For Those Who Purchased Ally No Penalty CD's in Dec/Jan

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For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MikeG62 » Tue May 01, 2018 7:38 am

I purchased a number of Ally no-penalty CD's back in early January (at 1.75% rate) for the cash or very short end of my fixed income exposure.

As there are now many options available to earn more than 1.75%, I am thinking about closing/rolling some of those CD's into higher yielding (short-term) cash/fixed income investment options (or beginning to do that and selectively closing additional CD's going forward, if and when, short-term rates continue to increase). I am wondering what others are doing, if anything, with their Ally no-penalty CD's?

Some current options for higher yield include...

Short-term CD's. A few recent examples:

Ally 9 (12) month CD currently at 2.0% (2.10%)
Marcus Bank 12 month CD currently at 2.20%
Many brokered CD's available with similar rates

Treasuries:

6 month current yield of 2.03%
12 month at 2.25%

Agency bonds

What are others doing, if anything, with their Ally no-penalty CD's in light of the current higher yielding short-term investment options for their cash (or the very short end of their fixed income exposure)?
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by 123 » Tue May 01, 2018 10:07 am

I recently closed one of our Ally Bank No Penalty CD's that paid 1.75% (opened in December I believe) and moved the funds to a brokerage account where I could place it in Treasuries (no state income tax) or brokered CDs (depending on rates). I noticed that Ally Bank had dropped the interest rate on the new No Penalty CD's to 1.50% (at least as of yesterday).
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by fortfun » Tue May 01, 2018 10:12 am

Following. I have 2...

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by TLB » Tue May 01, 2018 10:28 am

Last week I closed 4 no penalty CD’s from Ally Bank. I have been following Kevin’s thoughts for parking some cash in Vanguard VCTXX Ca Muni MM. I really don’t need to add interest income right now.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tenkuky » Tue May 01, 2018 10:32 am

I use the Ally no-penalty 11-mo CD as liquid cash (since it is after the first week of opening) and don't want to lock the money in for any period for around 20 bps. I will move it if a consistent savings/money market is at least 2%
Just MHO.
I do need to up my taxable muni bond ETF allocation so you've given me some reason to consider liquidating.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by indexonlyplease » Tue May 01, 2018 10:34 am

I have 3 Ally cd's. One 5 year paying 2.5 percent and 2 12 month paying 2 percent. This is my large emergency fund that I don't want to put in the market now. Just trying to keep up with inflation for now.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Darth Xanadu » Tue May 01, 2018 11:20 am

I have the 1.75% no penalty CD, and I'm keeping mine for now. The reasons are:

1) I don't want to lock that money up in a regular CD since this is the bulk of my Emergency Fund
2) I'm planning on purchasing $10k of I-Bonds in the next few months which will further lock up some of my liquid savings
3) My cash position will look better in the next 4-6 months, which is when my CD matures anyway (Nov) at which time I will re-evaluate options.

Side note, I wasn't really thinking and bought one CD instead of buying multiple with the minimum investment to get the top rate (I think $25k); not a huge deal but in the future I won't make this mistake as it somewhat limits flexibility.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by sperry8 » Tue May 01, 2018 11:23 am

tenkuky wrote:
Tue May 01, 2018 10:32 am
I use the Ally no-penalty 11-mo CD as liquid cash (since it is after the first week of opening) and don't want to lock the money in for any period for around 20 bps. I will move it if a consistent savings/money market is at least 2%
Just MHO.
I do need to up my taxable muni bond ETF allocation so you've given me some reason to consider liquidating.
I broke one and moved it to Popular Direct MM which offers 2% APY.

I broke another and moved to Vanguard where I can invest in the Muni MM and Prime MM both of which are higher than 1.75%.

All 3 are liquid and have higher returns.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by boglefannyc » Tue May 01, 2018 11:57 am

This depends on your tax bracket. My fed marginal bracket is 22% and state + local is 9.66% which makes treasuries attractive for me. I broke my Ally CD for 6 month treasuries @ 1.95% and they have gone a little higher since. At the end of May, I will break another to purchase an I Savings Bond and more treasuries. As mentioned, look for Kevin M's recent posts on tax equivalent yield.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by z91 » Tue May 01, 2018 12:54 pm

I had two @ 1.75% and moved them all to Purepoint for the same rate. It's the same thing since the liquidity is equal, but I wanted to consolidate my funds. This saves me a lot of time as I no longer have to login to Ally and Purepoint to check my money, and this allowed me to do so.

