Thursday, April 27, 2017

Monitor Your CD Maturity Dates

This is a quick reminder to those of you with CDs to monitor your CD maturity dates. I have an IRA CD maturing at a credit union in mid-May, and the rates there aren't great. So I logged on, and used online chat to request that the proceeds be deposited into my IRA savings account instead of being rolled into a new IRA CD (which is the default at most banks and credit unions). Within a few seconds, the rep responded that it had been done, and followed up with an email confirmation.

Typically there's a 10-day grace period after the maturity date during which time you can cancel the renewal, but I prefer to do it in advance if possible. It turned out to be very easy at this credit union. Now I'll be hunting for a good IRA CD at a bank or credit union at which I don't already have an IRA CD (I typically put enough in these to get close to the federal deposit insurance limit, which I don't want to exceed). We've been seeing some pretty good deals in recent months, so I'm optimistic.

Tuesday, April 25, 2017

Bond Basics: Part 7 (Duration)

Toward the end of the last post in this series, Bond Basics: Part 6, we saw that the change in the price of a bond, for a given change in yield, was related to the bond's term to maturity, and I mentioned that this was related to the bond concept of duration. In this post I'll discuss the concept of duration, especially as it relates to bond funds, which is the way you probably own bonds if you own them at all.

In a nutshell, duration provides a way to calculate an approximate value for the change in bond or bond fund price for a given a change in bond or bond fund yield. In the previous posts in this series, we discussed how bond price and yield move in opposite directions--when one goes up, the other goes down, and vice versa. Duration gives us a simple way to quantify this relationship--at least approximately.