cd's from VG

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cd's from VG

Postby Wild Willie » Wed Dec 26, 2012 6:41 pm

I know a phone call to VG could probably answer this question, but they seem to be pretty busy today with year end stuff and since I was already perusing this forum, I thought I would ask the group.

The CD's that VG offers, are they new issues or do we purchase them on the secondary market? Just wondering.
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Re: cd's from VG

Postby JamesSFO » Wed Dec 26, 2012 7:01 pm

Both, you can filter your search to "new issue" only...
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Re: cd's from VG

Postby dm200 » Wed Dec 26, 2012 9:20 pm

Wild Willie wrote:I know a phone call to VG could probably answer this question, but they seem to be pretty busy today with year end stuff and since I was already perusing this forum, I thought I would ask the group.

The CD's that VG offers, are they new issues or do we purchase them on the secondary market? Just wondering.


You can get either one. New issues almost always are sold for par value, so the amount you pay is FDIC insured to $250,000 per issuing institution. There are significant differences in buying brokered CDs (as the ones from Vanguard are, and CDs issued by banks and credit unions directly to the purchaser.

1. Brokerd CDs can not be renewed, while directly issued ones almost always can.
2. You can not redeem the CD and take the penalty. You can offer the CD for sale on the secondary market and sell for market value, less the fee and the difference between buy and sell price. That difference, IMO, is significant.
3. If an issuing bank fails and the CD is paid by FDIC, you may lose "opportunity cost".
4. There is a few days delay between making the purchase and the settlement date.
5. if the issuing bank is taken over by another bank, you may have the CD redeemed or paid at a lower rate than what you received when issued.
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Re: cd's from VG

Postby Wild Willie » Thu Dec 27, 2012 11:03 am

DM200: I was planning on keeping the durations short so redemption prior to maturity shouldn't be a problem. I'm just trying to do better than the dismal return of money market funds for my short term cash. Are the returns of the cd's offered by VG competitive with banks or credit unions or should I explore that individually? Not interested in trying to set up an IRA with a bank or credit union just to squeeze out a couple of basis points, but if the difference is significant, it might be worth it. Just wondering. thanks
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Re: cd's from VG

Postby john94549 » Thu Dec 27, 2012 11:41 am

You can visit Ken Tumin's blog and compare rates: www.depositaccounts.com. Click on the "blog" tab, then scroll down for the post for the latest CD rates. Ken breaks it down by maturities and rates.

Generally speaking, it's difficult these days to find a palatable short-term option.. You might explore the short-term corporate bond fund (VFSTX), but you run into interest-rate risk. For CDs of a year or less, 1% (or thereabouts) is pretty much standard, which is not all that much more than a garden-variety savings account.
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Re: cd's from VG

Postby dm200 » Thu Dec 27, 2012 1:04 pm

Wild Willie wrote:DM200: I was planning on keeping the durations short so redemption prior to maturity shouldn't be a problem. I'm just trying to do better than the dismal return of money market funds for my short term cash. Are the returns of the cd's offered by VG competitive with banks or credit unions or should I explore that individually? Not interested in trying to set up an IRA with a bank or credit union just to squeeze out a couple of basis points, but if the difference is significant, it might be worth it. Just wondering. thanks


Sometimes the Vanguard brokered CDs are "competitive" and sometimes not. If you have less than the federally insured (NCUA or FDIC) amount, or can get the amount above that insured (joint accounts, beneficiaries, etc.) then I suggest trying to find a credit union that offers good rates on Certificates (as most credit unions are required to call "CDs"). Just make sure the credit union is federally insured by NCUA. Buying from a credit union or bank allows you to purchase the CD (or certificate) right away (no waiting for "settlement"), have automatic renewal (if you want it) and have options about frequency of interest and compounding. If you have a checking account at that credit union, you have good access to the funds via transfer at maturity.

The advantages of using Vanguard brokered CDs are that the funds are in the same place as mutual funds, etc. (if that is important) and that you can, in ONE place, have all CDs fully FDIC insured. I manage very conservative investments for an organization that currently holds well over what is NCUA or FDIC insured at one place. Organizations/corporations do not have the ownership options that individuals do that can multiply the FDIC/NCUA $250,000 coverage. Also, we have "internal control" requirements that make it better to have our funds in a limited number of places. It would (or could) be both inconvenient and less than fiscally sound for me to be buying a $50,000 CD from some bank in Montana one month, $75,000 from a bank in Puerto Rico the next and so on. Each bank or credit union may have very different ways of crediting the interest and the chances of things getting put of control (or appearing to get out of control) make the Vanguard Brokered CDs a good choice for us. I sure don;t want checks for interest flying through the mail! Because we are an "organization", getting CDs from all over the place would require "Corporate resolutions" and the like. At Vanguard, once set up, I am authorized (one ongoing resolution) to make such purchases without more paperwork. Vanguard also, once I adequately "explained" our independent audit annual requirements, is able to send the required "independent" statement (that does not go through my hands) to our Auditor. Several years ago, it took a while to find a FREE way to do this from Vanguard, since the first few folks I spoke with directed me to some department at vanguard that would have cost a fee and been very (overly so) formal. Finally I talked to a very "common sense" rep who said, "How about a copy of your month end statement being sent to the auditor?" . That works great once a year, and all I need to do is send a notarized letter of request to Vanguard and there is NO CHARGE!