There is always the risk that the Purepoint rate goes down, but seeing how savings accounts are doing nowadays it was worth the risk to me.

Lots of options out there, unless you got in with Ally @ 2% (was there for a week IIRC), which I would have kept.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by 123 » Tue May 01, 2018 2:07 pm

(I posted previously in this thread). Though I broke one No Penalty CD for a higher rate elsewhere we still hold another at Ally as well as a savings account there. I'm getting a little concerned about the Ally Bank 11-month No Penalty CD product. Their current rate for $25K+ is only 1.50% but they offer 2.10% for 12-month CD, of course the 12-month CD has an EWP. So I'm beginning to think the No Penalty CD as a product may have run it's course at Ally. I do like Ally and their website really makes things easy. I would rather keep more at Ally for diversity in holdings but I hate to pass up a significantly higher rate elsewhere (whether it's worthwhile depends on the account balance).
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by radiowave » Tue May 01, 2018 2:33 pm

I wound up getting the 2% one year CDs at Ally in Dec so makes sense to hold them to the end of the year. The no EWP CDs are the same rate as the 1.50% savings right now so there is no perceived benefit going that route at this time. Note: for the last couple years, Ally seems to have some very good CD offerings in December, so you may want to be in a position if that comes around again at the end of 2018.

Agree with posts above, Kevin M has some excellent posts recently on TEY treasury bills vs. CDs.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MikeG62 » Tue May 01, 2018 3:11 pm

radiowave wrote:
Tue May 01, 2018 2:33 pm

...Agree with posts above, Kevin M has some excellent posts recently on TEY treasury bills vs. CDs.
I have seen many of Kevin M's posts. He's a bright guy and strong contributor to these boards.

By way of background, I early retired three years ago (55 now). DW and I have no pension and are drawing nothing from tax deferred accounts - we are living off our taxable accounts (combination of dividends on equities, interest on fixed income (mostly muni's) and cash). So our margin tax rates (both Federal and state) are quite low. As a result, muni MM accounts (as an alternative to online savings accounts or CD's) aren't as attractive to me as they are to others (or used to be for me).

I did buy a 12 month AAA rated agency bond through Fidelity yesterday with a yield of approximately 2.25%. In looking at other current investment options, I got to thinking about why I am continuing to hold a sizable position in the Ally no-penalty CD's (yielding only 1.75%). They were compelling investments last year for excess cash (and the very short end of our fixed income asset allocation). I always knew they were temporary and once interest rates normalize (whatever that means or is) other investments would be more attractive. After all, prior to 2008, I owned no CD's and my excess cash was mostly in muni MM funds. However, recent actions by the Fed seem to have made lots of other investments similarly compelling (various MM accounts) and many investments more attractive (traditional CD's, Treasuries and Agency bonds). So this got me wondering if others have been having the same thoughts.

I do get that its facts and circumstances dependent. For those who need or want immediate access to their cash, committing to 12+ month CD's or Treasuries or Agency bonds is a non-starter. However, there are others out there like me who can tie up the funds for a period of time and I was wondering what those folks are doing.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by j0nnyg1984 » Tue May 01, 2018 4:26 pm

I cracked mine a few weeks ago, added another 10k, and locked it up into a Capital One 12 month CD paying 2.1%. I really didn't want to lock up the money for a year, but it's only a 3 month penalty if for some reason I needed that money.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by radiowave » Tue May 01, 2018 8:21 pm

MikeG62 wrote:
Tue May 01, 2018 3:11 pm
. . .
I did buy a 12 month AAA rated agency bond through Fidelity yesterday with a yield of approximately 2.25%. In looking at other current investment options, I got to thinking about why I am continuing to hold a sizable position in the Ally no-penalty CD's (yielding only 1.75%). They were compelling investments last year for excess cash (and the very short end of our fixed income asset allocation). I always knew they were temporary and once interest rates normalize (whatever that means or is) other investments would be more attractive. After all, prior to 2008, I owned no CD's and my excess cash was mostly in muni MM funds. However, recent actions by the Fed seem to have made lots of other investments similarly compelling (various MM accounts) and many investments more attractive (traditional CD's, Treasuries and Agency bonds). So this got me wondering if others have been having the same thoughts.

