Large amount of CDs maturing....what to do?

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protagonist
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Large amount of CDs maturing....what to do?

Post by protagonist » Mon Jan 11, 2016 5:08 pm

Hi folks.

On Jan 16, I have a pile of 5-year Ally CDs maturing in a taxable account that amount to about 15-20% of my total portfolio.

I would like to flip these into new long-term CDs. The problem is, the Fed claims (for what it is worth) to plan to raise interest rates by approx. 1%/year for the next 3 years. I am retired and would really like my money to keep up with inflation.

The best quoted rates I can find now for CDs are in the 2-2.25% APY range, tops. I was hoping for another generous promo this January from Penfed but it never materialized.

So what should I do with all this money?

Put it in a 5 year CD at around 2% or a little better and just hope that inflation doesn't escalate?

Maybe keep it in my 1.06% APY online bank account for a few months and take a chance that within the near future a better CD will pop up?

I'm avoiding bonds.....I know some disagree with this strategy, but I want to know that I can at least preserve my principal, and I fear bonds have little room to go anywhere but down.

I do buy I-bonds to the max but that is limited.

Thanks in advance.

Twins Fan
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Re: Large amount of CDs maturing....what to do?

Post by Twins Fan » Mon Jan 11, 2016 5:16 pm

A 5 year CD ladder maybe?

I would tend to doubt the 1% per year deal.

Saw a headline the other day about possible lowering of rates and QE4... so, I don't think anything is known or set as far as that stuff.

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Re: Large amount of CDs maturing....what to do?

Post by lack_ey » Mon Jan 11, 2016 5:32 pm

If inflation is the concern, consider TIPS. And by that, I mean individual issues so you can save on the expense ratio and also because you have some kind of mental block around preserving principal. You don't even need to take on much term risk at all to get positive real returns (before taxes if applicable).

Based on market inflation expectations, the expected value of the best CDs is still probably higher, but you are taking inflation risk out of the picture (before taxes).

For reference, the market doesn't quite seem to buy the Fed's expected pace of FFR increases, predicting slower increases than that. As always, everybody will be wrong, just to different unknown degrees.

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Re: Large amount of CDs maturing....what to do?

Post by steadyeddy » Mon Jan 11, 2016 5:40 pm

I understand your hesitation because that's a huge chunk of your portfolio, but with CD's I think you just have to roll them over at the best available rates when the time comes and then consider breaking them if rates rise enough to justify it.

And keep in mind, we're talking about a fraction of a percent of interest difference between the right and wrong choice. If you hold stocks, this "CD timing risk" is meaningless compared to your equity risk.

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Flobes
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Re: Large amount of CDs maturing....what to do?

Post by Flobes » Mon Jan 11, 2016 7:18 pm

NASA Credit Union has a 49-month CD @2.3%.

CD rates are looking mighty bleak right now.

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Re: Large amount of CDs maturing....what to do?

Post by 123 » Mon Jan 11, 2016 7:27 pm

I wouldn't have such a large chunk of my portfolio in a single CD. Break it up to get more of a maturity ladder in your fixed income.
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protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Mon Jan 11, 2016 7:45 pm

Flobes wrote:NASA Credit Union has a 49-month CD @2.3%.

CD rates are looking mighty bleak right now.
Thanks!
Do you know the criteria for joining, or the early withdrawal penalty?

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Mon Jan 11, 2016 8:04 pm

Thank you all so far for your suggestions.
My thoughts:
re: TIPS: I have considered this, but I would not want to buy TIPS going out too far. I am 63 and do not want to take SS until I turn 70. If interest rates rise (as expected), I would be pretty much committed to either holding to maturity or sacrificing the inflation protection (their only purpose really) and potentially selling at a loss. I would consider a 5 year issue, but the next 5 year Fed. auction is not until April. I think CDs might be a better bet at this time.

re: 5 year CD ladder... What is the best way to set one up with a sudden load of cash now? I don't want to buy 1,2,3,4,5 yr CDs now because many would be at very low interest rates. It seems to me to make more sense to buy 5 year CDs (or at least those with the best yields) and generous EWPs, no? The reason I put so many eggs in one basket initially is that I had a lot of cash in my portfolio doing nothing 5 years ago, and the Ally CDs had a 3 month EWP at the time. I have other CDs maturing in 2021 in a taxable account and in 2017 and 2021 in a tax-deferred account.

