2-year CDs at Vanguard and Fidelity Today

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Oct 16, 2018 5:28 pm

jeffyscott wrote:
Tue Oct 16, 2018 3:38 pm
Just looking at the Vanguard quick search the spread is bigger at 3 year, 3.15% vs 2.95%, so 20 bp. By interpolation, I guess I got about a 30 bp yield premium over comparable treasury, 3.221% for 2yr/8mo. But nearly all of the other secondaries I saw looked like worse buys than the new issues.
Yes, the 3-year CD yield premium generally has been a bit larger than the 2-year.

Market closed, so quotes somewhat suspect, but I see a Treasury maturing 6/15/2021 at 2.90% for min qty 1 at Vanguard, so if accurate, you did indeed get a yield premium of about 30 bps.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Tue Oct 16, 2018 6:16 pm

likashing wrote:
Tue Oct 16, 2018 3:49 pm
Did you make a killing doing that in 2008? Just curious.
No. I had been going with the mantra that TIPs were just like nominal Treasuries except for the inflation protection. In the spring of '08 I completed creating my 10 year TIPs ladder just in time to find out that TIPs were not "just like Treasuries". I had to liquidate my entire TIPs ladder at a large loss in order to rebalance post Lehman.

That experience is probably why I am so "obstinate" that liquidity should be a major factor in bond selection along with credit risk and yield.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 17, 2018 1:37 pm

jeffyscott wrote:
Wed Oct 10, 2018 5:48 pm
likashing wrote:
Wed Oct 10, 2018 5:17 pm
It closes at 5pm EST.
Thanks, did not know I had an extra hour available.
Or not...

It turns out Schwab will basically not let me make use of that extra hour of the bond market. I got a trade violation email because the mutual fund sale to cover CD purchase happened the next day (since market was closed when it was placed), even though both trades had the same settlement date.

So it seems the only way to buy a CD after 4 pm eastern would be to have the funds already sitting in the low yielding Schwab settlement account.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 17, 2018 1:47 pm

jeffyscott wrote:
Wed Oct 17, 2018 1:37 pm
jeffyscott wrote:
Wed Oct 10, 2018 5:48 pm
likashing wrote:
Wed Oct 10, 2018 5:17 pm
It closes at 5pm EST.
Thanks, did not know I had an extra hour available.
Or not...

It turns out Schwab will basically not let me make use of that extra hour of the bond market. I got a trade violation email because the mutual fund sale to cover CD purchase happened the next day (since market was closed when it was placed), even though both trades had the same settlement date.

So it seems the only way to buy a CD after 4 pm eastern would be to have the funds already sitting in the low yielding Schwab settlement account.
Not sure what your sequence was exactly but I had an incident involving about 4 trades over several days one of which was a Treasury note that settled several days in the future. Schwab's algorithm flagged it as a trade violation. I called and the problem was resolved. It was not a trade violation.

So if you think you did not have a trade violation call them.

As a result of this I changed the account to a margin account to elinatint any future problems.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 17, 2018 2:12 pm

Sequence was: bought CD at 4:30 EST, placed order to sell mutual fund immediately after.

So the fund sale occurred at next days close. And both trades settled the day after.

Never had a brokerage account until about 4 months ago, so I don't really know if that would be considered a violation. I figured since both settled the same day it was fine?

Already asked and was told can't have margin in IRA.
Last edited by jeffyscott on Wed Oct 17, 2018 2:43 pm, edited 2 times in total.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 17, 2018 2:38 pm

jeffyscott wrote:
Wed Oct 17, 2018 2:12 pm
Sequence was: bought CD at 4:30 EST, placed order to sell mutual fund immediately after.

So the fund sale occurred at next days close. And both trades settled the day after.

Never had a brokerage account until about 4 months ago, so I don't really know if that would be considered a violation. I figured since both settled the same day it was fine?

Already asked and was told can't have margin in IRA.
Sounds like the CD trade date was the 4:30 EST day. Not the next day. I don't know anything about the CD market hours.

Found this at Schwab:
How to Purchase CDs Through Schwab CD OneSource Close
Both quotes and the ability to place orders are available 22 hours per day, seven days a week (not available 2 a.m.–4 a.m. Eastern Time). Orders placed outside market hours will be executed the next market day if the offering is still available.
What are the market hours for CDs? If it was a direct CD it might be bank hours. Typically 5:00 PM local.

