Which is better CD - rates and terms?

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EvelynTroy
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Which is better CD - rates and terms?

Post by EvelynTroy » Sun Oct 07, 2018 1:35 pm

A local bank is offering:
24 mo. CD @ 3%
18 mo. CD @ 2.50%
Either regular CD or IRA CD.
Can't seem to locate early withdrawal penalty info. on their website - will phone on Tues. when banks open.

Question: assuming EWP is not awful, although 18 and 24 mo. I'm not too concerned, how would someone decide which is the better offering?
With interest rates rising I don't want to get locked into longer term CD's but I think I'd be ok with either of these? Correct?

Thanks. Appreciate your thoughts.
Evelyn

tvinayak
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Re: Which is better CD - rates and terms?

Post by tvinayak » Sun Oct 07, 2018 1:40 pm

I recently went through a similar exercise and settled for a 12 month CD @ 2.55% from Marcus by Goldman Sachs. Likewise I am thinking that since interest rates are creeping up, might as well not lock up the capital for too long.

Tony

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Ricchan
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Re: Which is better CD - rates and terms?

Post by Ricchan » Sun Oct 07, 2018 1:53 pm

Strictly between the two, I think the 24 mo. CD for 3% is a better deal. A bump of 0.50% for extending duration 6 months is pretty good.

For the sake of comparison, Vanguard has new issue 24 mo. CDs at 2.95% right now, and a 16 mo. CD on the secondary market at 2.836% (Ally Bk Sandy Utah, matures on 04/06/2020). Synchrony bank also has a special 15 mo. CD at 2.75%.

If I had to choose a CD, I would split between the 24 mo. 3% CD and Synchrony's 15 mo. 2.75% CD or the 16 mo. 2.836% CD on the secondary market, although the latter only has 10 qty available atm, and you'd have to pay a brokerage fee for buying from the secondary market which will bring the yield down a couple bp. And it might be gone by the time you check in when the market opens.

Edit: I was actually looking at CDs myself a couple days ago and decided to go instead for the 1 yr treasury bill (auction date 10/09/2018, so there's still time to get in on it). The indicative yield of the 1 yr treasury is currently 2.617%, which is 2.918% at my state tax rate.

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willthrill81
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Re: Which is better CD - rates and terms?

Post by willthrill81 » Sun Oct 07, 2018 3:35 pm

There's the 'Swedroe rule', which says that you should extend the term of the CD only until adding one additional year would result in a rate smaller than .2% (20 basis points). In your instance, increasing the term by six months is adding .5%, which would be a slam dunk according to this rule. The increase in the rate would have to be smaller than .1% for it to not be worthwhile to go for the longer term CD.
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Austintatious
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Re: Which is better CD - rates and terms?

Post by Austintatious » Sun Oct 07, 2018 3:53 pm

I agree that the 3% for 2 years is a good deal that I'd be plum pleased to see at my "local bank".

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Re: Which is better CD - rates and terms?

Post by sport » Sun Oct 07, 2018 4:25 pm

You could also "hedge your bet" by splitting the money 50/50 between the two. That would give you a "mini-ladder". So, if rates go up in the next 18 months, you have money to reinvest. If they don't, you get the higher rate on the longer one.

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Re: Which is better CD - rates and terms?

Post by AlphaLess » Sun Oct 07, 2018 4:37 pm

Everything is relative to ones preferences.

0.5% for 6 months is a fantastic additional yield.

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jeffyscott
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Re: Which is better CD - rates and terms?

Post by jeffyscott » Sun Oct 07, 2018 4:44 pm

Ricchan wrote:
Sun Oct 07, 2018 1:53 pm
If I had to choose a CD, I would split between the 24 mo. 3% CD and Synchrony's 15 mo. 2.75% CD or the 16 mo. 2.836% CD on the secondary market, although the latter only has 10 qty available atm, and you'd have to pay a brokerage fee for buying from the secondary market which will bring the yield down a couple bp.
Regarding the 16 mo. CD, assuming one has at least $500K there, commission at Vanguard is $1/1000 or ~0.1%. So for a one year CD the reduction in YTM should be about 0.1%, due to the commission. Spreading it over 16 months, instead of 12, would make the reduction about 0.075%, I think. And so the 2.836% becomes about 2.761%. If one has less than $500K, commission at Vanguard is, I believe, $2/1000 and that would then make the reduction about 0.15%, reducing it to around 2.686%.
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EvelynTroy
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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Sun Oct 07, 2018 5:17 pm

Thanks everyone for the replies - very helpful.
I hadn't heard of Larry's rule of thumb - good to know.
I already have an account at Synchrony so the idea of splitting between their 15 mo. one and the 24 sounds good - my CD that matured today at Northwest Federal Savings is large so splitting is appealing.
I don't have a Vanguard acct. I'll check Schwab's offerings as well.