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Mon Jan 11, 2016 8:17 pm

protagonist wrote:
Flobes wrote:NASA Credit Union has a 49-month CD @2.3%.

CD rates are looking mighty bleak right now.
Thanks!
Apparently, "A complimentary membership to the National Space Society (NSS) entitles you to join NASA FCU." That might be a fun society to join anyway, at least based on their name.

According to their website , EWP is essentially 180 days dividends in most cases, but if I read it correctly, dividends can be withdrawn without penalty, which appears to be a good feature.

"Withdrawal of funds from
your certificate account before maturity will result in the
loss of 180 days of dividends on the amount withdrawn.
If the funds withdrawn b`ring the balance below the
required minimum, the certificate must be redeemed
and 180 days of dividends will be forfeited. If the amount
withdrawn has been in the account less than 180 days, all
dividends on the amount withdrawn will be forfeited, and
if the term of the certificate is under 180 days, all dividends
will be forfeited. Penalties shall not be applied if the
withdrawal is made: (1) subsequent to the death of any
owner of the certificate account; or (2) as a result of the
voluntary or involuntary liquidation of the Credit Union; or
(3) pursuant to a mandatory (automated) withdrawal of
an Individual Retirement Account (IRA) required minimum
distribution (RMD). There are no penalties for withdrawing
dividends paid on the account. Upon renewal only the
dividends earned after the renewal date are available for
withdrawal without penalty."

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Re: Large amount of CDs maturing....what to do?

Post by fsrph » Mon Jan 11, 2016 8:29 pm

Flobes wrote:NASA Credit Union has a 49-month CD @2.3%.

CD rates are looking mighty bleak right now.
I have a cd maturing at Penfed this month too. In today's environment the NASA offer is a decent rate. If you wanted a shorter term supposedly Penfed is going to offer a 15 month 1.5% certificate during the 3rd week in January. When it matures rates should be higher but who knows? It's easier to keep your money at Penfed if the 15 month rate appeals to you. If you're interested I'd call Penfed now to make sure they'll be offering this cd. When my Penfed cd matures I'm leaning to putting 80% of if in the 15 month and 20% in Ally savings @1%.

Francis
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Re: Large amount of CDs maturing....what to do?

Post by alec » Mon Jan 11, 2016 9:53 pm

protagonist wrote:
re: 5 year CD ladder... What is the best way to set one up with a sudden load of cash now? I don't want to buy 1,2,3,4,5 yr CDs now because many would be at very low interest rates. It seems to me to make more sense to buy 5 year CDs (or at least those with the best yields) and generous EWPs, no? The reason I put so many eggs in one basket initially is that I had a lot of cash in my portfolio doing nothing 5 years ago, and the Ally CDs had a 3 month EWP at the time. I have other CDs maturing in 2021 in a taxable account and in 2017 and 2021 in a tax-deferred account.
Why are you only looking at 1-5 year cds. You've got 7 years to SS. Why not buy some CDs maturing in 3,4,5,6, and 7 years? Or some facsimile of that. I don't think you have to be that exact with this.
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dm200
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Re: Large amount of CDs maturing....what to do?

Post by dm200 » Mon Jan 11, 2016 10:01 pm

Hedge your bets and do a 5-7 year ladder - with equal amounts maturing each year. Then don't worry about it.

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Re: Large amount of CDs maturing....what to do?

Post by saltycaper » Tue Jan 12, 2016 1:39 am

I would break it up into chunks even if you go with the same term for all the money. This way you have the option to redeem a portion of the funds rather than the entire sum, if it's necessary/desirable to do an early withdrawal.

I myself am not too concerned about the 1% rise per year prediction. If that actually happens, stocks are probably doing pretty well--not necessarily, but good chance. And besides, just like some people find their portfolios decline a bit due to the effects of a rate increase, plenty of people miss out on yield by trying to anticipate the increase. I'd wager some people have "lost" more money on the latter than on the former.
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Re: Large amount of CDs maturing....what to do?

Post by psychoslowmatic » Tue Jan 12, 2016 8:12 am

This is my go-to for CD info:

https://www.depositaccounts.com/blog/

There's a rumor Penfed will have a new 1.51% 15 month CD offering on 1/23: https://www.depositaccounts.com/blog/20 ... 016.html#1

I would split it up into a few Ally 5 year CDs and plan to break some if it becomes cost effective later. Or wait for the Penfed thing, whichever has the higher return.