I'd call them and ask.

And yes no margin in an IRA.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 17, 2018 2:51 pm

Yes, CD/bond market hours are until 5. I learned this after my CD purchase. I was actually surprised when I noticed the time...almost as surprised as I was a to see a 4 month CD with YTM of 3.15% :) .

After re-reading the email, that listed conditions for trading without settled funds, it seems the issue was this one:
You do not make payment with the proceeds from the sale of other securities made after the trade date.
Since the MF trade occurred the day after the CD trade, due to the difference in market hours.

They gave me a pass, this time. So no trading restrictions. Just trying to learn the rules.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 17, 2018 3:36 pm

jeffyscott wrote:
Wed Oct 17, 2018 2:51 pm
They gave me a pass, this time. So no trading restrictions. Just trying to learn the rules.
:sharebeer
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Wed Oct 17, 2018 6:13 pm

jeffyscott wrote:
Wed Oct 17, 2018 2:51 pm
Yes, CD/bond market hours are until 5. I learned this after my CD purchase. I was actually surprised when I noticed the time...almost as surprised as I was a to see a 4 month CD with YTM of 3.15% :) .

After re-reading the email, that listed conditions for trading without settled funds, it seems the issue was this one:
You do not make payment with the proceeds from the sale of other securities made after the trade date.
Since the MF trade occurred the day after the CD trade, due to the difference in market hours.

They gave me a pass, this time. So no trading restrictions. Just trying to learn the rules.
It is interesting that at 4:30pm EST they let you submit the trade to begin with, since you did not have enough available funds due to MF trade not submitted, right?

They should have just declined your 4:30pm EST request on the spot.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 17, 2018 6:27 pm

likashing wrote:
Wed Oct 17, 2018 6:13 pm
jeffyscott wrote:
Wed Oct 17, 2018 2:51 pm
Yes, CD/bond market hours are until 5. I learned this after my CD purchase. I was actually surprised when I noticed the time...almost as surprised as I was a to see a 4 month CD with YTM of 3.15% :) .

After re-reading the email, that listed conditions for trading without settled funds, it seems the issue was this one:
You do not make payment with the proceeds from the sale of other securities made after the trade date.
Since the MF trade occurred the day after the CD trade, due to the difference in market hours.

They gave me a pass, this time. So no trading restrictions. Just trying to learn the rules.
It is interesting that at 4:30pm EST they let you submit the trade to begin with, since you did not have enough available funds due to MF trade not submitted, right?

They should have just declined your 4:30pm EST request on the spot.
No. They have way to know that you have a push deposit in transit that will be there by 8:00 AM the next morning or in this case the day after.

At Vanguard I can initiate a pull from my bank that will not clear Vg for 2 days yet I have the ability to "spend" that amount as soon as the screen refreshes.

The SEC has rules that the brokers must follow even if we probably don't fully understand those same rules. It is not the brokers responsibility to act in the SEC's behalf. But it is nice if the broker warns us as Vanguard does in a similar situation.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 17, 2018 9:36 pm

Doc wrote:
Wed Oct 17, 2018 6:27 pm
likashing wrote:
Wed Oct 17, 2018 6:13 pm
It is interesting that at 4:30pm EST they let you submit the trade to begin with, since you did not have enough available funds due to MF trade not submitted, right?

They should have just declined your 4:30pm EST request on the spot.
No. They have way to know that you have a push deposit in transit that will be there by 8:00 AM the next morning or in this case the day after.

At Vanguard I can initiate a pull from my bank that will not clear Vg for 2 days yet I have the ability to "spend" that amount as soon as the screen refreshes.

The SEC has rules that the brokers must follow even if we probably don't fully understand those same rules. It is not the brokers responsibility to act in the SEC's behalf. But it is nice if the broker warns us as Vanguard does in a similar situation.
There were warnings when the trade to buy the CD was placed, but I thought it just meant the funds had to be in settlement account in two days. I did not read the warnings that closely, as I had seen the same with prior CD purchases that were placed before 4 pm eastern.

