 20 that pays interest on January 20 of the second following year, the taxes on the interest will not be due until April 15 of that second year, when your next estimated tax payment is due."In the example given, even if such a CD were to exist, taxes would have to be paid on the imputed interest each year.

Note to self, don't bother reading "How To Retire Early And Live Well"

FYI, Citibank offers CDs that defer interest to maturity, and you have to ask for it. I recently openend their 6-month CD special and had it set up to defer interest to maturity. It was noted in my account opening package that it's deferred, and the details of the deferred interest option were included in the standard T&Cs.

I'm wondering if one were to break such a CD, and let's say (as is the case w/ my Citibank CD) the usual penalty is 1 month interest; since it's not credited to maturity, would I receive any interest at all? Perhaps even lose a month of interest worth of principal?

Sometimes, small local banks and credit unions will "rate match" advertised Certificate rates. Many of them won't mention this on their public web sites since they are focused on local clients, and the purpose is to build up their deposit base from their existing customers.

Which banks and CUs have you found which will "rate match" published rates?

I belong to a very small, one-branch credit union in Seattle, Credit Union Northwest, which currently has an unpublished practice that they will match competitors' Certificate rates. They have matched rates I've printed out from Internet competitors. Their policy is unofficial and subject to change without notice. If you live near Seattle (their field of membership includes the entire State of Washington) and can come into their office, you might enjoy working with them.

Anyone else have names of banks/CUs offering "CD rate matches"?

SeattleNative said:Tomparc asked: so is the cd rate hiking officially over from now on?
On short-term CDs, yes. On longer-term CDs, probably not - but there may be a wait for high-yield deals. Our bond markets have had an inverted yield curve for several months, history indicates this phenomenon will not continue indefinitely.

Long-term interest rates as reflected in auction yields on 5-year Treasuries and 10-year Treasuries have actually have dropped in recent weeks, it's hard to predict when long-term rates will edge up - or spike up.

I'm wondering what mechanism will drive long term rates upward, though. If inflation is contained, it means real interest rates have to increase. Do you think it might be more likely the yield curve will revert by the fed lowering the fed funds rate again in 2007? Then we'd be in a "normal state" again although short term CDs might be back down to 3-4% level and long term CDs still hovering around 5-6%.

SeattleNative said:Sometimes, small local banks and credit unions will "rate match" advertised Certificate rates. Many of them won't mention this on their public web sites since they are focused on local clients, and the purpose is to build up their deposit base from their existing customers.

Which banks and CUs have you found which will "rate match" published rates?
When I got one of my first CDs at World Savings I asked the CSR how to take the money out on maturity. He immediately said that before I decided to take the money out, I should give them a chance to match rates of other financial institutions. World consistently has the highest rates in the area so I haven't tried this.

Edit: See also message above from jensenjp dated August 3rd.

Hold off locking in rates til September, according to a Penfed branch manager whom I spoke with today, rates are likely to go back up to 6% next month. Nothing is for sure, but I think it is worth a week's wait to find out.

If I had to stake a bet on it, I'm 99% sure she's 99% sure

tooshy said:Hold off locking in rates til September, according to a Penfed branch manager whom I spoke with today, rates are likely to go back up to 6% next month. Nothing is for sure, but I think it is worth a week's wait to find out.

Thanks for this great info, tooshy. Do you know if they are basing this on market outlook (i.e. they suspect perhaps that interest rates will keep going up later this year) or they are just planning a special? In general it appears as if longer CD rates have been dropping recently.