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happymob
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Re: Large amount of CDs maturing....what to do?

Post by happymob » Tue Jan 12, 2016 9:14 am

Not sure how much money we are talking about or where you are, but we have found that multiple local banks (in the Midwest) have been willing to change their normal terms (for large CDs) for us. We have been offered better than advertising rates and/or better than advertised early withdrawal penalties to place our money with them.

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Re: Large amount of CDs maturing....what to do?

Post by Lafder » Tue Jan 12, 2016 9:31 am

What rates are your current CDs ?

The rates you can get now are what they are. You are thinking about making changes based on what rates "might" do in the future.

I would be reluctant to lock all in at the same rate at once. But waiting for rates to rise, which they may or may not do, seems like a variation of market timing.

Have you calculated the difference in returns if you were to invest all at current rates, vs if CD rates rise by 1% even ? Or drop by 1% ? (It seems unlikely they will change by a whole percent, but it is easier to calculate)

If you have a huge portfolio, in which case these differences amount to a larger amount of money, it might make a significant $ difference. However, if you do have such a large portfolio, you are likely ok no matter what these CDs are at.

Can you calculate and list the $ differences so you can see how much it means in real dollars?

I would not hold all in cash when the CDs mature since you are missing on some returns that may cancel out the slightly higher rate if you wait ? months to invest.

lafder

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Re: Large amount of CDs maturing....what to do?

Post by mouses » Tue Jan 12, 2016 9:41 am

OP, I was in the same situation a few months ago. I transferred them into new 5 year CDs. You don't have to have those very long before the higher interest rate they earn offsets an early closing penalty compared to shorter term much lower rate CDs.

Greenwood credit union is offering 2.3% on five year CDs, and membership is open to anyone the last time I looked. There are a bunch of places offering 2-2.2% according to depositaccounts.com.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 12:37 pm

Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 1:29 pm

How about this approach?

-Keep $50K at Capitalone 360 for 3 months and earn 4% plus annualized, invest it in best CD in 3 months
-Invest $25K in I-bonds for 2016 ($10K in 2 accounts plus $5K tax reimbursement)
-Keep 75K in SFGI.com internet savings account at 1.06% for expenses
-Split the rest between:
Bank Gloucester 3 yr CD 2.17% APY 6 mo EWP
NASA FCU 49 mo CD 2.3% APY 6 mo EWP
Greenwood FCU 60 mo CD 2.3% APY 6 mo EWP

Or maybe skip Greenwood and just split between Bank Gloucester and NASA FCU? It's simpler.

Any better ideas?

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VictoriaF
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 1:31 pm

protagonist wrote:Any better ideas?
Infidelity Contrabandista Fund:
27% in one week
1350% (27 x 50) annual.

Victoria
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J295
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Re: Large amount of CDs maturing....what to do?

Post by J295 » Tue Jan 12, 2016 1:37 pm

CD ladder

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 1:38 pm

VictoriaF wrote:
protagonist wrote:Any better ideas?
Infidelity Contrabandista Fund:
27% in one week
1350% (27 x 50) annual.

Victoria
I'd be a lot happier if that was Fidelity's S+P 500 Spartan Index Fund.

What would you do if you were me? Sell SALT while the going is good? I never shorted a stock before. I'm just a bozo on this bus.

J295
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Re: Large amount of CDs maturing....what to do?

Post by J295 » Tue Jan 12, 2016 1:44 pm

y protagonist » Tue Jan 12, 2016 11:37 am

Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Thanks for this info. We keep a fair amount of cash at AMX Bank at 0.90%. Now, we can set up a couple of accounts (myself and spouse) at Capital One (0.75%) and pick up an extra $1,000. Appreciate the heads up.
Last edited by J295 on Tue Jan 12, 2016 1:49 pm, edited 1 time in total.

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VictoriaF
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 1:47 pm

protagonist wrote:
VictoriaF wrote:
protagonist wrote:Any better ideas?
Infidelity Contrabandista Fund:
27% in one week
1350% (27 x 50) annual.

Victoria
I'd be a lot happier if that was Fidelity's S+P 500 Spartan Index Fund.

