CD being called.. bummer!

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nbseer
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CD being called.. bummer!

Post by nbseer »

A 1.9% cd held in my Fidelity IRA is being called early... doesn't mature until 2022. Guess the issuing bank doesn't want to pay me 1.9% anymore since rates have dropped so much. So do I just keep the money parked in a money market paying essentially nothing?
regularguy455
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Re: CD being called.. bummer!

Post by regularguy455 »

I’d think it depends on the amount and purpose. There has been a lot of discussion recently about switching safe assets to a mixture of stocks and bonds (e.g. 60:40). I have been moving assets out of my EF and into stocks because of the lack of yield. Still maintain a smaller balance but earning 0.8% on a big number is frustrating.
ImUrHuckleberry
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Re: CD being called.. bummer!

Post by ImUrHuckleberry »

nbseer wrote: Sun Aug 23, 2020 7:10 am A 1.9% cd held in my Fidelity IRA is being called early... doesn't mature until 2022. Guess the issuing bank doesn't want to pay me 1.9% anymore since rates have dropped so much. So do I just keep the money parked in a money market paying essentially nothing?
I'm curious about how Fidelity notified you about this? I have a couple of brokerage CDs there earning 2.3% and 2.4% that also mature in 2022, and I was wondering if they would get called. I haven't heard anything yet.
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nbseer
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Re: CD being called.. bummer!

Post by nbseer »

Fidelity sent me an email alert I have mostly CDs in my Ira, haven't gotten notices about any others.. yet!
Nowizard
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Re: CD being called.. bummer!

Post by Nowizard »

Some continue to receive benefit from Total Bond Index and Intermediate Bonds rather than searching for alternatives. Very challenging market for bonds and emergency funds if returns are expected to equal or exceed inflation.

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anon_investor
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Re: CD being called.. bummer!

Post by anon_investor »

regularguy455 wrote: Sun Aug 23, 2020 7:22 am I’d think it depends on the amount and purpose. There has been a lot of discussion recently about switching safe assets to a mixture of stocks and bonds (e.g. 60:40). I have been moving assets out of my EF and into stocks because of the lack of yield. Still maintain a smaller balance but earning 0.8% on a big number is frustrating.
I would think 20/80 stock/bond would be a reasonable substitute. Personally I would roll 80% into another CD and put 20% into a total stock market index.
ImUrHuckleberry
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Re: CD being called.. bummer!

Post by ImUrHuckleberry »

Is a short term treasury fund (FUMBX at Fidelity) a reasonable choice for cash equivalents?
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David Jay
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Re: CD being called.. bummer!

Post by David Jay »

Vanguard Total Stock Fund current paying 1.74% :wink:
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dbr
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Re: CD being called.. bummer!

Post by dbr »

ImUrHuckleberry wrote: Sun Aug 23, 2020 8:32 am Is a short term treasury fund (FUMBX at Fidelity) a reasonable choice for cash equivalents?
It is unless you are locked into getting more return than is now on offer. If you need more return you have to take more risk. It is possible there is no reasonable answer for your needs and you will have to rethink what you objectives are. It doesn't sound like dealing with a called CD rises to that level. Classifying this as a bummer ignores what a real bummer looks like. There have been people, for example, who figured on putting savings into 5% CDs would be income for life and then it was not so. That takes some re-arranging of how to stay alive.

Note that when one talks about risk in investing that means the variability of returns over time. For CDs that means the variability of interest rates over time. One could say the rates vary between 1% and 5% or have an expected return of 3% and a risk of +/-2%. So CDs are risky just like anything else is. You can stay in CDs and wait until interest rates are back up to 3% or something. Risk can mean upside as well as downside. Investing is for the long run.
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Re: CD being called.. bummer!

Post by hudson »

dbr wrote: Sun Aug 23, 2020 8:40 am If you need more return you have to take more risk.
I vote for best available CD...even if the rates aren't that hot.
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Re: CD being called.. bummer!

