Just opened CD ladders at Fidelity and Vanguard

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dual
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Just opened CD ladders at Fidelity and Vanguard

Postby dual » Thu May 18, 2017 1:20 pm

In case you haven't noticed the rates on short term brokered CDs are now high enough so it is worth buying them. I just bought some one year CD ladders at Fidelity and Vanguard and compared the experiences.

Fidelity has an excellent CD ladder tool. You tell it the total amount you want to invest and the maximum term and it selects 4 CDs for you. You can then change any of them for example if you are going over the 250K limit on a particular bank. You can then order all the CDs with one click.

Vanguard had a ladder section on the CD buy page but I could not figure out how to use it. I ended up selecting and buying the four CDs individually. Much more painful experience than Fidelity. To top it all off, Fidelity had a better rate for the one year CD, 1.35% vs. 1.25%

Jack FFR1846
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby Jack FFR1846 » Thu May 18, 2017 1:23 pm

Ally is 1.35% for a year.

And 2.25% for 5 years with a 150 days of interest early withdrawal penalty. Was just looking today at a 5 year and noticed there's no minimum (well, at least it accepted $1000). I don't see an advantage of a brokered CD.

There are higher rates at other High Yield online banks by just a little, but with other restrictions.

Can you explain the characteristics of brokered CDs? I went and looked at Fidelity and got pretty scared at the fees and lack of early withdrawal information.
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Alan S.
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby Alan S. » Thu May 18, 2017 1:40 pm

An IRA CD owner with 6 CDs in a failed bank that just posted that the FDIC issued 6 separate distribution checks for these CDs. Not good, when you can only do ONE indirect rollover. The CD owner can escape disaster in that case by converting them all to a Roth within 60 days and then recharacterizing to TIRA.

Therefore, for IRA CDs one advantage of a brokered CD, especially for a Roth IRA CD where the above solution is not available, would be that any FDIC recovery checks would be payable to the IRA brokerage account and not trigger a 1099R.

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dual
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby dual » Thu May 18, 2017 3:17 pm

Jack FFR1846 wrote:Ally is 1.35% for a year.


Interesting. That is the rate offered on the one year brokered CDs at Fido

Can you explain the characteristics of brokered CDs? I went and looked at Fidelity and got pretty scared at the fees and lack of early withdrawal information.


They are CDs offered by regular banks when they need more cash than they can raise through their bricks and mortars offices. I used them during the go-go days of the housing bubble with banks teetering on solvency like Countrywide. If the bank goes bellyup, the FDIC steps in and you have your principal in a short time (a few days in my experience).

Fidelity quotes the rate to maturity, which includes their fees and other charges, so what you see is what you get.

If you need your money before they mature, you can try to sell them on the secondary market. The price you get as in any market depends on the rates at the time and the availability of buyers. If you hold to maturity, with the short term CDs I bought, you get your principal plus the interest. Buying a ladder reduces the chance of having to sell a CD before maturity.

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dual
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby dual » Thu May 18, 2017 3:27 pm

Jack FFR1846 wrote:I don't see an advantage of a brokered CD.


I buy them in my IRAs. Transferring the money between IRAs is a PITA and the quoted rate can go away before you complete the transfer. I did not check the Fido rates for longer term CDs but the short term rates are pretty good.

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friar1610
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby friar1610 » Thu May 18, 2017 3:32 pm

Just did a quick check of Navy Federal and PenFed 12 month rates.

NFCU: 1.25% (1.35% if > $100K
PenFed: 1.30
Friar1610

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EyeYield
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby EyeYield » Thu May 18, 2017 4:04 pm

I did the same yesterday. I found the one year CD ladder starting at 1% for three months going to 1.35% for twelve months to be compelling enough to stop procrastinating and rescue some of my cash from earning zero. Usually the rates, while staying in Fidelity, are not very competitive, but these rates seemed to be. I don't like chasing rates around and moving funds to various institutions.
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AlwaysBeClimbing
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby AlwaysBeClimbing » Thu May 18, 2017 7:34 pm

EyeYield wrote:I did the same yesterday. I found the one year CD ladder starting at 1% for three months going to 1.35% for twelve months to be compelling enough to stop procrastinating and rescue some of my cash from earning zero. Usually the rates, while staying in Fidelity, are not very competitive, but these rates seemed to be. I don't like chasing rates around and moving funds to various institutions.


Barclays is paying 1.05% on savings( had been at 1.00% for a long time), and Capital One 360 has been at .75% for years as well. No reason to accept zero on cash.

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dual
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby dual » Fri May 19, 2017 9:49 am

AlwaysBeClimbing wrote:
Barclays is paying 1.05% on savings( had been at 1.00% for a long time), and Capital One 360 has been at .75% for years as well. No reason to accept zero on cash.


The reason for the CD ladder is to have the cash available at a broker like Fidelity when I need it to invest. High interest (?? I can't believe I am saying 1% is high interest-doh) savings accounts like those you mention are not available at brokers.

musicDax
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby musicDax » Fri May 19, 2017 10:10 am

When thinking about these CD ladders, one other idea that I have had is to use the Vanguard Prime mutual money market vmmxx I am by far a newbie but it seems that gives aprox 1% return (apologies if i'm saying this inaccurate, sec yield vs plain return vs after tax analysis...) . Is the cd still better due to the cost of vmmxx (small but non zero) ? The return of the 1 year cd's are higher but not by much at all and with vmmxx money is completely liquid. Would appreciate comments on this thinking.

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dm200
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby dm200 » Fri May 19, 2017 10:12 am

They are CDs offered by regular banks when they need more cash than they can raise through their bricks and mortars offices.


Maybe or maybe not. Brokered CDs are issued by banks (all on Vanguard are FDIC insured). Banks do this for several reasons. With brokered CD offerings, the bank can be sure that they do not sell more CDs than they want.

AlwaysBeClimbing
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby AlwaysBeClimbing » Fri May 19, 2017 10:15 am

dual wrote:
AlwaysBeClimbing wrote:
Barclays is paying 1.05% on savings( had been at 1.00% for a long time), and Capital One 360 has been at .75% for years as well. No reason to accept zero on cash.


The reason for the CD ladder is to have the cash available at a broker like Fidelity when I need it to invest. High interest (?? I can't believe I am saying 1% is high interest-doh) savings accounts like those you mention are not available at brokers.


I can have money transferred to a broker in a couple of days, breaking CD's vs having a truly liquid account would make no sense for me. Your comments upthread seemed to indicate you value holding the CD's to maturity, not use them as a "money" fund. Anyway, whatever works for you.

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dual
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Re: Just opened CD ladders at Fidelity and Vanguard

Postby dual » Fri May 19, 2017 10:45 am

AlwaysBeClimbing wrote:
dual wrote:
AlwaysBeClimbing wrote:
I can have money transferred to a broker in a couple of days, breaking CD's vs having a truly liquid account would make no sense for me. Your comments upthread seemed to indicate you value holding the CD's to maturity, not use them as a "money" fund. Anyway, whatever works for you.


As mentioned above, this strategy is for an IRA. I have never been able to transfer one in a few days. For taxable accounts I also use a savings account at Alliant credit union.


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