What would you do if you were me? Sell SALT while the going is good? I never shorted a stock before. I'm just a bozo on this bus.
I have no idea; take everything I write with a grain of SALT.

Back to your original question, your 5-year plan looks good. The 4-year plan without Greenwood is even better. Note that you will need $25k for I Bonds every year.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 1:53 pm

VictoriaF wrote: Back to your original question, your 5-year plan looks good. The 4-year plan without Greenwood is even better. Note that you will need $25k for I Bonds every year.

Victoria
Yeah, that's a bit of a problem....keeping more money liquid at low interest rates just so that I can buy I-bonds. For that reason I skipped I-bond purchase in 2013 and 2014. I usually get somewhere around $30K or so in interest and dividends and CG distributions every year and if I am lucky another $15K or so in seasonal rents. Keeping more liquid cash at low rates for 3 years just so that I can guarantee annual I-bond purchases somehow doesn't seem like a great idea to me.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 2:08 pm

Or better......

Instead of $75K in SFGI online savings at 1.06% and 50K at Capitalone 360 at ~4% APY for 3 months to subsequently invest in a CD, maybe I should only put $25K in SFGI now and then just move my 50K from Capitalone to SFGI in 3 months for expenses? And have 50K more to invest in CDs now?

CD rates may rise in 3 months, but that would give me 3 months more for $50K invested at 2.17-2.3% rates instead of 1.06% rates.

Plus I can use my time and brain power (?!) for something better than once again searching CD rates in April.

Thoughts?
Last edited by protagonist on Tue Jan 12, 2016 2:14 pm, edited 2 times in total.

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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 2:11 pm

protagonist wrote:
VictoriaF wrote: Back to your original question, your 5-year plan looks good. The 4-year plan without Greenwood is even better. Note that you will need $25k for I Bonds every year.

Victoria
Yeah, that's a bit of a problem....keeping more money liquid at low interest rates just so that I can buy I-bonds. For that reason I skipped I-bond purchase in 2013 and 2014. I usually get somewhere around $30K or so in interest and dividends and CG distributions every year and if I am lucky another $15K or so in seasonal rents. Keeping more liquid cash at low rates for 3 years just so that I can guarantee annual I-bond purchases somehow doesn't seem like a great idea to me.
These decisions are full of speculation, i.e., what the Fed will do and when, how banks will respond, will there be other offers similar to CapitalOne's, and alike. Five years from now you will know the answer; but you don't know and can't know it today.

I like I Bonds, because they protect me from inflation in the long run, are not taxable at the state level, and do not produce annual taxable income. It's not necessary to live solely off the investment income; a better approach is to focus on the overall assets, taxes, and long-term strategies.

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 2:17 pm

VictoriaF wrote: I like I Bonds, because they ...do not produce annual taxable income.
Victoria
For that reason would you recommend buying your 2016 allocation of I-bonds in January rather than later in the year, to avoid paying the taxes on interest?

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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 2:22 pm

protagonist wrote:Instead of $75K in SFGI online savings at 1.06% and 50K at Capitalone 360 at ~4% APY for 3 months to subsequently invest in a CD, maybe I should only put $25K in SFGI now and then just move my 50K from Capitalone to SFGI in 3 months for expenses? And have 50K more to invest in CDs now?
This approach is not bad either--based on what we know today. If you do this, I would suggest putting the extra $50k into the 3-year CD rather than 4-year one. You'll be wasting your time and brain power in 3 years anyway, and to me 2.17% for 3 years looks better than 2.3% for 4 years.

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 2:26 pm

protagonist wrote:
VictoriaF wrote: I like I Bonds, because they ...do not produce annual taxable income.
Victoria
For that reason would you recommend buying your 2016 allocation of I-bonds in January rather than later in the year, to avoid paying the taxes on interest?
I would, and I will be buying my own I Bonds at the end of January. Note that now I Bonds have a non-zero fixed rate which is more likely than not to drop back to zero later in the year.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 4:47 pm

VictoriaF wrote:
protagonist wrote:
VictoriaF wrote: I like I Bonds, because they ...do not produce annual taxable income.
Victoria
For that reason would you recommend buying your 2016 allocation of I-bonds in January rather than later in the year, to avoid paying the taxes on interest?
I would, and I will be buying my own I Bonds at the end of January. Note that now I Bonds have a non-zero fixed rate which is more likely than not to drop back to zero later in the year.