I do get that its facts and circumstances dependent. For those who need or want immediate access to their cash, committing to 12+ month CD's or Treasuries or Agency bonds is a non-starter. However, there are others out there like me who can tie up the funds for a period of time and I was wondering what those folks are doing.
I've been changing our short term strategy, from 1 year CDs to 6 mo to 1 yr T-Bills in taxable account. With the state tax discount, 1 year T-Bills are a better choice right now for us. Our primary is to bulk up short term assets for planned retirement and move to LCOL retirement home in 3-5 years. So the T-Bills fit our investment strategy. If I were 10+ years to retirement, I would likely be investing in total stock funds, e.g. VTSAX in our taxable account.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tenkuky » Tue May 01, 2018 8:52 pm

sperry8 wrote:
Tue May 01, 2018 11:23 am
tenkuky wrote:
Tue May 01, 2018 10:32 am
I use the Ally no-penalty 11-mo CD as liquid cash (since it is after the first week of opening) and don't want to lock the money in for any period for around 20 bps. I will move it if a consistent savings/money market is at least 2%
Just MHO.
I do need to up my taxable muni bond ETF allocation so you've given me some reason to consider liquidating.
I broke one and moved it to Popular Direct MM which offers 2% APY.

I broke another and moved to Vanguard where I can invest in the Muni MM and Prime MM both of which are higher than 1.75%.

All 3 are liquid and have higher returns.
What would be a muni mm fund rate to be equivalent or better to the 1.75% rate of the 11-mo Ally CD? I have not considered them as cash vehicles but I will now. I have my taxable with Schwab and the current rate is 1.42% for the investor shares.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by BlackcatCA » Wed May 02, 2018 12:56 am

If your federal rate is 22% or above, TEY of many muni mm funds are greater than 1.8% now. If you have state income tax, TEY is even higher/better.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by UncleLeo » Wed May 02, 2018 1:40 am

Am I understanding this correctly:
If one is:
1. At 33% federal tax bracket; and
2. Living in Cali; and
3. The funds are in a taxable account; and
4. Liquidity is a requirement

Then a CA Muni MM (VCTXX) is the best option ?

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by ivk5 » Wed May 02, 2018 2:27 am

BlackcatCA wrote:
Wed May 02, 2018 12:56 am
If your federal rate is 22% or above, TEY of many muni mm funds are greater than 1.8% now. If you have state income tax, TEY is even higher/better.
+1. There are several other threads already going on this.

I broke my Ally 1.75% CDs and moved to VG Muni MM. Substantially higher TEY for me, no material term/credit risk, better liquidity (don't have to withdraw in chunks).

I need to keep duration under 1y for these funds so this works well for me.
UncleLeo wrote:
Wed May 02, 2018 1:40 am
Am I understanding this correctly:
If one is:
1. At 33% federal tax bracket; and
2. Living in Cali; and
3. The funds are in a taxable account; and
4. Liquidity is a requirement

Then a CA Muni MM (VCTXX) is the best option ?
Seems like a very good option to me.

If you really want to optimize, perhaps reasonable to periodically compare your TEY on CA Muni MM to your TEY on T-bills at maturities you feel are compatible with your requirement #4.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by nalor511 » Wed May 02, 2018 5:00 am

Closed mine

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MikeG62 » Wed May 02, 2018 8:07 am

tenkuky wrote:
Tue May 01, 2018 8:52 pm

What would be a muni mm fund rate to be equivalent or better to the 1.75% rate of the 11-mo Ally CD?
Depends on your marginal tax rate (combined Federal and State).

Compare muni MM to Ally CD rate either by:

Multiplying the CD rate by the following fraction: (1 - your marginal tax rate)
Divide the muni yield by the same fraction

So if your marginal tax rate is say 27%, the after tax yield on the Ally CD is 1.2775% (1.75% x (1-.27)). If the muni MM yield is greater than or equal to 1.28% (1.28 / (1-.27)), then you are better off in the muni MM.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Wed May 02, 2018 10:20 am

I broke my last one a couple of weeks ago, as I needed some of it to pay taxes. The bulk of it went into CA muni MM fund, which currently has a taxable-equivalent yield (TEY) for me of 2.22%. This is at Fed and state marginal income tax rates of 27% and 8%, and the fund SEC yield at 1.44%. So TEY = Y / (1 - f - s) = 1.44% / (1 - 27% - 8%) = 2.22%. About a third of that has since gone into AA/AAA munis with higher TEYs, and I think one or two were fairly short term, like six months or less.