And yes I was surprised to see that local bank rate.

Thanks again for the suggestions and ideas.
Evelyn

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Re: Which is better CD - rates and terms?

Post by mouses » Sun Oct 07, 2018 5:27 pm

jeffyscott wrote:
Sun Oct 07, 2018 4:44 pm
Ricchan wrote:
Sun Oct 07, 2018 1:53 pm
If I had to choose a CD, I would split between the 24 mo. 3% CD and Synchrony's 15 mo. 2.75% CD or the 16 mo. 2.836% CD on the secondary market, although the latter only has 10 qty available atm, and you'd have to pay a brokerage fee for buying from the secondary market which will bring the yield down a couple bp.
Regarding the 16 mo. CD, assuming one has at least $500K there, commission at Vanguard is $1/1000 or ~0.1%. So for a one year CD the reduction in YTM should be about 0.1%, due to the commission. Spreading it over 16 months, instead of 12, would make the reduction about 0.075%, I think. And so the 2.836% becomes about 2.761%. If one has less than $500K, commission at Vanguard is, I believe, $2/1000 and that would then make the reduction about 0.15%, reducing it to around 2.686%.
I'm confused. Vanguard has not charged me commissions to buy CDs.

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Ricchan
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Re: Which is better CD - rates and terms?

Post by Ricchan » Sun Oct 07, 2018 5:37 pm

mouses wrote:
Sun Oct 07, 2018 5:27 pm
I'm confused. Vanguard has not charged me commissions to buy CDs.
They don't charge commission for new issue CDs, but they do for CDs on the secondary market.

https://investor.vanguard.com/investing ... /cds-bonds

Commissions are under "CDs & bonds" ... "EXISTING ISSUES"

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Kevin M
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Re: Which is better CD - rates and terms?

Post by Kevin M » Sun Oct 07, 2018 6:55 pm

The 18-month at 2.5% is a lousy deal. Yield on a new-issue 18-month brokered CD at Vanguard is 2.70%. The 1-year yield at Vanguard is 2.55% (2.60% at Fidelity). NWFCU has a 7-month CD at 2.50% for $100K or more. My local bank savings account pays 2.50%.

The 2-year at 3.0% is a pretty good deal. New-issue 2-year CD high yield at Vanguard and Fidelity is 2.95%.

If you pay state tax, Treasuries might have a higher taxable-equivalent (and after-tax) yield than CDs of same maturity. This is the case for me, so I've been buying 1-year and 2-year Treasuries in taxable. Even without the tax exemption, the 6-month Treasury yield is about 2.4%, so almost as much as the 18-month CD yield you mention, but with much less term risk.

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Re: Which is better CD - rates and terms?

Post by Doc » Mon Oct 08, 2018 8:15 am

willthrill81 wrote:
Sun Oct 07, 2018 3:35 pm
There's the 'Swedroe rule', which says that you should extend the term of the CD only until adding one additional year would result in a rate smaller than .2% (20 basis points). In your instance, increasing the term by six months is adding .5%, which would be a slam dunk according to this rule. The increase in the rate would have to be smaller than .1% for it to not be worthwhile to go for the longer term CD.
Can you please provide a source for the "Swedroe rule". The only sources I have found predate Lehman. The reasoning was also vague.

I really would like to see a more recent confirmation.
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Re: Which is better CD - rates and terms?

Post by willthrill81 » Mon Oct 08, 2018 8:56 am

Doc wrote:
Mon Oct 08, 2018 8:15 am
willthrill81 wrote:
Sun Oct 07, 2018 3:35 pm
There's the 'Swedroe rule', which says that you should extend the term of the CD only until adding one additional year would result in a rate smaller than .2% (20 basis points). In your instance, increasing the term by six months is adding .5%, which would be a slam dunk according to this rule. The increase in the rate would have to be smaller than .1% for it to not be worthwhile to go for the longer term CD.
Can you please provide a source for the "Swedroe rule". The only sources I have found predate Lehman. The reasoning was also vague.