Victoria
Why do you suspect the I-bond rate will drop back to zero? (curious)
I will do the same, once I get the funds from my Ally CDs. I got an email from them and it appears that the dates of maturity on my 5 Ally CD accounts are scattered between Jan 19 and Jan 28. That is weird, since I thought I opened them all on Jan 16, 2011. Perhaps it took varying times for the funds to transfer and the new accounts to open.
Thanks for your recommendations. Much appreciated.

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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 4:57 pm

protagonist wrote:
VictoriaF wrote:
protagonist wrote:
VictoriaF wrote: I like I Bonds, because they ...do not produce annual taxable income.
Victoria
For that reason would you recommend buying your 2016 allocation of I-bonds in January rather than later in the year, to avoid paying the taxes on interest?
I would, and I will be buying my own I Bonds at the end of January. Note that now I Bonds have a non-zero fixed rate which is more likely than not to drop back to zero later in the year.

Victoria
Why do you suspect the I-bond rate will drop back to zero? (curious)
Here is a link to I Bonds' historic returns (scroll all the way down). Since 2010, the fixed rate was mostly 0%.

protagonist wrote:...Thanks for your recommendations. Much appreciated.
You are making me nervous. I am not recommending, I am bouncing ideas and hoping that someone will set me straight.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 12, 2016 5:08 pm

VictoriaF wrote:
protagonist wrote:
VictoriaF wrote:
protagonist wrote:
VictoriaF wrote: I like I Bonds, because they ...do not produce annual taxable income.
Victoria
For that reason would you recommend buying your 2016 allocation of I-bonds in January rather than later in the year, to avoid paying the taxes on interest?
I would, and I will be buying my own I Bonds at the end of January. Note that now I Bonds have a non-zero fixed rate which is more likely than not to drop back to zero later in the year.

Victoria
Why do you suspect the I-bond rate will drop back to zero? (curious)
Here is a link to I Bonds' historic returns (scroll all the way down). Since 2010, the fixed rate was mostly 0%.

protagonist wrote:...Thanks for your recommendations. Much appreciated.
You are making me nervous. I am not recommending, I am bouncing ideas and hoping that someone will set me straight.

Victoria
OK. Let me re-word that. Thank you for your wisdom. I don't let others do my thinking for me. (That includes John Bogle et al) But I listen to smart and knowledgeable people, and you are smart and knowledgeable.

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Re: Large amount of CDs maturing....what to do?

Post by Aptenodytes » Tue Jan 12, 2016 5:20 pm

I'd think the question is not answerable without knowing the rest of your situation. Are you still accumulating? If so, when do you start withdrawing? What is you withdrawal strategy -- how do these CDs fit into that picture?

If you are starting to withdraw sometime soon, then consider building a ladder with some of these funds to generate CDs that meet some or all of your annual spending needs in the short term.

But I don't know the details and the details matter.

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Re: Large amount of CDs maturing....what to do?

Post by john94549 » Tue Jan 12, 2016 9:10 pm

OP, while building a five-year ladder of 5-yr CDs "from scratch" with 1,2,3,4 and 5-yr CDs does exert a drag on yield in the first four years, some have found it acceptable. By definition, once years 1 - 4 have matured and all the CDs are 5-year (i.e., the ladder is filled and rolling), the "drag" is eliminated. In a rising-rate environment (my goodness, I'd almost forgotten the phrase), you might like the periodic rolling of each rung, as opposed to a break strategy. As we all know, EWPs can change, and early withdrawals can get complicated. For example, some institutions allow partial breaks, others don't.

Stated another way, don't dismiss the option of the 1,2,3,4 and 5-year build-out. In all likelihood, the drag on yield in the first four years will amount to a rounding error in retirement. As I've noted in other threads, the most important thing is to have the five-year ladder. How one builds it is of less import.

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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Tue Jan 12, 2016 11:13 pm

protagonist wrote:Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Take a look at the Reward Checking at Consumer Credit Union, http://www.myconsumers.org/personal/checking . Right now it's paying up to 5% APY for up to $20k, which on 1 Feb 2016 will drop to 4.5% http://www.myconsumers.org/personal/che ... pdate.html

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 13, 2016 9:19 am

VictoriaF wrote:
protagonist wrote:Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Take a look at the Reward Checking at Consumer Credit Union, http://www.myconsumers.org/personal/checking . Right now it's paying up to 5% APY for up to $20k, which on 1 Feb 2016 will drop to 4.5% http://www.myconsumers.org/personal/che ... pdate.html

Victoria


Reward checking strikes me as a huge pain in the %#^$&%. And the deposit limits are low so gains are very limited.. I like money, but I don't like it THAT much.