I will not be itemizing in 2018. If you itemize and get the full state income tax deduction on Schedule A, then for a state-specific muni fund (MM or bond):

TEY = Y / (1 - f - s + f*s) = Y / ((1-f)*(1-s)).

Where Y = yield, f = federal marginal tax rate, s = state marginal tax rate. So the tax exemption is slightly less valuable if you itemize and get the full state tax deduction.

If there is no state specific muni MM fund for you, and you don't itemize, then for a national muni fund (MM or bond):

TEY = Y * (1-s) / (1 - f - s)

If you itemize:

TEY = Y / (1 - f)

If you pay little or no state income tax, or in an IRA, Prime MM yield is 1.82%, so this beats the no-penalty CD at 1.75%. We broke my mom's last no-penalty CD yesterday, since some of it will be needed to pay May bills. The bulk of it went into Prime MM, since they pay no CA state income tax. Probably will use some of it to buy Treasuries and brokered CDs as other fixed income securities approach maturity.

As mentioned upthread, you can do better with a savings account at Popular Direct earning 2%, but for my mom simplicity and using trust accounts is an overriding factor. I didn't see an option for a trust account at Popular Direct, and it's more hassle to open a trust account anyway.

Six-month Treasuries at about 2% are a good option for money you are unlikely to need in six months, especially if you pay state income taxes, as the TEY will be even higher. If you don't itemize and fully deduct state taxes, for Treasuries:

TEY = Y * (1-f) / (1 - f - s)

And if you itemize and fully deduct state taxes:

TEY = Y / (1 - s)

Of course if you don't pay state income tax and don't mind opening a new bank account, then Popular Direct is a better option than a 6-month Treasury.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MikeG62 » Fri May 04, 2018 6:55 am

Thanks all for the replies.

Confirm my thinking that strategically moving out of the 1.75% no penalty CD's (over time) makes sense for DW and I.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by UncleLeo » Sun May 06, 2018 8:34 pm

Probably a dumb question here, I'm trying to understand why the yield of a money market fund fluctuates daily.
For example, looking at the Cali muni MM, the yield on 04/26/2018 was 1.47% and now stands at 1.40%.
The Fed doesn't change interest rates daily, so how come this happens?

Also, If I buy certain amount of a muni money market fund, will the yield for that amount be locked to whatever the rate was on the day I bought it?

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by kappy » Sun May 06, 2018 8:44 pm

I moved mine into Vanguard Prime MM. I still hold a 2% 11 month CD with Ally which I will hold till maturity.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by SlowMovingInvestor » Sun May 06, 2018 8:46 pm

UncleLeo wrote:
Sun May 06, 2018 8:34 pm
Probably a dumb question here, I'm trying to understand why the yield of a money market fund fluctuates daily.
For example, looking at the Cali muni MM, the yield on 04/26/2018 was 1.47% and now stands at 1.40%.
The Fed doesn't change interest rates daily, so how come this happens?

Also, If I buy certain amount of a muni money market fund, will the yield for that amount be locked to whatever the rate was on the day I bought it?
The yield changes daily because the fund buys and sells new securities daily. The corollary is that your yield is not locked in.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Sun May 06, 2018 10:05 pm

SlowMovingInvestor wrote:
Sun May 06, 2018 8:46 pm
UncleLeo wrote:
Sun May 06, 2018 8:34 pm
Probably a dumb question here, I'm trying to understand why the yield of a money market fund fluctuates daily.
For example, looking at the Cali muni MM, the yield on 04/26/2018 was 1.47% and now stands at 1.40%.
The Fed doesn't change interest rates daily, so how come this happens?

Also, If I buy certain amount of a muni money market fund, will the yield for that amount be locked to whatever the rate was on the day I bought it?
The yield changes daily because the fund buys and sells new securities daily. The corollary is that your yield is not locked in.
Even if the fund didn't buy and sell securities daily, the yield could change, and probably would. Yields of marketable fixed income securities can change daily or even more often. Also, yields change as securities approach maturity.