I really would like to see a more recent confirmation.
It's known as the 'Swedroe rule' around here, but I'm not sure if DFA developed it first.
http://socialize.morningstar.com/NewSoc ... 63632.aspx

This is from Larry, yet it has little detail.
viewtopic.php?t=120617#p1762920

I'm pretty sure that he discusses it in this book.
Image
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Re: Which is better CD - rates and terms?

Post by Doc » Mon Oct 08, 2018 9:38 am

Regarding the Swedroe Rule.
willthrill81 wrote:
Mon Oct 08, 2018 8:56 am
It's known as the 'Swedroe rule' around here, but I'm not sure if DFA developed it first.
Yeh, Swedroe has written something like "that's what DFA does and those people are pretty smart guys."

His "Bond Book" 1st ed is March 2006. I haven't seen a newer version.

My problem is that after "quantitative easing" is the 20 bps still applicable?

Do you think I should go knock on Larry's door and ask him? :D
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Re: Which is better CD - rates and terms?

Post by willthrill81 » Mon Oct 08, 2018 9:42 am

Doc wrote:
Mon Oct 08, 2018 9:38 am
Regarding the Swedroe Rule.
willthrill81 wrote:
Mon Oct 08, 2018 8:56 am
It's known as the 'Swedroe rule' around here, but I'm not sure if DFA developed it first.
Yeh, Swedroe has written something like "that's what DFA does and those people are pretty smart guys."

His "Bond Book" 1st ed is March 2006. I haven't seen a newer version.

My problem is that after "quantitative easing" is the 20 bps still applicable?

Do you think I should go knock on Larry's door and ask him? :D
I don't know that quantitative easing has changed the situation that much, if at all. But that's just me.

I believe Larry still responds to PMs. I'd be interested to hear his response.
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Re: Which is better CD - rates and terms?

Post by Sandtrap » Mon Oct 08, 2018 10:21 am

Consider "brokered" new issue CD's at Vanguard, or other brokerage. There are some advantages over bank issued.
j

EvelynTroy
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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Mon Oct 08, 2018 11:31 am

Consider "brokered" new issue CD's at Vanguard, or other brokerage. There are some advantages over bank issued.

Sandtrap,
I'd like to know the advantages. I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
I understand no EWP, but if you sell before maturity its probably going to cost you something.

Thanks.
Evelyn

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Re: Which is better CD - rates and terms?

Post by Doc » Mon Oct 08, 2018 12:02 pm

EvelynTroy wrote:
Mon Oct 08, 2018 11:31 am
I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
The seven day yield on Vanguard Federal Money Market Fund (VMFXX) is currently 2.03%.

Maybe it's growing faster in the CD but there probably is not much there to compound. Single digit Starbucks a year? :D
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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Mon Oct 08, 2018 12:43 pm

Doc wrote:
Mon Oct 08, 2018 12:02 pm
EvelynTroy wrote:
Mon Oct 08, 2018 11:31 am
I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
The seven day yield on Vanguard Federal Money Market Fund (VMFXX) is currently 2.03%.

Maybe it's growing faster in the CD but there probably is not much there to compound. Single digit Starbucks a year? :D
I don't have a Vanguard account, my Schwab account does not let you sweep into whatever cash fund you choose - it goes in their very low paying one, then you have to transfer it to a higher paying one. Maybe all brokerage cos. are the same now, don't know. Your right not much to compound, but say I get $50 or so in interest - going to the trouble to move it to higher paying cash fund is just an aggravation - just add it on to the CD and I don't have to do anything. Which is main reason I have no interest in brokered CD's. May well be some advantages to brokered Cd's that I just don't see.

I reread the discussion, and KevinM noted the Northwest Federal CU offer of 7 mo @ 2.50% - my CD that matured today is from NWFCU - I had requested the proceeds be mailed to me - didn't know what I wanted to do with it. Didn't even check NWFCU's offerings - maybe I can phone first thing Tues. and have the CD reinvested at the 7 mo. offer. Maybe they didn't mail it yet. Thanks KevinM for heads-up on this.

Evelyn

PS - Doc, and I'm just across the bridge from Larry - I used to work with his firm and have greatest respect.

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Re: Which is better CD - rates and terms?

