Noah found this great nearly 7% CD through NRL Federal Credit Union. You might even be able to fund it with a credit card.
Its awesome. Don’t get me wrong. If I had infinite float, it’d be a no brainer. In fact, if I had the time to MS (which can thus turn into infinite float), I’d be jumping in. However, I’m not sure that I will jump on ths.
So the details, pulling from Noah are pretty simple:
As an #avgeek I love this! why? Because: 777! Ok, that aside. Noah does a great breakdown on this deal. In fact, he estimates the rough return for tying up $7,000 for 7 months as $281.
If I’m doing my math right (and I’m writing this on a Saturday night, after pulling a redeye home from Las Vegas), that’s roughly a 4% ROI. When I resell, 4% wouldn’t even factor in. I suppose you could look at this CD as 4% ROI without any risk.
Factoring in Opportunity Cost
Normally when I resell, I’m looking for a floor of 25% ROI. So rough calculations (again, jetlagged math), seems to tell me that the opportunity cost is roughly 21%. I could be further off, because I’m just looking at 4% guaranteed ROI, vs. 25% ROI as a “goal” from reselling. In reality, I could do worse, or I could do better. But, lets just calculate that in real dollars, as far as what that opportunity cost could be based on a one time event: 21% of $7,000 = $1,470.
As Emeril Lagasse likes to say – lets kick it up a notch. My normal “velocity of sales” is better than 7 months. When I’m really good with product choice, its less than a month, but a month is a nice even number. So, now, I have $7,000 that I could put into a CD at $281, or, if I’m really good with my product selection, I could in theory convert that $7,000 into product and sell – rinse and repeat 7 times. Now from a reselling standpoint, I’m looking at roughly $10,290, if I’m really on my game.
So, if I understand this promotion correctly, its $281 for the CD, and somewhere north of $10,000 if I invest that money into reselling. Now, in theory, if you have infinite resources, or, at least have more float then you have the ability to procure products for resell, this could be an ok deal, but it commits you for 7 months, when there might be something better. Don’t get me wrong, a 7% risk free return is great. If I could put the entirety of my Roth IRA into that for the next 7 months (especially considering the election), I totally would, but, at a max of $7,000, the possible return is so limited that, I would argue, you must consider alternative options. I’ll offer one final counter point: While reselling could generate ~36x the return, there is a greater time commitment. That $7,000 in a CD is pretty much passive income, so you’re saving a lot more time. I still think, 36x is pretty impressive… it even exceeds the best cashback or miles/points return from eBags (which has historically had some high multipliers!).
So, are you sold on the 7% CD? Or will you utilize $7,000 of float (assuming you have that) differently? If so, how?