Post by whodidntante »

David Jay wrote: Sun Aug 23, 2020 8:35 am Vanguard Total Stock Fund current paying 1.74% :wink:
Total International yields more. :twisted:
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anon_investor
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Re: CD being called.. bummer!

Post by anon_investor »

whodidntante wrote: Sun Aug 23, 2020 9:04 am
David Jay wrote: Sun Aug 23, 2020 8:35 am Vanguard Total Stock Fund current paying 1.74% :wink:
Total International yields more. :twisted:
I thought BHs were all about total return? If so, just get Tesla! :twisted: :twisted: :twisted:
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whodidntante
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Re: CD being called.. bummer!

Post by whodidntante »

anon_investor wrote: Sun Aug 23, 2020 9:07 am
whodidntante wrote: Sun Aug 23, 2020 9:04 am
David Jay wrote: Sun Aug 23, 2020 8:35 am Vanguard Total Stock Fund current paying 1.74% :wink:
Total International yields more. :twisted:
I thought BHs were all about total return? If so, just get Tesla! :twisted: :twisted: :twisted:
Long or short? 🤔
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anon_investor
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Re: CD being called.. bummer!

Post by anon_investor »

whodidntante wrote: Sun Aug 23, 2020 9:09 am
anon_investor wrote: Sun Aug 23, 2020 9:07 am
whodidntante wrote: Sun Aug 23, 2020 9:04 am
David Jay wrote: Sun Aug 23, 2020 8:35 am Vanguard Total Stock Fund current paying 1.74% :wink:
Total International yields more. :twisted:
I thought BHs were all about total return? If so, just get Tesla! :twisted: :twisted: :twisted:
Long or short? 🤔
Good question. I have no idea, which is why my prior recommendation to the OP still stands, 80% into a new CD and 20% into VTSAX.

I actually have a bunch of CDs expiring next year. I am going to put 20% into VTSAX then max out I Bonds and put the remaining balance into another CD.
ImUrHuckleberry
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Re: CD being called.. bummer!

Post by ImUrHuckleberry »

dbr wrote: Sun Aug 23, 2020 8:40 am
ImUrHuckleberry wrote: Sun Aug 23, 2020 8:32 am Is a short term treasury fund (FUMBX at Fidelity) a reasonable choice for cash equivalents?
It is unless you are locked into getting more return than is now on offer. If you need more return you have to take more risk. It is possible there is no reasonable answer for your needs and you will have to rethink what you objectives are. It doesn't sound like dealing with a called CD rises to that level. Classifying this as a bummer ignores what a real bummer looks like. There have been people, for example, who figured on putting savings into 5% CDs would be income for life and then it was not so. That takes some re-arranging of how to stay alive.

Note that when one talks about risk in investing that means the variability of returns over time. For CDs that means the variability of interest rates over time. One could say the rates vary between 1% and 5% or have an expected return of 3% and a risk of +/-2%. So CDs are risky just like anything else is. You can stay in CDs and wait until interest rates are back up to 3% or something. Risk can mean upside as well as downside. Investing is for the long run.
I think you have me confused with OP. I probably confused the situation by asking my question in this thread rather than in one of the threads specifically about looking for cash equivalent investments in this low rate environment.
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Re: CD being called.. bummer!

Post by dbr »

anon_investor wrote: Sun Aug 23, 2020 9:19 am
whodidntante wrote: Sun Aug 23, 2020 9:09 am
anon_investor wrote: Sun Aug 23, 2020 9:07 am
whodidntante wrote: Sun Aug 23, 2020 9:04 am
David Jay wrote: Sun Aug 23, 2020 8:35 am Vanguard Total Stock Fund current paying 1.74% :wink:
Total International yields more. :twisted:
I thought BHs were all about total return? If so, just get Tesla! :twisted: :twisted: :twisted:
Long or short? 🤔
Good question. I have no idea, which is why my prior recommendation to the OP still stands, 80% into a new CD and 20% into VTSAX.