The Federal funds rate (FFR) does not necessarily drive other rates/yields, and even to the extent it does, the other yields can be more volatile. The 1-month Treasury is probably most closely tied to the FFR--at least in things we can easily see yields for, and even it bounces around more than the FFR.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by indexonlyplease » Sun May 13, 2018 7:18 am

When does it make sense to close your cd and open one with a higher rate.

Ally with 150 day penalty.
I have one cd at 2.25% 5 yr.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Blues » Sun May 13, 2018 7:27 am

Closed one large No-Penalty CD @ 1.5 % and opened three 12 month CDs @ 2.25%.

Pretty much a no-brainer for us as we have ample funds available without being concerned about locking up the $ for 12 months.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Sun May 13, 2018 11:59 am

indexonlyplease wrote:
Sun May 13, 2018 7:18 am
When does it make sense to close your cd and open one with a higher rate.

Ally with 150 day penalty.
I have one cd at 2.25% 5 yr.
You can use this calculator to help with the decision: https://www.depositaccounts.com/tools/b ... lator.aspx.

Here's one simplified way to think about it. With a 150 day EWP you lose about 41% of your interest for one year (150/365), so you lose about 0.92% of your 2.25%. Say you bought the CD very recently, so you still have about five years to maturity. Currently you can get a brokered new-issue CD at 3.20%, which is 0.95 percentage points (95 basis points) more than 2.25%. So if you break your CD and put the money into the 5-year brokered CD, you will earn back your EWP of 0.92% in less than one year, and then will benefit from the higher yield for the subsequent four years.

If you have less than five years left to maturity, then the most rational comparison is to another CD with maturity equal to your remaining maturity. For example, you can get a brokered new-issue 2-year CD at 2.75%, so at 50 basis points higher yield you would just barely earn back the EWP over the two-year holding period.

With three years left to maturity, it would make sense to break the CD to earn 2.90% in a 3-year CD. You will earn back the EWP in less than two years, and then profit from the higher yield for more than one year.

One caveat is that the EWP of five months of interest has some value, as it lowers your term risk. A brokered CD does not have this feature, so a 5-year brokered CD has much more term risk than this 5-year direct CD. Also consider that the CD yield curve is very steep to 2-year maturity, but flattens out significantly after that, so the reward for extending maturity beyond two years diminishes quite a bit. Personally, I might consider breaking the 5-year CD to buy a brokered 2-year CD, as the yield is significantly higher but the maturity is much shorter, and the term risk of a 2-year brokered CD is not very big.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tibbitts » Sun May 13, 2018 12:12 pm

Blues wrote:
Sun May 13, 2018 7:27 am
Closed one large No-Penalty CD @ 1.5 % and opened three 12 month CDs @ 2.25%.

Pretty much a no-brainer for us as we have ample funds available without being concerned about locking up the $ for 12 months.
It's still a tough call. You could have chosen a money market fund or the Boglehead-unloved ultra-short-bond fund.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by indexonlyplease » Mon May 14, 2018 6:56 am

Kevin M wrote:
Sun May 13, 2018 11:59 am
indexonlyplease wrote:
Sun May 13, 2018 7:18 am
When does it make sense to close your cd and open one with a higher rate.

Ally with 150 day penalty.
I have one cd at 2.25% 5 yr.
You can use this calculator to help with the decision: https://www.depositaccounts.com/tools/b ... lator.aspx.

Here's one simplified way to think about it. With a 150 day EWP you lose about 41% of your interest for one year (150/365), so you lose about 0.92% of your 2.25%. Say you bought the CD very recently, so you still have about five years to maturity. Currently you can get a brokered new-issue CD at 3.20%, which is 0.95 percentage points (95 basis points) more than 2.25%. So if you break your CD and put the money into the 5-year brokered CD, you will earn back your EWP of 0.92% in less than one year, and then will benefit from the higher yield for the subsequent four years.

If you have less than five years left to maturity, then the most rational comparison is to another CD with maturity equal to your remaining maturity. For example, you can get a brokered new-issue 2-year CD at 2.75%, so at 50 basis points higher yield you would just barely earn back the EWP over the two-year holding period.

With three years left to maturity, it would make sense to break the CD to earn 2.90% in a 3-year CD. You will earn back the EWP in less than two years, and then profit from the higher yield for more than one year.