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 13, 2016 9:20 am

VictoriaF wrote:
protagonist wrote:Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Take a look at the Reward Checking at Consumer Credit Union, http://www.myconsumers.org/personal/checking . Right now it's paying up to 5% APY for up to $20k, which on 1 Feb 2016 will drop to 4.5% http://www.myconsumers.org/personal/che ... pdate.html

Victoria


Reward checking strikes me as a huge pain . And the deposit limits are low so gains are very limited.. I like money, but I don't like it THAT much.
Last edited by protagonist on Wed Jan 13, 2016 9:21 am, edited 1 time in total.

Valuethinker
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Re: Large amount of CDs maturing....what to do?

Post by Valuethinker » Wed Jan 13, 2016 9:21 am

protagonist wrote:Hi folks.

On Jan 16, I have a pile of 5-year Ally CDs maturing in a taxable account that amount to about 15-20% of my total portfolio.

I would like to flip these into new long-term CDs. The problem is, the Fed claims (for what it is worth) to plan to raise interest rates by approx. 1%/year for the next 3 years. I am retired and would really like my money to keep up with inflation.

The best quoted rates I can find now for CDs are in the 2-2.25% APY range, tops. I was hoping for another generous promo this January from Penfed but it never materialized.

So what should I do with all this money?

Put it in a 5 year CD at around 2% or a little better and just hope that inflation doesn't escalate?

Maybe keep it in my 1.06% APY online bank account for a few months and take a chance that within the near future a better CD will pop up?

I'm avoiding bonds.....I know some disagree with this strategy, but I want to know that I can at least preserve my principal, and I fear bonds have little room to go anywhere but down.

I do buy I-bonds to the max but that is limited.

Thanks in advance.
5 year CD ladder is probably your best bet.

If interest rates rise you won't lose much. If they fall, you will win (by a relatively small amount).

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 13, 2016 9:29 am

Valuethinker wrote: 5 year CD ladder is probably your best bet.

If interest rates rise you won't lose much. If they fall, you will win (by a relatively small amount).
Thanks, VT.
I realize this is a modified version of a 5 year CD ladder, but what do you think of my proposed plan above? I should add I already own CDs at 3% APY maturing in 5 years. In summary, I am thinking about adding 3 and 4 year CDs (at 2.17% and 2.3% respectively), and placing the rest in high yield savings plus I-bonds- the savings for the purpose of expenses (should last 3 years, though if interest rates rise dramatically or if I was desperate for cash-the latter being unlikely- I would break some of the CDs).
Last edited by protagonist on Wed Jan 13, 2016 9:58 am, edited 1 time in total.

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VictoriaF
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Wed Jan 13, 2016 9:49 am

protagonist wrote:
VictoriaF wrote:
protagonist wrote:Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Take a look at the Reward Checking at Consumer Credit Union, http://www.myconsumers.org/personal/checking . Right now it's paying up to 5% APY for up to $20k, which on 1 Feb 2016 will drop to 4.5% http://www.myconsumers.org/personal/che ... pdate.html

Victoria


Reward checking strikes me as a huge pain . And the deposit limits are low so gains are very limited.. I like money, but I don't like it THAT much.
I agree about a huge pain; and for the record, I am ignoring MS opportunities involving opening new bank accounts.

But since you were exploring the 3-month CapitalOne option, I thought you might want to consider this one, too. You could put in $20k for a year to pay for the next year I Bonds. Even if you are not interested, other people reading this thread who might find it worth their effort.

