Keeping Cindie’s Cash Working

What Will the Federal Reserve Do Next?

There is no certainty that the Fed will increase interest rates. However, I think it is likely that they will because they want to tame inflation. Unfortunately, I don’t think they can or will have much success in taming inflation because there are far too many contributing factors to this problem. The pieces of the puzzle include rising energy costs, Federal government spending, rising wages, product shortages, wars, and policies that “fix” one thing and break a dozen other things. Business leaders have a complex set of problems to deal with, and they often have to choose between shrinking margins or raising the prices of goods and services.

An Example From Life

I will get back to the subject of keeping Cindie’s cash working in a moment. But I want to illustrate the inflation thing with my experience with AT&T’s internet price increase of 9.4%.

AT&T increased our monthly charge for internet services from $53 per month to $58 per month last month. About a year ago I called them and asked them if they could give me a better rate. They basically said, “no.” Because we have limited choices for service in our neighborhood, I decided to just grin and bear it. However, spending almost $700 per year for internet did annoy me.

Then, in the mail, we received yet another piece of marketing snail mail from Spectrum. They said we could have internet for $39.99 per month. I set the card aside (shown here) and thought I might do something. Then, a couple of days later, a young man named Flynn came to our door. He was from Spectrum. He said he could give us Spectrum internet at the higher speed for $34.99 per month for two years. I signed up. The annualized cost will be $420. That is a savings of almost $300 per month for two years.

All that to say that AT&T was assuming I would accept inflation as just a part of life. When I called AT&T to cancel their services, the young lady tried multiple times to get me to stay with them. It is easier to keep a customer than to try to get a new one. She even offered to price match Spectrum. Given AT&T’s slower speed, and their unwillingness to do something earlier when I called, I cancelled. I encouraged her to tell AT&T management that I would have stayed with them if they had responded to my earlier request to freeze our payments at $50 per month.

Back to CD’s Now

This morning I took a look at the maturity dates of Cindie’s CDs in her traditional IRA. As her CDs mature, I buy new ones to replace them. However, the rates on 1-year CDs or longer-term CDs do not justify tying up her money for that long. Furthermore, I believe the Fed will increase rates yet again, and that will cause CD rates to go up as well. Therefore, I entered orders for a 1-month, 2-month, and 3-month CD for Cindie.

The interest rates are satisfactory and are much better than anything Wisconsin Bank and Trust offers. There are many CDs to choose from and all of them are FDIC insured. The following three images show how I worked through the process. The first image shows Cindie’s current eight CDs and the cash that is available in her Fidelity Government Money market fund (SPAXX). It also shows that three CDs will be coming to maturity in the next couple of weeks.

The next image shows the CDs that I decided to purchase. There is a 1-month, a 2-month, and a 3-month CD. It took about fifteen minutes to enter the orders.

The final image shows the information Fidelity displays when entering an order. I don’t think it is wise to automatically roll a CD given the Fed’s increasing rate mania.

Summary

Here is one more way to look at this. By keeping about $10,000 invested in CD’s during a twelve-month period, Cindie will receive about $500 in the next twelve months from her excess, “idle” cash. Is your cash working for you?

One other thing. Did you notice that the $500 Cindie will receive in interest will more than cover the Spectrum internet service? It is a win-win.