The other very nice thing I like about dealing with Vanguard Brokerage Services for these CDs is that NO SALESMAN OR BROKER ever calls truing to "sell" me something. I get those pitches all the time, One brokerage outfit claimed to have better deals on brokered CDs, However, the sample rate sheets they sent me had almost all the very same CDs and rates that I can see online. A lot of brokers, as best I understand, want CD purchases to be at least $100,000. At Vanguard, you can get them for a minimum of only $10,000.
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Re: cd's from VG

Postby dandan14 » Thu Aug 15, 2013 6:44 pm

dm200 wrote:
Wild Willie wrote:I know a phone call to VG could probably answer this question, but they seem to be pretty busy today with year end stuff and since I was already perusing this forum, I thought I would ask the group.

The CD's that VG offers, are they new issues or do we purchase them on the secondary market? Just wondering.


You can get either one. New issues almost always are sold for par value, so the amount you pay is FDIC insured to $250,000 per issuing institution. There are significant differences in buying brokered CDs (as the ones from Vanguard are, and CDs issued by banks and credit unions directly to the purchaser.

1. Brokerd CDs can not be renewed, while directly issued ones almost always can.
2. You can not redeem the CD and take the penalty. You can offer the CD for sale on the secondary market and sell for market value, less the fee and the difference between buy and sell price. That difference, IMO, is significant.
3. If an issuing bank fails and the CD is paid by FDIC, you may lose "opportunity cost".
4. There is a few days delay between making the purchase and the settlement date.
5. if the issuing bank is taken over by another bank, you may have the CD redeemed or paid at a lower rate than what you received when issued.


Not sure if this thread is still monitored by the original posters, but can anyone explain DM200's 5th point. Is he saying that an acquiring bank may redeem all of the CDs of the acquired bank and pay par value? So that if you paid a premium to buy a high coupon CD on the secondary market, you may get burned a bit?
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Re: cd's from VG

Postby gerrym51 » Thu Aug 15, 2013 7:32 pm

Wild Willie wrote:DM200: I was planning on keeping the durations short so redemption prior to maturity shouldn't be a problem. I'm just trying to do better than the dismal return of money market funds for my short term cash. Are the returns of the cd's offered by VG competitive with banks or credit unions or should I explore that individually? Not interested in trying to set up an IRA with a bank or credit union just to squeeze out a couple of basis points, but if the difference is significant, it might be worth it. Just wondering. thanks



the rates offered from vanguard are competative with other brokers brokered cd's. they all get them from the same banks.

in some cases you can get better rates from online banks. and it is easier to break if rates go up. haveing said this in june i bought secondary cd from fidelity for a net 2.2 percent for a 5 year cd. I would never buy a brokered cd unless you are prepared to hold to maturity.
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Re: cd's from VG

Postby dandan14 » Thu Aug 15, 2013 10:34 pm

gerrym51 wrote:
Wild Willie wrote:DM200: I was planning on keeping the durations short so redemption prior to maturity shouldn't be a problem. I'm just trying to do better than the dismal return of money market funds for my short term cash. Are the returns of the cd's offered by VG competitive with banks or credit unions or should I explore that individually? Not interested in trying to set up an IRA with a bank or credit union just to squeeze out a couple of basis points, but if the difference is significant, it might be worth it. Just wondering. thanks



the rates offered from vanguard are competative with other brokers brokered cd's. they all get them from the same banks.

in some cases you can get better rates from online banks. and it is easier to break if rates go up. haveing said this in june i bought secondary cd from fidelity for a net 2.2 percent for a 5 year cd. I would never buy a brokered cd unless you are prepared to hold to maturity.



Right...clearly that is the biggest drawback and puts them on par with treasuries. However, I'm considering one I found today on the secondary market and just trying to understand the risks. This idea of the bank being acquired and redeeming CDs is a new one on me.