One caveat is that the EWP of five months of interest has some value, as it lowers your term risk. A brokered CD does not have this feature, so a 5-year brokered CD has much more term risk than this 5-year direct CD. Also consider that the CD yield curve is very steep to 2-year maturity, but flattens out significantly after that, so the reward for extending maturity beyond two years diminishes quite a bit. Personally, I might consider breaking the 5-year CD to buy a brokered 2-year CD, as the yield is significantly higher but the maturity is much shorter, and the term risk of a 2-year brokered CD is not very big.

Kevin
Thanks Kevin, I will read this a few times. I do like the idea of the shorter term cd and the brokered one I will look into. This year I bought 2 cds 1 yr at 2%. I do see now that the longer term cd does not make sense.

Cliff

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by geospatial » Fri Jun 15, 2018 9:56 am

The no penalty 11-month CD appears to have been bumped 30 basis points from 1.50% to 1.80% (for $25K+). This is slightly better than the 1.75% locked in at the start of the calendar year by some people too.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by RetiredTrvl » Fri Jun 15, 2018 10:55 am

Kevin M wrote:
Wed May 02, 2018 10:20 am
If you don't itemize and fully deduct state taxes, for Treasuries:

TEY = Y * (1-f) / (1 - f - s)
Sorry, I'm confused by this. If you don't itemize, how can you deduct state taxes? Isn't that deduction only on Schedule A?

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MindTheGAAP » Fri Jun 15, 2018 10:57 am

geospatial wrote:
Fri Jun 15, 2018 9:56 am
The no penalty 11-month CD appears to have been bumped 30 basis points from 1.50% to 1.80% (for $25K+). This is slightly better than the 1.75% locked in at the start of the calendar year by some people too.
It’s about time it moved upwards again!
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by dogagility » Fri Jun 15, 2018 11:31 am

geospatial wrote:
Fri Jun 15, 2018 9:56 am
The no penalty 11-month CD appears to have been bumped 30 basis points from 1.50% to 1.80% (for $25K+).
Thanks! Was waiting until Ally would bump up their no-penalty CD rate above their savings account rate. Just got a free IPA each week by transferring the money. :sharebeer
Taking "risk" since 1995.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Blues » Fri Jun 15, 2018 11:35 am

Thanks for the heads up. Closed an older 1.5% No Penalty and swapped into the new rate.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by 209south » Fri Jun 15, 2018 11:43 am

My 5/1 ARM just hit the 5-yr anniversary and the rate is going from 2.625% to 4.625% so I terminated 4x$25,000 of the Ally no-penalty CDs to prepay $100k of my mortgage. I like the liquidity the mortgage provides but with the SALT limitation and the rate adjustment this was a no-brainer. Tougher question is whether I pay the penalties on some traditional CDs to pay down the other $250k, but that's a separate analysis.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tenkuky » Fri Jun 15, 2018 11:52 am

Blues wrote:
Fri Jun 15, 2018 11:35 am
Thanks for the heads up. Closed an older 1.5% No Penalty and swapped into the new rate.
And for fun, I liquidated my 1.75% one for the 1.8% today. Tiny interest bump for <5 min typing.
I won't chase higher rates as I like the liquidity and I treat it like cash.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by MindTheGAAP » Fri Jun 15, 2018 11:53 am

tenkuky wrote:
Fri Jun 15, 2018 11:52 am
Blues wrote:
Fri Jun 15, 2018 11:35 am
Thanks for the heads up. Closed an older 1.5% No Penalty and swapped into the new rate.
And for fun, I liquidated my 1.75% one for the 1.8% today. Tiny interest bump for <5 min typing.
I won't chase higher rates as I like the liquidity and I treat it like cash.
Just did the same. It's so easy there's not really a reason not to do it.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Darth Xanadu » Fri Jun 15, 2018 12:47 pm

I'm thinking of breaking my 1.75% no-penalty cd and doing 3 smaller cd's to build a 6-month ladder i.e. 6 month cd at 2%, 12 month cd at 2.3% and 18 month cd at 2.35%. It's either that, or switch to the 1.8% no-penalty. I can't decide.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by ivk5 » Fri Jun 15, 2018 1:00 pm

Darth Xanadu wrote:
Fri Jun 15, 2018 12:47 pm
I'm thinking of breaking my 1.75% no-penalty cd and doing 3 smaller cd's to build a 6-month ladder i.e. 6 month cd at 2%, 12 month cd at 2.3% and 18 month cd at 2.35%. It's either that, or switch to the 1.8% no-penalty. I can't decide.
VG Prime MM Fund has zero term risk, current SEC yield of 1.96% (and rising).