Victoria
Last edited by VictoriaF on Wed Jan 13, 2016 9:54 am, edited 1 time in total.
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protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 13, 2016 9:53 am

VictoriaF wrote:
protagonist wrote:
VictoriaF wrote:
protagonist wrote:Here is one decent alternative for parking $50K for 3 months: https://home.capitalone360.com/lp-savingsbonus500

$500 bonus on 50K in 3 months is equivalent to 4% annual if you cancel your account in 3 months. Officially the offer expires on 2/29/16, but who knows? If they extend it, maybe you can cancel and re-apply (laughing).
Take a look at the Reward Checking at Consumer Credit Union, http://www.myconsumers.org/personal/checking . Right now it's paying up to 5% APY for up to $20k, which on 1 Feb 2016 will drop to 4.5% http://www.myconsumers.org/personal/che ... pdate.html

Victoria


Reward checking strikes me as a huge pain . And the deposit limits are low so gains are very limited.. I like money, but I don't like it THAT much.
I agree about a huge pain; and for the record, I am ignoring MS opportunities involving opening new bank accounts.

But since you were exploring the 3-month CapitalOne option, I thought you might want to consider this one, too. You could put in $20k for a year to pay for the next year I Bonds. Even if you are not interested, there other people reading this thread who might find it worth their effort.

Victoria
I'm not, but I agree that others might be, so thanks for posting.
The Capitalone option seems pretty simple, and the deposit limits are much higher. (Easier than, say, opening up a new credit card for a 50K point bonus and meeting spending requirements. We do that all the time.)

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Re: Large amount of CDs maturing....what to do?

Post by UncleBen » Wed Jan 13, 2016 10:03 am

I have some of the 49 month 2.3% special CD's at NASA. They are very easy to join. You just pay $5 to join the space organization. They also have a 15 month special at 1.3%.

Harder to join is the NAVYFCU but their specials are better.
30 months 2.5%
20 month IRA 2.0%
12 month 3K max 3.0%
If you have a very close relative who is a member they can sponsor your membership (like a sibling, parent, child). Even if you break the 30 month CD in 12 months 1.25% isn't a bad return compared to current money market and savings accounts.

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patrick013
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Wed Jan 13, 2016 4:32 pm

Here's what I'm going to try to do in a couple months.

1 year expenses in a bank MM account over 1%
1 year expenses in a 1 year CD ELoan or Everbank.
1 year expenses in a 2 year CD.
Everything else investable in a 3 year CD.

When these mature should go up to a 5 year ladder with most
money in the 5 year CD.

If I used a credit union I'd have to join of course and I'd have several
accounts when rates change. Nothing local also, so I probably just
use ELoan or Everbank.
age in bonds, buy-and-hold, 10 year business cycle

protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 13, 2016 5:00 pm

patrick013 wrote:Here's what I'm going to try to do in a couple months.

1 year expenses in a bank MM account over 1%
1 year expenses in a 1 year CD ELoan or Everbank.
1 year expenses in a 2 year CD.
Everything else investable in a 3 year CD.

When these mature should go up to a 5 year ladder with most
money in the 5 year CD.

If I used a credit union I'd have to join of course and I'd have several
accounts when rates change. Nothing local also, so I probably just
use ELoan or Everbank.
Why would you not go longer on your CDs now? With 6 month EWPs, they would probably still compete well or exceed the returns of your shorter issues if you had to, or wanted to, break them after a year or two. And if interest rates remain low they will perform better in the long run. You can get online bank accounts that perform almost as well as the best 1 year CDs.

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patrick013
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Wed Jan 13, 2016 5:36 pm

protagonist wrote:
patrick013 wrote:Here's what I'm going to try to do in a couple months.

1 year expenses in a bank MM account over 1%
1 year expenses in a 1 year CD ELoan or Everbank.
1 year expenses in a 2 year CD.
Everything else investable in a 3 year CD.

When these mature should go up to a 5 year ladder with most
money in the 5 year CD.

If I used a credit union I'd have to join of course and I'd have several
accounts when rates change. Nothing local also, so I probably just
use ELoan or Everbank.
Why would you not go longer on your CDs now? With 6 month EWPs, they would probably still compete well or exceed the returns of your shorter issues if you had to, or wanted to, break them after a year or two. And if interest rates remain low they will perform better in the long run. You can get online bank accounts that perform almost as well as the best 1 year CDs.
I just requested EWP info from E-Loan and Everbank. So I may go with a 5 year CD
rather than a 3 year as the longest. The 5 year does look better if I break it after
2 years and forget the 2 year CD completely. Need info from Everbank then.

