5-year CD vs. 6-year CD; double EWP with longer maturity

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rjbraun
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5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Mon Feb 26, 2018 2:55 pm

The following rates are offered by my credit union:

5-year CD: 2.25% Annual Percentage Yield (APY), 180 days dividend for Early Withdrawal Penalty (EWP)
6-year CD: 3.00% APY, 365 days dividend EWP

Minimum size of $1000. Jumbo rates are 0.05% higher ($100,000 minimum)

I already have money in Vanguard Total Bond Market Index. As others have already commented, it has not been fun to watch the NAV decline these past couple of years (not to get too emotional here!).

I also have a CD with slightly over 3 years left to maturity. The credit union briefly offered the 6-year CD at a slightly better rate than today a couple of months ago. I regretted missing that opportunity so was excited to see it reappear today. But, I am hesitating a bit with the 365 days EWP.

Any insights on how to analyze the opportunity? Should I maybe split my intended purchase in two, and do 50/50 between the 5-year and the 6-year CDs? Or is one choice obviously superior. The chances that I will need to break the CD to raise cash for an emergency are extremely low, so I guess it would just be if rates rise and a much more attractive opportunity arises.

I will probably try to make a decision today, just to avoid missing the higher rates (of course, I realize they could climb further), but figured I would reach out to the board for possible guidance. Thanks in advance for any input.

Edit: I looked at the comparable US Treasuries: the 2.625%, 2/28/23 trades at around 2.61%, and the 2.125%, 2/29/24 trades at about 2.72%, a yield pick-up of only 0.11%. That would seem to make the 0.75% yield pick-up between the two CD maturities pretty attractive. Note: I realize that the yield representations may not be directly comparable, but on the face of things the 6-year CD seems to be relatively attractively priced, no, though I suppose the over double EWP detracts.

xenial
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by xenial » Mon Feb 26, 2018 3:26 pm

It looks like about a 2.5 year holding period is the breakeven point in comparing the two CDs. If you hold for less than 2.5 years, the 5 year CD is better; otherwise the 6 year CD is better. So the question is --- how likely is it that you'll hold for at least 2.5 years? It's a tricky question, because (unknowable) rising interest rates are your most probable reason for breaking the CD.

I did the computation, ignoring compounding, by subtracting the early withdrawal penalty from the interest earned over the entire holding period.
5 yr CD: 2.5yrs*2.25% - 0.5yrs*2.25% = 4.5%
6 yr CD: 2.5yrs*3.00% - 1.0yrs*3.00% = 4.5%

rjbraun
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Mon Feb 26, 2018 3:33 pm

xenial wrote:
Mon Feb 26, 2018 3:26 pm
It looks like about a 2.5 year holding period is the breakeven point in comparing the two CDs. If you hold for less than 2.5 years, the 5 year CD is better; otherwise the 6 year CD is better. So the question is --- how likely is it that you'll hold for at least 2.5 years? It's a tricky question, because (unknowable) rising interest rates are your most probable reason for breaking the CD.

I did the computation, ignoring compounding, by subtracting the early withdrawal penalty from the interest earned over the entire holding period.
5 yr CD: 2.5yrs*2.25% - 0.5yrs*2.25% = 4.5%
6 yr CD: 2.5yrs*3.00% - 1.0yrs*3.00% = 4.5%
Thank you. Right, I expect to be prepared to hold for at least 2.5 years, but of course there's a potential associated opportunity cost to going out longer in maturity.

At this point, I am thinking of splitting the funds across the two CD maturities. The jumbo rate is only 0.05% better, so not so compelling. And, the idea of having a slug of money come due in 5 years and then again in 6 years suits my current situation pretty nicely, I think. Still, I am not set and would certainly appreciate hearing any additional input people may have!

EvelynTroy
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by EvelynTroy » Mon Feb 26, 2018 3:38 pm

I'm surely no expert on CD's - my suggestion not to be in a hurry purchasing either of these CD's.
Fri. purchased 48 mo. 3.04% CD at Freedom CU in Philadelphia - the promotion ended Fri.