I started a trade to see what the actual warnings are and one of them does say "If you plan to cover the cost of this trade with proceeds from another trade, please make sure both trades execute on the same day to avoid a liquidation violation". At the related link it indicates "the one exception to this rule allows you to sell a Schwab Value Advantage Money Fund anytime before settlement". So it seems there is an additional option besides leaving money in the low yield settlement account, if I want to be able to buy CDs at 4-5 PM.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Thu Oct 18, 2018 11:04 am

jeffyscott wrote:
Wed Oct 17, 2018 9:36 pm
There were warnings when the trade to buy the CD was placed, but I thought it just meant the funds had to be in settlement account in two days. I did not read the warnings that closely, as I had seen the same with prior CD purchases that were placed before 4 pm eastern.
Schwab wrote:Liquidation violations in a cash account occur if you sell securities after the purchase date of a new trade in order to cover that new trade. The primary difference between a liquidation and a freeride, is that with the liquidation you are selling securities other than the one(s) purchased.
...
Note: Liquidation violations are based on trade dates, not settlement dates.
...
The consequence: The first liquidation violation in an account generally results in a notification, but no restriction. However, the second through fourth combined non-freeride violations in a rolling 12 month period will result in a 90-day settled-cash restriction, during which time trading is limited to the amount of settled funds available. The fifth violation ...
https://www.schwab.com/active-trader/in ... e-timeline

What is very weird with this is if a maturing treasury is replaced with an auction purchase which is several days before the maturity it would be a liquidation violation if the maturing treasury is considered a sale. :twisted:
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by HereToLearn » Thu Oct 18, 2018 11:37 pm

Fidelity now has the call-protected 2 year at UBS at 3.05%.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Fri Oct 19, 2018 3:46 pm

Doc wrote:
Thu Oct 18, 2018 11:04 am
jeffyscott wrote:
Wed Oct 17, 2018 9:36 pm
There were warnings when the trade to buy the CD was placed, but I thought it just meant the funds had to be in settlement account in two days. I did not read the warnings that closely, as I had seen the same with prior CD purchases that were placed before 4 pm eastern.
Schwab wrote:Liquidation violations in a cash account occur if you sell securities after the purchase date of a new trade in order to cover that new trade. The primary difference between a liquidation and a freeride, is that with the liquidation you are selling securities other than the one(s) purchased.
...
Note: Liquidation violations are based on trade dates, not settlement dates.
...
The consequence: The first liquidation violation in an account generally results in a notification, but no restriction. However, the second through fourth combined non-freeride violations in a rolling 12 month period will result in a 90-day settled-cash restriction, during which time trading is limited to the amount of settled funds available. The fifth violation ...
https://www.schwab.com/active-trader/in ... e-timeline

What is very weird with this is if a maturing treasury is replaced with an auction purchase which is several days before the maturity it would be a liquidation violation if the maturing treasury is considered a sale. :twisted:
Additional data:
Vanguard wrote:Trade liquidations (Late sale)
This violation occurs when you buy a security without enough funds to cover the purchase and sell another, at a later date, in a cash account.

The settlement of the buy and the subsequent sell don't match, which is a violation. This is also known as a "late sale."
https://investor.vanguard.com/investing ... -penalties

So Schwab is saying trade date and Vanguard is saying settlement date. HHmmnn
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Fri Oct 19, 2018 4:12 pm

Doc wrote:
Fri Oct 19, 2018 3:46 pm
Vanguard wrote:Trade liquidations (Late sale)
This violation occurs when you buy a security without enough funds to cover the purchase and sell another, at a later date, in a cash account.

The settlement of the buy and the subsequent sell don't match, which is a violation. This is also known as a "late sale."
https://investor.vanguard.com/investing ... -penalties

So Schwab is saying trade date and Vanguard is saying settlement date. HHmmnn
It is not that clear as Vanguard does mention the sell date, too.

But under "How to avoid trade restrictions" they say:
If you're paying for a trade with assets from a Vanguard fund, request the exchange into your settlement fund by the close of regular trading on the New York Stock Exchange (NYSE), usually 4 p.m., Eastern time, on the business day before settlement.

Bold is mine, but is it notable that they specify Vanguard fund there, rather than any mutual fund? Wouldn't any mutual fund sale, whether Vanguard or not, settle the next day? In any case, it appears that what I did would be acceptable according to Vanguard as long as it were a Vanguard fund.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Fri Oct 19, 2018 4:47 pm

jeffyscott wrote:
Fri Oct 19, 2018 4:12 pm
It is not that clear as Vanguard does mention the sell date, too.

