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.