Today I see - as an example.
NASA FCU Adds 11-Month Share Certificate Special (2.25% APY) - 2/15/2018
NASA Federal Credit Union (easy membership) has added an 11-month Share Certificate Special, earning 2.25% APY. Minimum deposit is $20k of new money.

https://www.depositaccounts.com/banks/n ... promo31927

You may find it helpful to learn to navigate around depositaccounts.com - looking for good rates, terms, ewp at places that have easy nation-wide membership - check promotions, or rates for the terms you are looking for.
Anytime I can get good return on shorter than 5-6 year term - its generally worth my while. I also want a Health Grade of A.
Main page there is an ewp calculator that is helpful.
Read the remarks/ratings by customers - sometimes a red flag pops up that should be investigated if you are interested in purchasing. Example - Capital One 360 - someone said they don't allow beneficiaries on their CD's - just seems hard to believe - if thats true I surely would not purchase a CD at Capital One.

You may not be comfortable purchasing CD's out of state, and want to be able to go to the brick and mortar bldg. - then my suggestion not a good idea for you.
I have 3 free wire transfers a quarter from my Schwab account - so if I'm in the market for a CD I can quickly transfer the cash at no cost or fuss.

Evelyn
ps - see Synchrony Bank has a 2% 24 mo. CD - I've had 3 CD's from Synchrony and no complaints - one is still current.

xenial
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by xenial » Mon Feb 26, 2018 3:49 pm

rjbraun wrote:
Mon Feb 26, 2018 2:55 pm
. . .
Edit: I looked at the comparable US Treasuries: the 2.625%, 2/28/23 trades at around 2.61%, and the 2.125%, 2/29/24 trades at about 2.72%, a yield pick-up of only 0.11%. That would seem to make the 0.75% yield pick-up between the two CD maturities pretty attractive. Note: I realize that the yield representations may not be directly comparable, but on the face of things the 6-year CD seems to be relatively attractively priced, no, though I suppose the over double EWP detracts.
Might you consider the higher yielding Treasury as a substitute for the 5 year CD? On the plus side, the Treasury is exempt from state and local taxes. On the minus side, it lacks the CD's put option (ability to withdraw early with just a 6 month penalty). I.e., if interest rates were to skyrocket, the Treasury's market price would decline significantly.

rjbraun
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Mon Feb 26, 2018 3:53 pm

EvelynTroy wrote:
Mon Feb 26, 2018 3:38 pm
I'm surely no expert on CD's - my suggestion not to be in a hurry purchasing either of these CD's.
Fri. purchased 48 mo. 3.04% CD at Freedom CU in Philadelphia - the promotion ended Fri.

Today I see - as an example.
NASA FCU Adds 11-Month Share Certificate Special (2.25% APY) - 2/15/2018
NASA Federal Credit Union (easy membership) has added an 11-month Share Certificate Special, earning 2.25% APY. Minimum deposit is $20k of new money.

https://www.depositaccounts.com/banks/n ... promo31927

You may find it helpful to learn to navigate around depositaccounts.com - looking for good rates, terms, ewp at places that have easy nation-wide membership - check promotions, or rates for the terms you are looking for.
Anytime I can get good return on shorter than 5-6 year term - its generally worth my while. I also want a Health Grade of A.
Main page there is an ewp calculator that is helpful.
Read the remarks/ratings by customers - sometimes a red flag pops up that should be investigated if you are interested in purchasing. Example - Capital One 360 - someone said they don't allow beneficiaries on their CD's - just seems hard to believe - if thats true I surely would not purchase a CD at Capital One.

You may not be comfortable purchasing CD's out of state, and want to be able to go to the brick and mortar bldg. - then my suggestion not a good idea for you.
I have 3 free wire transfers a quarter from my Schwab account - so if I'm in the market for a CD I can quickly transfer the cash at no cost or fuss.

Evelyn
ps - see Synchrony Bank has a 2% 24 mo. CD - I've had 3 CD's from Synchrony and no complaints - one is still current.
Gosh, lots of good info in your post! That thing about Capital One 360 possibly not allowing beneficiaries is certainly food for thought.

I see a lot of CD vs notes / bonds posts on Bogleheads, but despite my current post I have to admit that I am not so diligent about getting the most bang for my cash. After reading about Ally CDs I had planned to sign up for an Ally account. Then, I read the negative feedback and held off. I just want to be careful about opening too many accounts and spending a lot of time "chasing yield", as imprudent as that may sound to some here. Maybe when I feel that I have more time it will make sense, but for now it's not worth it to me.