But under "How to avoid trade restrictions" they say:
If you're paying for a trade with assets from a Vanguard fund, request the exchange into your settlement fund by the close of regular trading on the New York Stock Exchange (NYSE), usually 4 p.m., Eastern time, on the business day before settlement.

Bold is mine, but is it notable that they specify Vanguard fund there, rather than any mutual fund? Wouldn't any mutual fund sale, whether Vanguard or not, settle the next day? In any case, it appears that what I did would be acceptable according to Vanguard as long as it were a Vanguard fund.
This is my understanding - same settlement day. I don't think the Vanguard fund rather than any mutual fund is relevant. I think that when Schwab wrote their message they were not thinking of a T2 trade followed by a T1 trade the next day. They were thinking T2 and T2.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Fri Oct 19, 2018 5:48 pm

Doc wrote:
Fri Oct 19, 2018 4:47 pm
I think that when Schwab wrote their message they were not thinking of a T2 trade followed by a T1 trade the next day. They were thinking T2 and T2.
I don't know about that, since they do specifically state that "liquidation violations are based on trade dates, not settlement dates".
https://www.schwab.com/active-trader/in ... violations?

One of the messages to me about this also makes it pretty clear that they do mean what that says, that it is the trade date not the settlement date that matters for this type of violation.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Oct 20, 2018 9:45 am

jeffyscott wrote:
Fri Oct 19, 2018 5:48 pm
Doc wrote:
Fri Oct 19, 2018 4:47 pm
I think that when Schwab wrote their message they were not thinking of a T2 trade followed by a T1 trade the next day. They were thinking T2 and T2.
I don't know about that, since they do specifically state that "liquidation violations are based on trade dates, not settlement dates".
https://www.schwab.com/active-trader/in ... violations?

One of the messages to me about this also makes it pretty clear that they do mean what that says, that it is the trade date not the settlement date that matters for this type of violation.
But the Vanguard statement and the Schwab statement seem to be in disagreement.

I thought your situation was that the two transactions actually posted on two consecutive days because of the closing time on the CD being one hour later than the mutual fund. If that was true neither the same trade date or the same settlement date criteria were met.

If on the other hand both of your trades occurred on the same date and both were T1 settlements both criteria were met.

Do we know the settlement time for a CD? As a bank thing maybe it's T0. (I would not think so.)

Maybe you can clarify.

Found this:
Trade Date - The date that the transaction is agreed to by both parties. For trades initiated on the CDVantage site, the trade date will be the date on which the CDVantage representative accepts a CDVantage customer order. Operating hours are 8:30am-5pm, EST (M-F).

Settlement Date - The date ownership of the CD transfers to the new owner and the date on which the buyer must pay for the CD. The buyer begins to earn interest from this date forward. All CDVantage CDs offered will show the earliest date in which settlement can occur.
https://www.cdvantage.com/terminology.php (This is a bank that apparently trades CDs.)
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Sat Oct 20, 2018 9:55 am

Doc wrote:
Sat Oct 20, 2018 9:45 am
I thought your situation was that the two transactions actually posted on two consecutive days because of the closing time on the CD being one hour later than the mutual fund. If that was true neither the same trade date or the same settlement date criteria were met.
Posted on two consecutive days, but same settlement date.

Brokered CDs are T2. So, for example buy CD at 4:30 ET on Wed, settles Friday. Enter sale of mutual fund to cover at 4:35 ET Wed, trade occurs on Thursday, settles on Friday. Result is liquidity violation, according to Schwab.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Sat Oct 20, 2018 10:07 am

jeffyscott wrote:
Sat Oct 20, 2018 9:55 am
Doc wrote:
Sat Oct 20, 2018 9:45 am
I thought your situation was that the two transactions actually posted on two consecutive days because of the closing time on the CD being one hour later than the mutual fund. If that was true neither the same trade date or the same settlement date criteria were met.
Posted on two consecutive days, but same settlement date.

Brokered CDs are T2. So, for example buy CD at 4:30 ET on Wed, settles Friday. Enter sale of mutual fund to cover at 4:35 ET Wed, trade occurs on Thursday, settles on Friday. Result is liquidity violation, according to Schwab.
But not a "Trade liquidations (Late sale)"

Of course this assumes that Vanguards "Trade liquidations (Late sale)" is the same as Schwab's "Liquidation Violation".