I actually have a bunch of CDs expiring next year. I am going to put 20% into VTSAX then max out I Bonds and put the remaining balance into another CD.
It is a common observation that 20/80 is at a more efficient point on the efficient frontier than is a 100% bond portfolio. The return is actually higher and the risk lower on average. I don't now if that is especially true now, but it could be. Of course, this should have been noticed and acted upon long before now. These discussions are plagued by trying to think of investments in isolation rather than in terms of their role in a whole planned portfolio and are plagued by risk actually materializing when it was supposed to have been planned for from the start.
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Re: CD being called.. bummer!

Post by dbr »

ImUrHuckleberry wrote: Sun Aug 23, 2020 9:22 am
dbr wrote: Sun Aug 23, 2020 8:40 am
ImUrHuckleberry wrote: Sun Aug 23, 2020 8:32 am Is a short term treasury fund (FUMBX at Fidelity) a reasonable choice for cash equivalents?
It is unless you are locked into getting more return than is now on offer. If you need more return you have to take more risk. It is possible there is no reasonable answer for your needs and you will have to rethink what you objectives are. It doesn't sound like dealing with a called CD rises to that level. Classifying this as a bummer ignores what a real bummer looks like. There have been people, for example, who figured on putting savings into 5% CDs would be income for life and then it was not so. That takes some re-arranging of how to stay alive.

Note that when one talks about risk in investing that means the variability of returns over time. For CDs that means the variability of interest rates over time. One could say the rates vary between 1% and 5% or have an expected return of 3% and a risk of +/-2%. So CDs are risky just like anything else is. You can stay in CDs and wait until interest rates are back up to 3% or something. Risk can mean upside as well as downside. Investing is for the long run.
I think you have me confused with OP. I probably confused the situation by asking my question in this thread rather than in one of the threads specifically about looking for cash equivalent investments in this low rate environment.
Sorry if that happened. I may have been sloppy in addressing a quote chain or indeed I or we confused two different conversations.

Also, the responding is often just the mechanics of carrying forth a thread and is not really a comment directed at someone, such as yourself.

Again, apologies.
7eight9
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Re: CD being called.. bummer!

Post by 7eight9 »

You might want to look into multi-year guaranteed annuities (MYGAs). They pay significantly more than CDs.

Example --- Fixed Annuity Rates for August 2020 --- https://www.blueprintincome.com/fixed-annuities

Five year rates per above link are as high as 3.45%.
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anon_investor
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Re: CD being called.. bummer!

Post by anon_investor »

dbr wrote: Sun Aug 23, 2020 9:24 am
anon_investor wrote: Sun Aug 23, 2020 9:19 am
whodidntante wrote: Sun Aug 23, 2020 9:09 am
anon_investor wrote: Sun Aug 23, 2020 9:07 am
whodidntante wrote: Sun Aug 23, 2020 9:04 am

Total International yields more. :twisted:
I thought BHs were all about total return? If so, just get Tesla! :twisted: :twisted: :twisted:
Long or short? 🤔
Good question. I have no idea, which is why my prior recommendation to the OP still stands, 80% into a new CD and 20% into VTSAX.

I actually have a bunch of CDs expiring next year. I am going to put 20% into VTSAX then max out I Bonds and put the remaining balance into another CD.
It is a common observation that 20/80 is at a more efficient point on the efficient frontier than is a 100% bond portfolio. The return is actually higher and the risk lower on average. I don't now if that is especially true now, but it could be. Of course, this should have been noticed and acted upon long before now. These discussions are plagued by trying to think of investments in isolation rather than in terms of their role in a whole planned portfolio and are plagued by risk actually materializing when it was supposed to have been planned for from the start.
So 100% VTSAX :greedy ? But in all seriousness, I think in today's rate environment you can either accept the lower interest or increase equity allocation. Personally, I would dial up the equity allocation. 20% VTSAX / 80% in a CD still provides some principal protection with the chance for some appreciation. I would take 80% in a CD over bonds right now, 100% safe the only risk is reinvestment risk, but principal is safe.
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Re: CD being called.. bummer!