While the credit union I have an account with is out-of-state, a close family member does business there, so I am comfortable enough that I will hear of any issues (plus, I have NCUA protection).

But, your post is showing me that there are some attractive opportunities in the marketplace, so I appreciate hearing that.

rjbraun
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Mon Feb 26, 2018 3:56 pm

xenial wrote:
Mon Feb 26, 2018 3:49 pm
rjbraun wrote:
Mon Feb 26, 2018 2:55 pm
. . .
Edit: I looked at the comparable US Treasuries: the 2.625%, 2/28/23 trades at around 2.61%, and the 2.125%, 2/29/24 trades at about 2.72%, a yield pick-up of only 0.11%. That would seem to make the 0.75% yield pick-up between the two CD maturities pretty attractive. Note: I realize that the yield representations may not be directly comparable, but on the face of things the 6-year CD seems to be relatively attractively priced, no, though I suppose the over double EWP detracts.
Might you consider the higher yielding Treasury as a substitute for the 5 year CD? On the plus side, the Treasury is exempt from state and local taxes. On the minus side, it lacks the CD's put option (ability to withdraw early with just a 6 month penalty). I.e., if interest rates were to skyrocket, the Treasury's market price would decline significantly.
Interesting idea. I might, though I doubt that I could get anywhere near that rate that I quoted. I got the rate off of Bloomberg, and my guess is that an "odd-lot" / retail quote would be significantly less attractive. I mainly was interested to just see the relative rates between 5 year and 6 year maturities, but you make an interesting point. Thanks

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Nestegg_User
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by Nestegg_User » Mon Feb 26, 2018 4:34 pm

those rates don’t seem very favorable- - i got two year CD’s at 2.0% without difficulty. with upward trending rates I wouldn’t lock in longer than three years at most. I use intermediate bond funds for longer, usual duration is just short of four years, and they don’t have any early withdrawal penalties.
so i’d split into CD’s for short term money and intermediate fund for the rest, with an eye on what the rates are doing. if they head up enough, then can start setting up a CD ladder for intermediate periods. I’d stay away from any long term right now.

EvelynTroy
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by EvelynTroy » Tue Feb 27, 2018 8:39 am

rjbraun,
What I was trying to say in a long-winded way was just as nestegg_user noted - the rates you are looking at just aren't very good.
What would be the logic in locking in for 5-6 years when you can get the same thing for around 2 years - or even same thing for 11 months.

And I too understand about rate chasing and keeping things simple - I have total of 6 CD's with 2 coming due in 2018. Its called laddering. I buy one when I need one, i.e. too much extra cash built up - I patiently wait until a decent offering comes up - sometimes it can take few months. For me its different than constantly looking for best deals and then grabbing it.

Suggest use the reader comments as a guide - not the gospel. Ex. that Capital One beneficiary thing - if that was the CD I thought was best when I needed one - I would phone them and ask - maybe the beneficiary thing was just plain wrong but then again....
I've also found often you find negative comments, not necessarily about the CD or its purchase, but other things like problems with a loan, impolite phone resps - things that don't often apply to the CD offerings.

All credit unions have NCUA protection.
Anyway you can probably check the CU you've decided on using with depositaccounts.com
Evelyn

sport
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by sport » Tue Feb 27, 2018 9:45 am

At Vanguard you can buy a 2-year brokered CD that yields 2.5% and a 3-year CD that yields 2.7%. If you will not need the money prior to maturity, these seem to be better.

johnz1001
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Joined: Tue Jan 01, 2013 7:41 am

Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by johnz1001 » Tue Feb 27, 2018 10:14 am

EvelynTroy wrote:
Mon Feb 26, 2018 3:38 pm
I'm surely no expert on CD's - my suggestion not to be in a hurry purchasing either of these CD's.
Fri. purchased 48 mo. 3.04% CD at Freedom CU in Philadelphia - the promotion ended Fri.