Here's a schwab example:

Liquidation violation example
The situation: Mr. Lee starts day zero (the trade date) with settled shares of XYZ stock and $100 in settled cash, and buys UVW stock for $1,000. The remaining $900 in settled funds needed to fully pay for the UVW purchase is due by the settlement date, day two (T+2). On day two, rather than deposit cash in his account, Mr. Lee places an order to sell his XYZ stock.
https://www.schwab.com/active-trader/in ... e-timeline

Both T2.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Happy2BeFree » Sun Oct 21, 2018 1:29 pm

Kevin M wrote:
Sat Sep 29, 2018 5:35 pm
<snip>
Consider holding some of each, but perhaps use a 1-year Treasury instead of a 1-year CD. The 1-year Treasury yield is a little higher than 2.60%, so with same as or higher than yield of 1-year CD, but more liquid (much lower bid/ask spread).

This is for IRAs or no/low state income tax. In taxable with moderate to high state income tax, Treasuries can have higher taxable-equivalent yields (TEYs) than CDs. They do for me out to 3-year maturity. I am buying 1-year to 2-year Treasuries in taxable.

Kevin
Kevin, first, thanks so much for sharing your in-depth knowledge on this forum and your blog. I've learned a ton from you and appreciate your time and efforts on our behalf.

Just wonder, does TEY apply if there's no state or local income tax, but there's a state dividends and interest tax?

Say that tax is 5%. Would the formula be: yield / 0.95 to calculate TEY?

So, a 2-year Treasury yields 2.88%. Would the TEY be 2.88 / 0.95 = 3.032%?

(Edit: fixed typo.)
Last edited by Happy2BeFree on Sun Oct 21, 2018 8:21 pm, edited 2 times in total.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sun Oct 21, 2018 6:19 pm

Happy2BeFree wrote:
Sun Oct 21, 2018 1:29 pm
Kevin, first, thanks so much for sharing your in-depth knowledge on this forum and your blog. I've learned a ton from you and appreciate your time and efforts on our behalf.

Just wonder, does TEY apply if there's no state or local income tax, but there's a state dividends and interest tax?

Say that tax is 5%. Would the formula be: yield / 0.95 to calculate TEY?

So, a 2-year treasury yields 2.88%. Would the TEY be 2.88 / 0.95 = 3.032%?
Thanks for the nice feedback!

If you pay the state interest tax on whatever you're comparing the Treasury to, say a CD, but you do not pay it on Treasury interest, then yes, you would calculate a TEY to compare to the CD interest rate.

If you don't get a deduction on federal schedule A for the state interest tax, then the TEY formula is

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

So a bit more complicated than your formula. So if comparing Treasury yield of 2.88% to a CD rate of 3% with federal and state (interest) marginal tax rates of 22% and 5%,

TEY = 2.88% * (1-22%) / (1 - 22% - 5%) = 3.08%

So the Treasury would have a slightly higher TEY than the CD, and would be a better deal, especially considering much better liquidity for the Treasury.

Kevin
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Happy2BeFree » Sun Oct 21, 2018 8:20 pm

Kevin M wrote:
Sun Oct 21, 2018 6:19 pm
Happy2BeFree wrote:
Sun Oct 21, 2018 1:29 pm
Kevin, first, thanks so much for sharing your in-depth knowledge on this forum and your blog. I've learned a ton from you and appreciate your time and efforts on our behalf.

Just wonder, does TEY apply if there's no state or local income tax, but there's a state dividends and interest tax?

Say that tax is 5%. Would the formula be: yield / 0.95 to calculate TEY?

So, a 2-year Treasury yields 2.88%. Would the TEY be 2.88 / 0.95 = 3.032%?
Thanks for the nice feedback!

If you pay the state interest tax on whatever you're comparing the Treasury to, say a CD, but you do not pay it on Treasury interest, then yes, you would calculate a TEY to compare to the CD interest rate.

If you don't get a deduction on federal schedule A for the state interest tax, then the TEY formula is

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

So a bit more complicated than your formula. So if comparing Treasury yield of 2.88% to a CD rate of 3% with federal and state (interest) marginal tax rates of 22% and 5%,

TEY = 2.88% * (1-22%) / (1 - 22% - 5%) = 3.08%

So the Treasury would have a slightly higher TEY than the CD, and would be a better deal, especially considering much better liquidity for the Treasury.