Is it really worth it to you to take on 6m of term risk just to get FDIC insurance with no yield premium?

(I get that 12m at 2.3% passes the 20bps/yr test, though same doesn't hold for 18m.)

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Darth Xanadu » Fri Jun 15, 2018 1:05 pm

ivk5 wrote:
Fri Jun 15, 2018 1:00 pm
Darth Xanadu wrote:
Fri Jun 15, 2018 12:47 pm
I'm thinking of breaking my 1.75% no-penalty cd and doing 3 smaller cd's to build a 6-month ladder i.e. 6 month cd at 2%, 12 month cd at 2.3% and 18 month cd at 2.35%. It's either that, or switch to the 1.8% no-penalty. I can't decide.
VG Prime MM Fund has zero term risk, current SEC yield of 1.96% (and rising).

Is it really worth it to you to take on 6m of term risk just to get FDIC insurance with no yield premium?

(I get that 12m at 2.3% passes the 20bps/yr test, though same doesn't hold for 18m.)
I haven't really looked at MM funds; I'm at Fidelity and I don't think their options for holding cash are that great but I could be wrong. Your point is well taken though.
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tenkuky » Fri Jun 15, 2018 2:20 pm

Darth Xanadu wrote:
Fri Jun 15, 2018 1:05 pm
ivk5 wrote:
Fri Jun 15, 2018 1:00 pm
Darth Xanadu wrote:
Fri Jun 15, 2018 12:47 pm
I'm thinking of breaking my 1.75% no-penalty cd and doing 3 smaller cd's to build a 6-month ladder i.e. 6 month cd at 2%, 12 month cd at 2.3% and 18 month cd at 2.35%. It's either that, or switch to the 1.8% no-penalty. I can't decide.
VG Prime MM Fund has zero term risk, current SEC yield of 1.96% (and rising).

Is it really worth it to you to take on 6m of term risk just to get FDIC insurance with no yield premium?

(I get that 12m at 2.3% passes the 20bps/yr test, though same doesn't hold for 18m.)
I haven't really looked at MM funds; I'm at Fidelity and I don't think their options for holding cash are that great but I could be wrong. Your point is well taken though.
I looked at Schwab and they are appalling, a taxable equiv yield of 1.48% for the AMT-free muni MM fund, and 1.47% for the regular one. Actual yield is something like 0.87%. Can't believe they get away with that, given what VG is offering. I needed to go muni in my taxable, but opted to stick with Ally 1.8% for now.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Fri Jun 15, 2018 3:30 pm

geospatial wrote:
Fri Jun 15, 2018 9:56 am
The no penalty 11-month CD appears to have been bumped 30 basis points from 1.50% to 1.80% (for $25K+). This is slightly better than the 1.75% locked in at the start of the calendar year by some people too.
Fine if you want to keep a large amount of cash at Ally, but 1.8% isn't that great these days. As noted already, Vanguard Prime money market now is at 1.96%, and has been increasing by about 1 basis point very couple of days. No FDIC insurance, but safe enough for me. If you want FDIC insurance, Northpointe Bank is paying 2.05% for $25K or more.

If you have $50K and pay state income tax, Vanguard Treasury money market might have a higher TEY for you; for me it is 2.02%. And then you have a fund that owns 100% US Treasury Bills, so no need to worry about lack of FDIC insurance.

Kevin
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Fri Jun 15, 2018 3:37 pm

RetiredTrvl wrote:
Fri Jun 15, 2018 10:55 am
Kevin M wrote:
Wed May 02, 2018 10:20 am
If you don't itemize and fully deduct state taxes, for Treasuries:

TEY = Y * (1-f) / (1 - f - s)
Sorry, I'm confused by this. If you don't itemize, how can you deduct state taxes? Isn't that deduction only on Schedule A?
Sorry, the wording seems to have been unclear--should be read as:

If you don't (itemize and fully deduct state taxes) ...

So applicable if you don't itemize at all (no Schedule A), or if you itemize but have hit the $10K SALT cap, or your itemized deductions are limited, or ...