Today I see - as an example.
NASA FCU Adds 11-Month Share Certificate Special (2.25% APY) - 2/15/2018
NASA Federal Credit Union (easy membership) has added an 11-month Share Certificate Special, earning 2.25% APY. Minimum deposit is $20k of new money.

https://www.depositaccounts.com/banks/n ... promo31927

You may find it helpful to learn to navigate around depositaccounts.com - looking for good rates, terms, ewp at places that have easy nation-wide membership - check promotions, or rates for the terms you are looking for.
Anytime I can get good return on shorter than 5-6 year term - its generally worth my while. I also want a Health Grade of A.
Main page there is an ewp calculator that is helpful.
Read the remarks/ratings by customers - sometimes a red flag pops up that should be investigated if you are interested in purchasing. Example - Capital One 360 - someone said they don't allow beneficiaries on their CD's - just seems hard to believe - if thats true I surely would not purchase a CD at Capital One.

You may not be comfortable purchasing CD's out of state, and want to be able to go to the brick and mortar bldg. - then my suggestion not a good idea for you.
I have 3 free wire transfers a quarter from my Schwab account - so if I'm in the market for a CD I can quickly transfer the cash at no cost or fuss.

Evelyn
ps - see Synchrony Bank has a 2% 24 mo. CD - I've had 3 CD's from Synchrony and no complaints - one is still current.
I don't think I'd be too anxious for 5 years at 2.25. I've also have several CDs from Synchrony without a problem, though I was reluctant to purchase out of state CDs.

rjbraun
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Joined: Sun Sep 09, 2012 8:22 pm

Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Tue Feb 27, 2018 11:09 am

Thank you for all the helpful feedback. :D I didn't realize that the rates were so far off the market.
Nestegg_User wrote:
Mon Feb 26, 2018 4:34 pm
those rates don’t seem very favorable- - i got two year CD’s at 2.0% without difficulty. with upward trending rates I wouldn’t lock in longer than three years at most. I use intermediate bond funds for longer, usual duration is just short of four years, and they don’t have any early withdrawal penalties.
so i’d split into CD’s for short term money and intermediate fund for the rest, with an eye on what the rates are doing. if they head up enough, then can start setting up a CD ladder for intermediate periods. I’d stay away from any long term right now.
I am just so underwater on my bond fund holdings (mostly Total Bond Market Index (VBMFX)), though I recognize that should not necessarily guide my decision here.

Huh, VBMFX has average duration of 6.1 years when I checked now, longer than I would have thought, so I guess that explains some of the disappointing performance. Vanguard Intermediate Term Bond Index (VBILX) is actually slightly longer in duration.

What intermediate bond funds are around 4 years in duration?
EvelynTroy wrote:
Tue Feb 27, 2018 8:39 am
rjbraun,
What I was trying to say in a long-winded way was just as nestegg_user noted - the rates you are looking at just aren't very good.
What would be the logic in locking in for 5-6 years when you can get the same thing for around 2 years - or even same thing for 11 months.

And I too understand about rate chasing and keeping things simple - I have total of 6 CD's with 2 coming due in 2018. Its called laddering. I buy one when I need one, i.e. too much extra cash built up - I patiently wait until a decent offering comes up - sometimes it can take few months. For me its different than constantly looking for best deals and then grabbing it.

Suggest use the reader comments as a guide - not the gospel. Ex. that Capital One beneficiary thing - if that was the CD I thought was best when I needed one - I would phone them and ask - maybe the beneficiary thing was just plain wrong but then again....
I've also found often you find negative comments, not necessarily about the CD or its purchase, but other things like problems with a loan, impolite phone resps - things that don't often apply to the CD offerings.

All credit unions have NCUA protection.
Anyway you can probably check the CU you've decided on using with depositaccounts.com
Evelyn
Thanks for the additional input, Evelyn. Frankly, I have historically always sat on too much cash. And, yes, it's crazy at a time of historically low interest rates for me to now decide that I should be more active about managing my cash better! :shock:

But, if I'm going to do it now I kind of thought that putting the money somewhere with yield is better than sitting on it and earning next to nothing. So, while I take your point about patiently waiting until a decent offering comes along, doesn't that offering have to be all that much better to compensate for the near zero(?) return between now and when that opportunities arises?

I am finding this exercise helpful and interesting, though I also feel that it seems a bit counter to the 3-fund concept and keeping things simple. I don't know, maybe if and when I get more used to doing this I will feel differently, but now the idea of opening accounts, moving money around, etc. doesn't seem to me how I want to spend my time. Admittedly, I've done the credit card signup bonus game, and that was kind of "fun" for a while, but now I'm less game to play. Yes, once I "froze" my credit that also served as a deterrent.