Kevin
Thanks so much, Kevin! I do pay state div/int tax on CDs, but I'm assuming I wouldn't pay it on Treasuries. I better find out for sure.

I've never bought individual Treasuries before, but have several large PenFed CDs maturing in Dec./Jan. and wondered if would be a better deal to buy Treasuries instead of CDs. My federal marginal tax rate is 12%, I believe, so with your formula:

TEY = 2.88% x (1-12%) / (1-12%-5%) = 2.88 x 0.88 / 0.83 = 3.053%

Do you have advice for the novice as to whether Treasuries or brokered CDs (at VG) are easier to buy and ladder? I prefer direct CDs, but am trying to consolidate at VG.

Again, many thanks for your help! :beer

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Oct 22, 2018 2:24 pm

Happy2BeFree wrote:
Sun Oct 21, 2018 8:20 pm
Thanks so much, Kevin! I do pay state div/int tax on CDs, but I'm assuming I wouldn't pay it on Treasuries. I better find out for sure.

I've never bought individual Treasuries before, but have several large PenFed CDs maturing in Dec./Jan. and wondered if would be a better deal to buy Treasuries instead of CDs. My federal marginal tax rate is 12%, I believe, so with your formula:

TEY = 2.88% x (1-12%) / (1-12%-5%) = 2.88 x 0.88 / 0.83 = 3.053%

Do you have advice for the novice as to whether Treasuries or brokered CDs (at VG) are easier to buy and ladder? I prefer direct CDs, but am trying to consolidate at VG.

Again, many thanks for your help! :beer
Your calculation is correct. Be sure you are using marginal tax rates, and not tax brackets. My federal tax bracket will be 12%, but my federal marginal tax rate will be 27%, due to marginal ordinary income pushing an equal amount of qualified dividends from 0% to 15% tax rate. There many other factors that can cause your marginal tax rate to be different than your tax bracket.

Buying Treasuries or brokered CDs is very similar. I would go with Treasuries if the TEY is higher than or even close to the CD yield, due to much better liquidity (will cost less to sell before maturity if you need to). CDs or Treasuries in taxable and CDs in IRAs have been quite competitive with direct CDs over the last year or so, so I've been consolidating at brokers with proceeds from maturing direct CDs.

You can buy new-issue CDs, which is similar to buying Treasuries at auction, except auctions for 1-year and 2-year Treasuries are only held once per month, while you can buy new-issue CDs at any time (although settlement might be as much as 1-2 weeks after you place the order).

Buying on the secondary market is a bit more complicated, and for Treasuries, you're going to get the best pricing at auction. No commission on any Treasury trades, nor on new-issue CDs. There is a $1 or $2 per secondary CD commission depending on whether you have $500K or more of assets at Vanguard (at least Voyager select). One CD = $1,000 face value, so the commission is 0.1% or 0.2%.

From your Vanguard brokerage, click Buy/Sell -> buy/sell bonds or CDs (or something like that). From the overview page, click on the yield/type you're interested in, e.g., 2-year CD or 2-year Treasury. The CD search results will show new issues only, but you can modify the search criteria to also show secondary CDs if you want. The default Treasury search screen will show secondary Treasuries of approximately the maturity selected, but you can modify the search criteria to see whatever Treasuries are currently open for auction.

Unfortunately, Vanguard is not the best either for secondary CDs or secondary Treasuries. I've found the best secondary CD deals at Fidelity, and they charge $1/CD for all customers. Schwab is the best for secondary Treasuries, as you usually get the best pricing for minimum quantity 10 ($10,000 face value), while at Fidelity and Vanguard you usually pay a bit more for less than 200 or more. If you buy new issue or at auction, it doesn't matter much, but Fidelity often has more CDs at the top rate.

Hope this helps.

Kevin
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Happy2BeFree
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Happy2BeFree » Mon Oct 22, 2018 3:36 pm

Kevin M wrote:
Mon Oct 22, 2018 2:24 pm

Your calculation is correct. Be sure you are using marginal tax rates, and not tax brackets. My federal tax bracket will be 12%, but my federal marginal tax rate will be 27%, due to marginal ordinary income pushing an equal amount of qualified dividends from 0% to 15% tax rate. There many other factors that can cause your marginal tax rate to be different than your tax bracket.

