United Bank of Iowa call protected 6 year FDIC insured 4.5% CD--missing something?

[coachd50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

[Stinky]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It sounds just fine to me.

The comparable Treasury is yielding about 3.5% right now, so you're picking up roughly 1% in yield.

[coachd50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It sounds just fine to me.

The comparable Treasury is yielding about 3.5% right now, so you're picking up roughly 1% in yield.

That is why I am approaching with caution. Seems like a good deal compared to other default risk free (because of FDIC insurance) options and in the Roth IRA, tax free (as opposed to just state tax free like treasuries or treasury bond funds.

[DaveTH]

Do you really want to lock your money into a 6-yr CD @ 4.5% when you can get a 1-yr CD paying over 5%? Long duration CDs in this inverted yield environment doesn't really make sense to me.

[hudson]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

I wouldn't hesitate to buy and lock in 4.5% for 6 years.
At the same time I'd buy a TIPS maturing in 6 years...same amount.
Why? In case inflation destroys my nominal returns.

If possible, I might go longer if it fit my needs (average duration 10 years).

[retired@50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It seems like a solid choice for a fixed income investment, but why inside a Roth IRA?

Regards,

[coachd50]

Do you really want to lock your money into a 6-yr CD @ 4.5% when you can get a 1-yr CD paying over 5%? Long duration CDs in this inverted yield environment doesn't really make sense to me.

I guess it comes down to if one thinks there will be virtually default risk free yields of 4+% in two -five years.

[EnjoyIt]

Do you really want to lock your money into a 6-yr CD @ 4.5% when you can get a 1-yr CD paying over 5%? Long duration CDs in this inverted yield environment doesn't really make sense to me.

Here is a thought:
What if the fed starts lowering interest rates in q3 of 2023. What if by the end of next year short term CDs go down in price and now selling for 3% ? You would feel pretty darn smart locking in at 4.5% for 6 years.

[coachd50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

I wouldn't hesitate to buy and lock in 4.5% for 6 years.
At the same time I'd buy a TIPS maturing in 6 years...same amount.
Why? In case inflation destroys my nominal returns.

If possible, I might go longer if it fit my needs (average duration 10 years).

Yes, I have looked around, and read the threads- but seem a bit unclear on the actual process of TIPS purchases (via Fidelity), both secondary market and new issue. Also, secondary Market trades aren't available "after hours" and I dont seem to remember to be able to find a way to make a purchase online during trading hours.

BUT THANK YOU. I like that idea better. I have cancelled the order for the CD in my Roth IRA and placed an order for 10 year TIPS for $5,000. One reason is that I am getting more experience with smaller denominations in things so I can see how the processes work.

[Tom_T]

Do you really want to lock your money into a 6-yr CD @ 4.5% when you can get a 1-yr CD paying over 5%? Long duration CDs in this inverted yield environment doesn't really make sense to me.

Someone pointed out that historically, when the yield curve "un-inverts", it's not that long rates go higher - it's that short rates drop significantly. The 4.5% yield for six years might turn out to be a good deal. Five years is about as far I like to go.

[coachd50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It seems like a solid choice for a fixed income investment, but why inside a Roth IRA?

Regards,

I had made my contribution earlier this year, and have $6,000 sitting in the core money market account. Also, I sit right on the edge of the 12%-22% marginal bracket- right now I project to be just inside the 12%. In a taxable account, the dollars paid in interest might very well fall into the 22% bracket.

Also, and yes this does kind of violate the nobody knows nothin philosophy, but I figure being sure of a positive 4.5% nominal for 6 years wouldn't be horribly bad as part of the bond allocation in the Roth. However, I have been reading up on trying to optimize my portfolio for tax purposes. Any advice or thoughts are more than welcome.

[retired@50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It seems like a solid choice for a fixed income investment, but why inside a Roth IRA?

Regards,

I had made my contribution earlier this year, and have $6,000 sitting in the core money market account. Also, I sit right on the edge of the 12%-22% marginal bracket- right now I project to be just inside the 12%. In a taxable account, the dollars paid in interest might very well fall into the 22% bracket.

Also, and yes this does kind of violate the nobody knows nothin philosophy, but I figure being sure of a positive 4.5% nominal for 6 years wouldn't be horribly bad as part of the bond allocation in the Roth. However, I have been reading up on trying to optimize my portfolio for tax purposes. Any advice or thoughts are more than welcome.

Typically, it's best if fixed income investments, such as this possible CD, are held in tax deferred accounts like a 401k plan or traditional (non Roth) IRA.

If you don't have access to this particular investment choice in one of those accounts, then putting it into a Roth could make sense.

For details on tax efficient fund placement, see the wiki page.

With Roth accounts, since they will presumably be eligible for tax-free withdrawals in the future, most investors seek to maximize growth to take the greatest advantage of any potential upside that a stock index fund can provide.

Regards,

[David Jay]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It seems like a solid choice for a fixed income investment, but why inside a Roth IRA?

Regards,

I had made my contribution earlier this year, and have $6,000 sitting in the core money market account. Also, I sit right on the edge of the 12%-22% marginal bracket- right now I project to be just inside the 12%. In a taxable account, the dollars paid in interest might very well fall into the 22% bracket.

Also, and yes this does kind of violate the nobody knows nothin philosophy, but I figure being sure of a positive 4.5% nominal for 6 years wouldn't be horribly bad as part of the bond allocation in the Roth. However, I have been reading up on trying to optimize my portfolio for tax purposes. Any advice or thoughts are more than welcome.

I suspect that retired@50 was questioning why you have a bond allocation inside of your Roth.

Commonly folks approach tax-efficient asset allocation with the concept of putting high-potential-growth assets inside their Roth because the growth will not be taxed. Few recommend fixed assets inside a Roth if a tax-deferred account (401K/457/tIRA, etc.) is available.

[coachd50]

I am missing something, or would this be a decent purchase in a Roth IRA? 6 years, call protected, 4.5% FDIC insured CD?

It seems like a solid choice for a fixed income investment, but why inside a Roth IRA?

Regards,

I had made my contribution earlier this year, and have $6,000 sitting in the core money market account. Also, I sit right on the edge of the 12%-22% marginal bracket- right now I project to be just inside the 12%. In a taxable account, the dollars paid in interest might very well fall into the 22% bracket.

Also, and yes this does kind of violate the nobody knows nothin philosophy, but I figure being sure of a positive 4.5% nominal for 6 years wouldn't be horribly bad as part of the bond allocation in the Roth. However, I have been reading up on trying to optimize my portfolio for tax purposes. Any advice or thoughts are more than welcome.

I suspect that retired@50 was questioning why you have a bond allocation inside of your Roth.

Commonly folks approach tax-efficient asset allocation with the concept of putting high-potential-growth assets inside their Roth because the growth will not be taxed. Few recommend fixed assets inside a Roth if a tax-deferred account (401K/457/tIRA, etc.) is available.

Yes, for most of my retirement investing life I only had access to the Roth IRA from Fidelity. I plan to retire on a modest ($20,000-$40,000) non COLA teachers pension at 55. Therefore I have kept a fixed income allocation in that Roth IRA. I recently opened a Trad IRA with Fidelity, and now also have a 457 b with ability to make both traditional and Roth contributions.