My credit union received an A+ rating, though for the life of me I can't find a rating scale. I did receive an extraordinary dividend in the last couple of years. I wasn't even really aware of the payment until I saw a couple of hundred dollars extra appear in my account. I guess this is to their credit (the extraordinary dividend itself, not that I myself was credited) as according to depositaccounts.com (as of 2011) credit unions rarely have any profits to pay out.
sport wrote:
Tue Feb 27, 2018 9:45 am
At Vanguard you can buy a 2-year brokered CD that yields 2.5% and a 3-year CD that yields 2.7%. If you will not need the money prior to maturity, these seem to be better.
Thank you, I will definitely look into that (as I held off on the CD purchase yesterday, as a result of very helpful feedback here).

Any idea how much better I could do if I were to be more aggressive about things? I mean, I don't mind leave 0.25% or so "on the table" to simplify my life (at least for now, when I feel stretched). Also, I'm partly just curious to understand how inefficient (if that's the write word) the market may be.

sport
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by sport » Tue Feb 27, 2018 11:38 am

rjbraun wrote:
Tue Feb 27, 2018 11:09 am
Also, I'm partly just curious to understand how inefficient (if that's the write word) the market may be.
The banks will offer only as much as necessary to meet their needs for deposits. Many of the people "who walk in off the street" are not as sophisticated as those who use brokers. Also, at least at Vanguard, the minimum size CD is 10K and they are only sold in 1K increments. There is no reinvestment of interest. There are no early withdrawals. I expect that the actual CD is held by the brokerage, and the brokerage maintains the accounts for each individual investor. The bank pays the brokerage to do this. Even so, it is probably less expensive for the banks than maintaining lots of individual accounts, sending 1099s etc. So, they can offer a higher yield.

rjbraun
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Tue Feb 27, 2018 11:52 am

sport wrote:
Tue Feb 27, 2018 11:38 am
rjbraun wrote:
Tue Feb 27, 2018 11:09 am
Also, I'm partly just curious to understand how inefficient (if that's the write word) the market may be.
The banks will offer only as much as necessary to meet their needs for deposits. Many of the people "who walk in off the street" are not as sophisticated as those who use brokers. Also, at least at Vanguard, the minimum size CD is 10K and they are only sold in 1K increments. There is no reinvestment of interest. There are no early withdrawals. I expect that the actual CD is held by the brokerage, and the brokerage maintains the accounts for each individual investor. The bank pays the brokerage to do this. Even so, it is probably less expensive for the banks than maintaining lots of individual accounts, sending 1099s etc. So, they can offer a higher yield.
Interesting, thanks. I think I follow what you are saying. In that case, Vanguard is acting as an intermediary, but I guess in keeping to Vanguard's approach of keeping costs low, etc. what they take for their services should be reasonable and not egregious (yes, an assumption on my part).

I guess to get an idea of just how competitive or not Vanguard may be I would simply want to check what depositaccounts.com shows as the top rates for in that maturity range. Of course, the early withdrawal option of a bank (unbrokered) CD argues for a lower rate than Vanguard would offer, all else equal. More specifically, that put option has value to the holder that would detract from the CD yield

sport
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by sport » Tue Feb 27, 2018 1:16 pm

On the other hand, a brokered CD can be sold on the open market instead of being redeemed early. If interest rates increase, it will go down in value, and if interest rates decrease it will go up in value.

EvelynTroy
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by EvelynTroy » Tue Feb 27, 2018 1:34 pm

But, if I'm going to do it now I kind of thought that putting the money somewhere with yield is better than sitting on it and earning next to nothing. So, while I take your point about patiently waiting until a decent offering comes along, doesn't that offering have to be all that much better to compensate for the near zero(?) return between now and when that opportunities arises?

I am finding this exercise helpful and interesting, though I also feel that it seems a bit counter to the 3-fund concept and keeping things simple. I don't know, maybe if and when I get more used to doing this I will feel differently, but now the idea of opening accounts, moving money around, etc. doesn't seem to me how I want to spend my time. Admittedly, I've done the credit card signup bonus game, and that was kind of "fun" for a while, but now I'm less game to play. Yes, once I "froze" my credit that also served as a deterrent.