Buying Treasuries or brokered CDs is very similar. I would go with Treasuries if the TEY is higher than or even close to the CD yield, due to much better liquidity (will cost less to sell before maturity if you need to). CDs or Treasuries in taxable and CDs in IRAs have been quite competitive with direct CDs over the last year or so, so I've been consolidating at brokers with proceeds from maturing direct CDs.

You can buy new-issue CDs, which is similar to buying Treasuries at auction, except auctions for 1-year and 2-year Treasuries are only held once per month, while you can buy new-issue CDs at any time (although settlement might be as much as 1-2 weeks after you place the order).

Buying on the secondary market is a bit more complicated, and for Treasuries, you're going to get the best pricing at auction. No commission on any Treasury trades, nor on new-issue CDs. There is a $1 or $2 per secondary CD commission depending on whether you have $500K or more of assets at Vanguard (at least Voyager select). One CD = $1,000 face value, so the commission is 0.1% or 0.2%.

From your Vanguard brokerage, click Buy/Sell -> buy/sell bonds or CDs (or something like that). From the overview page, click on the yield/type you're interested in, e.g., 2-year CD or 2-year Treasury. The CD search results will show new issues only, but you can modify the search criteria to also show secondary CDs if you want. The default Treasury search screen will show secondary Treasuries of approximately the maturity selected, but you can modify the search criteria to see whatever Treasuries are currently open for auction.

Unfortunately, Vanguard is not the best either for secondary CDs or secondary Treasuries. I've found the best secondary CD deals at Fidelity, and they charge $1/CD for all customers. Schwab is the best for secondary Treasuries, as you usually get the best pricing for minimum quantity 10 ($10,000 face value), while at Fidelity and Vanguard you usually pay a bit more for less than 200 or more. If you buy new issue or at auction, it doesn't matter much, but Fidelity often has more CDs at the top rate.

Hope this helps.

Kevin
Oh yes, this helps tremendously. I'll be calling VG today, but you've answered half my questions already! I think I might just skip the more complex secondary markets and stick with new-issue and auction for now (unless PedFed or other offers a HY special EOY). As for marginal tax rate, I'll have to check on that. Again, many thanks for your always-thorough explanations and suggestions. You certainly are a treasure in Bogleheadland! :sharebeer

protagonist
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by protagonist » Mon Oct 22, 2018 9:08 pm

Happy2BeFree wrote:
Mon Oct 22, 2018 3:36 pm
Kevin M wrote:
Mon Oct 22, 2018 2:24 pm

Your calculation is correct. Be sure you are using marginal tax rates, and not tax brackets. My federal tax bracket will be 12%, but my federal marginal tax rate will be 27%, due to marginal ordinary income pushing an equal amount of qualified dividends from 0% to 15% tax rate. There many other factors that can cause your marginal tax rate to be different than your tax bracket.

Buying Treasuries or brokered CDs is very similar. I would go with Treasuries if the TEY is higher than or even close to the CD yield, due to much better liquidity (will cost less to sell before maturity if you need to). CDs or Treasuries in taxable and CDs in IRAs have been quite competitive with direct CDs over the last year or so, so I've been consolidating at brokers with proceeds from maturing direct CDs.

You can buy new-issue CDs, which is similar to buying Treasuries at auction, except auctions for 1-year and 2-year Treasuries are only held once per month, while you can buy new-issue CDs at any time (although settlement might be as much as 1-2 weeks after you place the order).

Buying on the secondary market is a bit more complicated, and for Treasuries, you're going to get the best pricing at auction. No commission on any Treasury trades, nor on new-issue CDs. There is a $1 or $2 per secondary CD commission depending on whether you have $500K or more of assets at Vanguard (at least Voyager select). One CD = $1,000 face value, so the commission is 0.1% or 0.2%.

From your Vanguard brokerage, click Buy/Sell -> buy/sell bonds or CDs (or something like that). From the overview page, click on the yield/type you're interested in, e.g., 2-year CD or 2-year Treasury. The CD search results will show new issues only, but you can modify the search criteria to also show secondary CDs if you want. The default Treasury search screen will show secondary Treasuries of approximately the maturity selected, but you can modify the search criteria to see whatever Treasuries are currently open for auction.