I think this formula also is applicable if you just use tax software to figure out your marginal federal and state rates, but that might be difficult if impossible until 2018 tax-year software becomes available. At any rate, if you do it with tax software, then the state deduction, if you get it, will already be factored into your federal marginal rate.

Kevin
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by geospatial » Fri Jun 15, 2018 3:45 pm

Kevin M wrote:
Fri Jun 15, 2018 3:30 pm
geospatial wrote:
Fri Jun 15, 2018 9:56 am
The no penalty 11-month CD appears to have been bumped 30 basis points from 1.50% to 1.80% (for $25K+). This is slightly better than the 1.75% locked in at the start of the calendar year by some people too.
Fine if you want to keep a large amount of cash at Ally, but 1.8% isn't that great these days. As noted already, Vanguard Prime money market now is at 1.96%, and has been increasing by about 1 basis point very couple of days. No FDIC insurance, but safe enough for me. If you want FDIC insurance, Northpointe Bank is paying 2.05% for $25K or more.

If you have $50K and pay state income tax, Vanguard Treasury money market might have a higher TEY for you; for me it is 2.02%. And then you have a fund that owns 100% US Treasury Bills, so no need to worry about lack of FDIC insurance.

Kevin
I'm personally working on opening a money market account with Northern Bank Direct right now... 2.26% with FDIC insurance for $5K+. But I just wanted to update the particular purpose of this thread without derailing it. Everything is a moving target these days with all the fed hikes anyway.

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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Fri Jun 15, 2018 3:51 pm

ivk5 wrote:
Fri Jun 15, 2018 1:00 pm
Darth Xanadu wrote:
Fri Jun 15, 2018 12:47 pm
I'm thinking of breaking my 1.75% no-penalty cd and doing 3 smaller cd's to build a 6-month ladder i.e. 6 month cd at 2%, 12 month cd at 2.3% and 18 month cd at 2.35%. It's either that, or switch to the 1.8% no-penalty. I can't decide.
VG Prime MM Fund has zero term risk, current SEC yield of 1.96% (and rising).

Is it really worth it to you to take on 6m of term risk just to get FDIC insurance with no yield premium?

(I get that 12m at 2.3% passes the 20bps/yr test, though same doesn't hold for 18m.)
Agree that 6-month at 2% doesn't make much sense these days.

In a taxable account I would look at a ladder of Treasuries instead, if you pay state income tax.

Expected yield on 6-month Treasury at Monday's auction is 2.08%, which for me is TEY of 2.34%. Compared to Vanguard Treasury MM at 2.02% TEY, this is 63 bps/year of extra yield (for me). Expected yield on 1-year Treasury is 2.32%, which for me is TEY of 2.61%, so 58 bps/year of extra yield.

Even in a tax-advantaged account the 1-year Treasury matches the Ally 1-year CD, and the Treasury is more liquid.

I bought some 6-month at last week's auction, and probably will buy some 6-month and some 1-year at Monday's auction--can enter the orders over the weekend.

Kevin
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by Kevin M » Fri Jun 15, 2018 4:03 pm

geospatial wrote:
Fri Jun 15, 2018 3:45 pm
I'm personally working on opening a money market account with Northern Bank Direct right now... 2.26% with FDIC insurance for $5K+. But I just wanted to update the particular purpose of this thread without derailing it. <snip>
That's great, and it isn't derailing the thread, since the thread is about what to do as an alternative to Ally no penalty CDs at 1.75% (with moving to a slightly higher-yielding Ally no-penalty CD now being one alternative). So you just contributed another nice alternative!

I hadn't seen the Northern Bank deal, because I only looked at "personal savings accounts" at Deposit Accounts. Have to remember to also look at "personal money market" accounts.

I see that this rate is new as of 6/9, and is a big jump from the previous rate of 1.51%. I wonder how long it will hold.

Kevin
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Re: For Those Who Purchased Ally No Penalty CD's in Dec/Jan

Post by tibbitts » Fri Jun 15, 2018 6:03 pm

The Northern alternative is interesting but I'm not willing to deal with yet another institution for the quarter-point or so (at the moment.) I guess there is almost no disadvantage to moving the old 1.75% Ally CD money to Prime MM, though, given Prime is very close to 2% now and may provide a state tax break (on the treasury portion of its investments.)

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