My credit union received an A+ rating, though for the life of me I can't find a rating scale. I did receive an extraordinary dividend in the last couple of years. I wasn't even really aware of the payment until I saw a couple of hundred dollars extra appear in my account. I guess this is to their credit (the extraordinary dividend itself, not that I myself was credited) as according to depositaccounts.com (as of 2011) credit unions rarely have any profits to pay out.
sport wrote: ↑Tue Feb 27, 2018 8:45 am
At Vanguard you can buy a 2-year brokered CD that yields 2.5% and a 3-year CD that yields 2.7%. If you will not need the money prior to maturity, these seem to be better.
The Scale Rating for the CU's - you should see 3 rectangles Reviews, Health Ratings, Current Top Rate - in the Health Rating box is a link View Health Rating - there it breaks down the different components.

Please I'm not criticizing, but you noted opening accounts, moving money around isn't how you want to spend your time - the CD 5 or 6 at your relatives CU, even your own for that matter you have to open an account and move or fund money into the account. Anytime you rebalance you have to move money around.
I never did the Credit Card sign up game - too much mucking around for me.

You mentioned about the cash waiting around for an offering doesn't that offering have to be all that much better to compensate for the near zero(?) return between now and when that opportunities arises?
Generally just works out I don't fret and stew if I miss a couple months interest - example that 48 mo. 3.04% that I purchased last week - that cash was sitting I'd guess 3 months. Seemed fine to me.

One thing for future reference if it makes any difference to you - but yes CD's at brokerage companies, i.e. Vanguard, Schwab, etc. - for me it took some study - all sort of different CD options - callable vs. non-callable, and others that were too "creative" for me. Other thing is brokerage offered CD's you get your interest paid into your money markt acct. or sent as a check - I want my interest to be reinvested into the CD's and compound over the life of the CD. You don't have an EWP with them - you can sell when you want, but you will pay and often dearly for that privilege.
Just give me a simple CU or Bank CD.

Evelyn

rjbraun
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by rjbraun » Tue Feb 27, 2018 1:57 pm

EvelynTroy wrote:
Tue Feb 27, 2018 1:34 pm
The Scale Rating for the CU's - you should see 3 rectangles Reviews, Health Ratings, Current Top Rate - in the Health Rating box is a link View Health Rating - there it breaks down the different components.

Please I'm not criticizing, but you noted opening accounts, moving money around isn't how you want to spend your time - the CD 5 or 6 at your relatives CU, even your own for that matter you have to open an account and move or fund money into the account. Anytime you rebalance you have to move money around.
I never did the Credit Card sign up game - too much mucking around for me.

You mentioned about the cash waiting around for an offering doesn't that offering have to be all that much better to compensate for the near zero(?) return between now and when that opportunities arises?
Generally just works out I don't fret and stew if I miss a couple months interest - example that 48 mo. 3.04% that I purchased last week - that cash was sitting I'd guess 3 months. Seemed fine to me.

One thing for future reference if it makes any difference to you - but yes CD's at brokerage companies, i.e. Vanguard, Schwab, etc. - for me it took some study - all sort of different CD options - callable vs. non-callable, and others that were too "creative" for me. Other thing is brokerage offered CD's you get your interest paid into your money markt acct. or sent as a check - I want my interest to be reinvested into the CD's and compound over the life of the CD. You don't have an EWP with them - you can sell when you want, but you will pay and often dearly for that privilege.
Just give me a simple CU or Bank CD.

Evelyn
Thank you. I truly appreciate the input you and others have provided. I guess I had no idea that trying to buy CDs in a reasonably thoughtful and responsible fashion could take so much time and effort. While I am fine with handling the paperwork (often if it's online, not sure that counts as "paperwork" :? ) to buy another CD when one matures, etc. I have more of an issue with having to wire funds around (or do ACH transfers), mainly because I figure there are risks / associated headaches if the transfer fails. So, transferring funds among my existing accounts is one thing, transferring funds to a new institution is an even bigger concern for me.