Post by dbr »

anon_investor wrote: Sun Aug 23, 2020 9:34 am


So 100% VTSAX :greedy ? But in all seriousness, I think in today's rate environment you can either accept the lower interest or increase equity allocation. Personally, I would dial up the equity allocation. 20% VTSAX / 80% in a CD still provides some principal protection with the chance for some appreciation. I would take 80% in a CD over bonds right now, 100% safe the only risk is reinvestment risk, but principal is safe.
Not 100% VTSAX. The observation was about how 20/80 makes sense. It is a comment that 100% bonds is usually not a good world to be in. But the whole conversation means we have to talk about a portfolio and not just an investment. It can be the 80 being in CDs is fine.
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Re: CD being called.. bummer!

Post by whodidntante »

7eight9 wrote: Sun Aug 23, 2020 9:26 am You might want to look into multi-year guaranteed annuities (MYGAs). They pay significantly more than CDs.

Example --- Fixed Annuity Rates for August 2020 --- https://www.blueprintincome.com/fixed-annuities

Five year rates per above link are as high as 3.45%.
I agree this is a decent fixed income option for some. However, the guarantee is only as good as the company offering it and insurance companies do default. The companies that pay the highest rates do so because they have a higher risk of default in general. It makes sense to understand the specifics of state annuity protections and to stick to contracts that will be covered by the state.
dbr
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Re: CD being called.. bummer!

Post by dbr »

whodidntante wrote: Sun Aug 23, 2020 9:46 am
7eight9 wrote: Sun Aug 23, 2020 9:26 am You might want to look into multi-year guaranteed annuities (MYGAs). They pay significantly more than CDs.

Example --- Fixed Annuity Rates for August 2020 --- https://www.blueprintincome.com/fixed-annuities

Five year rates per above link are as high as 3.45%.
I agree this is a decent fixed income option for some. However, the guarantee is only as good as the company offering it and insurance companies do default. The companies that pay the highest rates do so because they have a higher risk of default in general. It makes sense to understand the specifics of state annuity protections and to stick to contracts that will be covered by the state.
I think people want to also attend to the optionality of being locked into an interest rate for some time. This is not different in principle from holding a bond to maturity, but people should think through how these rates will compare to other options over time.
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Re: CD being called.. bummer!

Post by MikeG62 »

nbseer wrote: Sun Aug 23, 2020 7:10 am A 1.9% cd held in my Fidelity IRA is being called early... doesn't mature until 2022. Guess the issuing bank doesn't want to pay me 1.9% anymore since rates have dropped so much. So do I just keep the money parked in a money market paying essentially nothing?
That is a bummer. Assume these will be called at par? Is that right?
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Re: CD being called.. bummer!

Post by Stinky »

I didn’t know that there was such a thing as a “callable CD”.

Is a call provision common in CDs? If so, it sounds like a “heads I win, tails you lose” proposition for the bank.

That’s why I keep coming to this Forum. I learn something new most every day.
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Re: CD being called.. bummer!

Post by indexfundfan »

Stinky wrote: Sun Aug 23, 2020 10:05 am I didn’t know that there was such a thing as a “callable CD”.

Is a call provision common in CDs? If so, it sounds like a “heads I win, tails you lose” proposition for the bank.

That’s why I keep coming to this Forum. I learn something new most every day.
Callable CDs are not unusual for brokerage sold CDs. That is why when shopping for brokerage sold CDs, I always select the "non-callable" option to filter out callable CDs.
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Re: CD being called.. bummer!

Post by HueyLD »

Stinky wrote: Sun Aug 23, 2020 10:05 am I didn’t know that there was such a thing as a “callable CD”.

Is a call provision common in CDs? If so, it sounds like a “heads I win, tails you lose” proposition for the bank.

That’s why I keep coming to this Forum. I learn something new most every day.
A callable CD is just like a callable bond. It almost always works against the investor.

If the rates increase subsequent to the issuance, the issuer will not call and your only option to get out is to sell and take the haircut. If the rates decrease subsequently, the issuer has incentive to exercise the call option and the incentive gets stronger as the rates get lower.

In some instances, it may be somewhat advantageous to own callable CDs if the price is good enough to compensate for the call risk.
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