Unfortunately, Vanguard is not the best either for secondary CDs or secondary Treasuries. I've found the best secondary CD deals at Fidelity, and they charge $1/CD for all customers. Schwab is the best for secondary Treasuries, as you usually get the best pricing for minimum quantity 10 ($10,000 face value), while at Fidelity and Vanguard you usually pay a bit more for less than 200 or more. If you buy new issue or at auction, it doesn't matter much, but Fidelity often has more CDs at the top rate.

Hope this helps.

Kevin
I think I might just skip the more complex secondary markets and stick with new-issue and auction for now
Kevin is a great help to us all when negotiating this stuff.
If it is any consolation, unless you are investing large amounts of money, the amount of additional profit you will gain from the secondary market is rather trivial.
And if you are investing large amounts, learning about the secondary market (to the extent necessary to make wise decisions) is not very daunting. It just looks confusing when you first shop there (I went through this a few months ago). People here will help you as they helped me.
Good luck.

Happy2BeFree
Posts: 233
Joined: Sat Aug 03, 2013 12:26 pm

Re: 2-year CDs at Vanguard and Fidelity Today

Post by Happy2BeFree » Mon Oct 22, 2018 11:52 pm

protagonist wrote:
Mon Oct 22, 2018 9:08 pm

Kevin is a great help to us all when negotiating this stuff.
If it is any consolation, unless you are investing large amounts of money, the amount of additional profit you will gain from the secondary market is rather trivial.
And if you are investing large amounts, learning about the secondary market (to the extent necessary to make wise decisions) is not very daunting. It just looks confusing when you first shop there (I went through this a few months ago). People here will help you as they helped me.
Good luck.
Thanks, protagonist! It would be a large (to me) amount of money, so tiny differences might make a big difference in the end. I did learn that Treasuries won't be taxed in my state, so that's a plus. I've checked out VG's site again and things are starting to make more sense, thanks to Kevin's explanations here and on other threads. Haven't spoken to VG yet, but when I do, I'll be much more prepared. I appreciate your encouragement!

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jeffyscott
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Mon Oct 29, 2018 9:25 am

I seem to be having odd things happen with every CD purchase lately. Today's adventure is having the "fill or kill" order sit open. I chatted regarding this, asked: I placed a CD order about 20 minutes ago. It is still open. How long does the seller have to fill it?

and, after checking with the fixed income team, Schwab rep said: My colleague said that our fixed income traders are working to see if they can get a fill or not right now. There is not a set amount of time with a fill or kill CD trade like there is with an equity trade, but they are working to see if they can get a fill for you right now.
press on, regardless - John C. Bogle

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Doc
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Mon Oct 29, 2018 3:34 pm

jeffyscott wrote:
Mon Oct 29, 2018 9:25 am
I seem to be having odd things happen with every CD purchase lately. Today's adventure is having the "fill or kill" order sit open. I chatted regarding this, asked: I placed a CD order about 20 minutes ago. It is still open. How long does the seller have to fill it?

and, after checking with the fixed income team, Schwab rep said: My colleague said that our fixed income traders are working to see if they can get a fill or not right now. There is not a set amount of time with a fill or kill CD trade like there is with an equity trade, but they are working to see if they can get a fill for you right now.
Come on Jeffy, own up. Did you get your fill?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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jeffyscott
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Mon Oct 29, 2018 3:48 pm

Nope, they cancelled it.

It is rather obnoxious that seeing this:
Image

and this:
Image

Does not mean that you will actually get any CDs even when you have successfully put in an order to buy.

After that showed up as cancelled, I had another one that I tried to order, but when I submitted it said "no longer available". But at least that was immediate and maybe someone else got an order in first.
press on, regardless - John C. Bogle

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jeffyscott
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 30, 2018 8:27 am

Today I got 3.2% for about 2 year, 3 mo. (Feb. 2021) and this time it was filled.

But, I first got a call from Schwab asking if I planned to sell to cover. When I said, "yes, if it gets filled", she said "okay, I will put it through". Which I thought was odd since they've not called about similar CD orders before (except one time when I accidentally entered an order in a taxable account that had existed for about 10 years but I had never used :oops: ).

This CD market is certainly strange and inefficient.

Also, the best new issues I see are now 3.2% for 3 year and 3.05% for 2 year, so the spread over treasuries has increased a bit.
press on, regardless - John C. Bogle

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