Agreed. I took a look at Vanguard's brokered CDs and definitely figured I would need to study that page carefully (and likely speaking with Vanguard for clarification, etc.) before acting. I would prefer to have interest reinvested in the CD, but I suppose if everything else about the CD is attractive I could live with the distribution.

sport
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by sport » Tue Feb 27, 2018 2:26 pm

My experience with direct CDs is that the bank wants to renew them automatically upon maturity. If I get a "special rate" for some odd period, like 37 months, it will renew at an unfavorable rate for another 37 months unless I take action to keep that from happening. With a brokered CD, the money just goes into my sweep account and stays there until I decide what to do with it. I really don't like the auto-renewal. As I get older, I don't know if I will remain sufficiently aware of things to keep it from renewing at a low rate. Similarly, my successor trustee may be too busy to attend to this within the 2 week grace period before it becomes locked in.

xenial
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by xenial » Tue Feb 27, 2018 2:34 pm

sport wrote:
Tue Feb 27, 2018 2:26 pm
My experience with direct CDs is that the bank wants to renew them automatically upon maturity. If I get a "special rate" for some odd period, like 37 months, it will renew at an unfavorable rate for another 37 months unless I take action to keep that from happening. With a brokered CD, the money just goes into my sweep account and stays there until I decide what to do with it. I really don't like the auto-renewal. As I get older, I don't know if I will remain sufficiently aware of things to keep it from renewing at a low rate. Similarly, my successor trustee may be too busy to attend to this within the 2 week grace period before it becomes locked in.
I feel exactly the same way. However, I know of two banks that allow you to set CD maturity instructions online: Ally and Capital One

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welderwannabe
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by welderwannabe » Tue Feb 27, 2018 3:12 pm

rjbraun wrote:
Mon Feb 26, 2018 2:55 pm
The following rates are offered by my credit union:

5-year CD: 2.25% Annual Percentage Yield (APY), 180 days dividend for Early Withdrawal Penalty (EWP)
6-year CD: 3.00% APY, 365 days dividend EWP
A 1 year TBill is going for about 2% right now, and a 2 year TNote is about 2.25%. I am not sure an extra quarter point for the 5 year CD is worth the extra term risk over the bill, and the 2 year is identical. This is especially true after considering the state tax advantages of the Treasury.

I wouldn't want to enter into a 6 year CD right now...way too long in this environment.

Of course I could be wrong, rates could crash next year. No one knows.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

Scooter57
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by Scooter57 » Wed Feb 28, 2018 8:46 am

sport wrote:
Tue Feb 27, 2018 2:26 pm
My experience with direct CDs is that the bank wants to renew them automatically upon maturity. If I get a "special rate" for some odd period, like 37 months, it will renew at an unfavorable rate for another 37 months unless I take action to keep that from happening. With a brokered CD, the money just goes into my sweep account and stays there until I decide what to do with it. I really don't like the auto-renewal. As I get older, I don't know if I will remain sufficiently aware of things to keep it from renewing at a low rate. Similarly, my successor trustee may be too busy to attend to this within the 2 week grace period before it becomes locked in.
Sport,

Many of my CU and bank CDs allow me to set the withdrawal option at any time during the life of the CD. Transfer to another institution by ACH is an option.

sport
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Re: 5-year CD vs. 6-year CD; double EWP with longer maturity

Post by sport » Wed Feb 28, 2018 10:20 am

Scooter57 wrote:
Wed Feb 28, 2018 8:46 am
sport wrote:
Tue Feb 27, 2018 2:26 pm
My experience with direct CDs is that the bank wants to renew them automatically upon maturity. If I get a "special rate" for some odd period, like 37 months, it will renew at an unfavorable rate for another 37 months unless I take action to keep that from happening. With a brokered CD, the money just goes into my sweep account and stays there until I decide what to do with it. I really don't like the auto-renewal. As I get older, I don't know if I will remain sufficiently aware of things to keep it from renewing at a low rate. Similarly, my successor trustee may be too busy to attend to this within the 2 week grace period before it becomes locked in.
Sport,

Many of my CU and bank CDs allow me to set the withdrawal option at any time during the life of the CD. Transfer to another institution by ACH is an option.
Thanks Scooter,
At my time of life I try to keep things as simple as I can. Even though I can handle things just fine now, CDs are a longer term situation and there is no way to know how sharp I will be several years in the future. Similarly, I don't want to make things any more complex than necessary for my successor trustees. So, I have decided to use only one bank for my direct CDs with Vanguard broker CDs being the only other option. If I were a lot younger, your suggestion would be a good one.

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