The highest Savings rate I can find is 1.14% at Incredible Bank. Everbank is:

EverBank 5 Year CD 2.35%
EverBank 3 Year CD 1.85%
EverBank 2 Year CD 1.52%
EverBank 1 Year CD 1.30%
age in bonds, buy-and-hold, 10 year business cycle

mule
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Re: Large amount of CDs maturing....what to do?

Post by mule » Wed Jan 13, 2016 6:48 pm

Interesting advise but I may have made a mistake.

In early Dec. I had a Cd come due. I decided to put about 150K in market funds and spread them out to 5 different funds. This money I will not need for many years but I am a little nervous myself. It is possible I may never need them but I have a lot of money in stock and will need to at some time adjust these funds. I will wait till things start to get better. I am 59 years of age.

If you had many years to leave this money would you be that concerned?? Thanks

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Wed Jan 13, 2016 6:51 pm

I actually published a blog post on this topic last October: What To Do With Maturing CDs?.

Be sure to set up your CDs at Ally to roll into your savings account at maturity. You can now do this online (for taxable CDs); I also published a blog post on how to do this.

Patelco credit union now is offering a 5-year CD at 2.5% APY with EWP of 180 days of interest. Very good if you can qualify for membership. Used to be easy to qualify, but now not as much, but at least check it out. I already have IRA CDs there earning 2.5% or else I'd transfer at least some proceeds from a recently matured PenFed CD there.

Synchrony Bank 5-year CD is 2.25% with EWP of 180 days of interest. This rate has been very steady for some time. Ditto for Barclays Bank.

I also have had most of my taxable CDs at Ally mature recently. I would not renew CDs at Ally now, especially taxable, since you can easily get a better rate elsewhere, and moving money in taxable accounts is super easy.

I did the CapitalOne360 savings account thing with $50K, and also did $10K each in Synchrony Bank and Discover Bank savings for the bonuses, viewing these as 60-day or 90-day CDs with super good rates. I also used some of the proceeds from matured Ally CDs to add to the Northwest Federal Credit Union 3-year add-on 3% CD, but of course that is no longer available.

I also have used some of the proceeds from the matured Ally CDs to partially rebalance back to allocation targets for stocks--mostly adding to international. I probably will do some more of that--maybe enough that I won't have much if any left to go into more CDs in taxable.

As you may know, I generally favor sticking with good 5-year direct CDs with low EWPs in preference to a ladder, and you clearly understand the reason why.

You may also want to consider just waiting a few more weeks to see if some really outstanding CD deals pop up, like the NWFCU 3-year 3% we saw last October. Or proceed with some of the already mentioned alternatives with some, and hold some back for a few weeks in case a really good deal comes along.

Kevin
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patrick013
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Wed Jan 13, 2016 7:43 pm

Yeah, these credit unions are either very local or require active
transaction accounts for membership. Still take a few days to
get the EWP info but it looks like the following so far:

1 year expenses in Savings 1.25 %
1 year CD 1.30%
Four 5 year CD's at 2.35 % each at Everbank (if EWP is low)
age in bonds, buy-and-hold, 10 year business cycle

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 14, 2016 12:40 pm

patrick013 wrote:Yeah, these credit unions are either very local or require active
transaction accounts for membership.
Not sure exactly what you're referring to, but some credit unions are easy to join regardless of where you live, and do not require any active transactions. I have joined several just to buy CDs, and my only activity is to log on every few months to download a statement. A typical way to qualify for membership is to join some organization for a nominal one-time fee.

Patelco CU was easy to join until about a year ago, and requires no active transactions; I have IRA CDs there, and do no transactions. Although membership is restricted, it is not "very local", as residents of 150 Northern California cities, 10 California counties, and employees of over 1,100 companies (or members of certain organizations) are eligible to join. I would at least give them a call to see if you are a member of or could join any organizations to qualify for membership. As I recall, when I called about eligibility, the rep told me not to worry--they'd figure out a way (but this was more than one year ago, before they tightened up membership eligibility).
Four 5 year CD's at 2.35 % each at Everbank (if EWP is low)
According to DepositAccounts, EWP is 1/4 of total interest if principal had been left to maturity, so for a 5-year CD, that would be 1.25 years of interest; not what I'd call low, and is the reason I've avoided Everbank CDs. You can find EWPs and other details for 5-year CDs here: 5 Year CD Rates - Compare rates on 5 year certificates of deposit. (click on Details for the CD of interest).

Kevin
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