Anyone know what happens in that scenario?
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Re: cd's from VG

Postby dm200 » Thu Aug 15, 2013 10:36 pm

dandan14 wrote:
dm200 wrote:
Wild Willie wrote:I know a phone call to VG could probably answer this question, but they seem to be pretty busy today with year end stuff and since I was already perusing this forum, I thought I would ask the group.

The CD's that VG offers, are they new issues or do we purchase them on the secondary market? Just wondering.


You can get either one. New issues almost always are sold for par value, so the amount you pay is FDIC insured to $250,000 per issuing institution. There are significant differences in buying brokered CDs (as the ones from Vanguard are, and CDs issued by banks and credit unions directly to the purchaser.

1. Brokerd CDs can not be renewed, while directly issued ones almost always can.
2. You can not redeem the CD and take the penalty. You can offer the CD for sale on the secondary market and sell for market value, less the fee and the difference between buy and sell price. That difference, IMO, is significant.
3. If an issuing bank fails and the CD is paid by FDIC, you may lose "opportunity cost".
4. There is a few days delay between making the purchase and the settlement date.
5. if the issuing bank is taken over by another bank, you may have the CD redeemed or paid at a lower rate than what you received when issued.


Not sure if this thread is still monitored by the original posters, but can anyone explain DM200's 5th point. Is he saying that an acquiring bank may redeem all of the CDs of the acquired bank and pay par value? So that if you paid a premium to buy a high coupon CD on the secondary market, you may get burned a bit?


#5 - Yes, that is what can happen. It may (not sure of details) depend on the type of "takeover", but if you own a brokered CD from The Peoples' Bank of Kumquat , and it is taken over by Behemoth Bank -then Behemoth Bank could redeem the CD at par or unilaterally give the choice of a lower rate for the remainder of the term or redemption at par.
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Re: cd's from VG

Postby dandan14 » Fri Aug 16, 2013 8:06 am

dm200 wrote:#5 - Yes, that is what can happen. It may (not sure of details) depend on the type of "takeover", but if you own a brokered CD from The Peoples' Bank of Kumquat , and it is taken over by Behemoth Bank -then Behemoth Bank could redeem the CD at par or unilaterally give the choice of a lower rate for the remainder of the term or redemption at par.



Interesting. I don't know how to evaluate the risk of that...but it is probably with the same order of magnitude as a muni-bond failing. In other words, unlikely, but certainly not unheard of.

I suppose if I only stuck with new issues, that wouldn't be a risk, since I'd be buying at par. Too bad...I had my eye on a couple in the secondary marketing paying 2.5%.
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Re: cd's from VG

Postby dm200 » Fri Aug 16, 2013 2:57 pm

dandan14 wrote:
dm200 wrote:#5 - Yes, that is what can happen. It may (not sure of details) depend on the type of "takeover", but if you own a brokered CD from The Peoples' Bank of Kumquat , and it is taken over by Behemoth Bank -then Behemoth Bank could redeem the CD at par or unilaterally give the choice of a lower rate for the remainder of the term or redemption at par.



Interesting. I don't know how to evaluate the risk of that...but it is probably with the same order of magnitude as a muni-bond failing. In other words, unlikely, but certainly not unheard of.

I suppose if I only stuck with new issues, that wouldn't be a risk, since I'd be buying at par. Too bad...I had my eye on a couple in the secondary marketing paying 2.5%.


I manage funds for an organization and we have Vanguard brokered CDs as part of our investments. Several years ago, we had 4 banks go belly up (FDIC) that we had VBS CDs in. Several more lowered the rate because of takeovers. Has not happened in a while, though.
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Re: cd's from VG

Postby dandan14 » Fri Aug 16, 2013 3:07 pm

dm200 wrote:
dandan14 wrote:
dm200 wrote:#5 - Yes, that is what can happen. It may (not sure of details) depend on the type of "takeover", but if you own a brokered CD from The Peoples' Bank of Kumquat , and it is taken over by Behemoth Bank -then Behemoth Bank could redeem the CD at par or unilaterally give the choice of a lower rate for the remainder of the term or redemption at par.



Interesting. I don't know how to evaluate the risk of that...but it is probably with the same order of magnitude as a muni-bond failing. In other words, unlikely, but certainly not unheard of.

I suppose if I only stuck with new issues, that wouldn't be a risk, since I'd be buying at par. Too bad...I had my eye on a couple in the secondary marketing paying 2.5%.


I manage funds for an organization and we have Vanguard brokered CDs as part of our investments. Several years ago, we had 4 banks go belly up (FDIC) that we had VBS CDs in. Several more lowered the rate because of takeovers. Has not happened in a while, though.



Now that's interesting. When they went belly-up, what did the FDIC do? Did they close the CD immediately and pay any accrued interest? Was your loss limited the premiums you may have paid for any secondary market cds?
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