Post by Kevin M » Mon Oct 08, 2018 1:26 pm

EvelynTroy wrote:
Mon Oct 08, 2018 12:43 pm
I reread the discussion, and KevinM noted the Northwest Federal CU offer of 7 mo @ 2.50% - my CD that matured today is from NWFCU - I had requested the proceeds be mailed to me - didn't know what I wanted to do with it. Didn't even check NWFCU's offerings - maybe I can phone first thing Tues. and have the CD reinvested at the 7 mo. offer. Maybe they didn't mail it yet. Thanks KevinM for heads-up on this.
You're welcome. What about my suggestion to consider Treasuries if you pay state income tax? Do you?

Although the NWFCU 7-month CD is not attractive to me, I considered it for my mom, since I expect her state tax rate to be low if not 0% next year. However, even without the state tax exemption, the 6-month Treasury yield is about 2.4%, and I don't think 10 basis points is enough to justify not continuing to consolidate their assets in a single brokerage account, not to mention the much better liquidity of a Treasury. Of the roughly $109K or so from the CD, I entered Treasury auction orders for 40 6-month and 40 1-year Treasury bills in her brokerage account, and will leave the remainder in Prime MM to cover expected and unexpected expenses for the next few months (they have other CDs and Treasuries maturing in less than six months).

You should be able to log onto your account to see if the check has been deducted from your account yet. Even if so, maybe they can stop payment on the check.

Why did you request a check rather than do an ACH transfer to Schwab or whatever bank you'd deposit the check to?

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Re: Which is better CD - rates and terms?

Post by jeffyscott » Mon Oct 08, 2018 2:36 pm

EvelynTroy wrote:
Mon Oct 08, 2018 12:43 pm
I don't have a Vanguard account, my Schwab account does not let you sweep into whatever cash fund you choose - it goes in their very low paying one, then you have to transfer it to a higher paying one. Maybe all brokerage cos. are the same now, don't know. Your right not much to compound, but say I get $50 or so in interest - going to the trouble to move it to higher paying cash fund is just an aggravation - just add it on to the CD and I don't have to do anything. Which is main reason I have no interest in brokered CD's. May well be some advantages to brokered Cd's that I just don't see.
I'm pretty new to brokered CDs, but I think the only advantage is convenience, particularly in an IRA.

Not all brokerages have such low yielding accounts, with Vanguard and Fidelity you can use a federal money market fund. Schwab has that negative and their $10 minimum commission on secondaries, but there are a couple things that I like better at Schwab, too.

I'd still want to move interest payments out of the federal money market if I used Fidelity or Vanguard, so the inconvenience is no less, it is just that any delay at Schwab has a greater opportunity cost, due to the very low interest rate.
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Re: Which is better CD - rates and terms?

Post by Doc » Mon Oct 08, 2018 3:27 pm

EvelynTroy wrote:
Mon Oct 08, 2018 12:43 pm
I don't have a Vanguard account, my Schwab account does not let you sweep into whatever cash fund you choose - it goes in their very low paying one, then you have to transfer it to a higher paying one.
I only sweep our Schwab taxable account about every 2 or 3 months. But we are using Treasury notes not CDs so the payments are less frequent.

But I do like the convenience of Schwab bank. They have 10 9 (one closed) branches in California. But they do have two in Reno. That could be very convenient. :D
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Re: Which is better CD - rates and terms?

Post by Doc » Mon Oct 08, 2018 3:31 pm

jeffyscott wrote:
Mon Oct 08, 2018 2:36 pm
Not all brokerages have such low yielding accounts, with Vanguard and Fidelity you can use a federal money market fund. Schwab has that negative and their $10 minimum commission on secondaries, but there are a couple things that I like better at Schwab, too.
I can move money from Schwab to buy something at Vanguard in less than a minute by routing the funds through our checking account. We do have a margin account at Schwab which reduces the time by one day. No cost involved.
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Re: Which is better CD - rates and terms?

Post by Kevin M » Mon Oct 08, 2018 7:18 pm

Doc wrote:
Mon Oct 08, 2018 3:27 pm
I only sweep our Schwab taxable account about every 2 or 3 months. But we are using Treasury notes not CDs so the payments are less frequent.
Many CDs pay interest semi-annually, so the same as Treasury notes. However, Wells Fargo has consistently had the top 2-year and 3-year new-issue brokered CD yields lately, and they pay interest monthly. I usually buy on secondary market, so haven't necessarily bought WF CDs.

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Mon Oct 08, 2018 7:25 pm

Kevin M wrote:
Mon Oct 08, 2018 1:26 pm
EvelynTroy wrote:
Mon Oct 08, 2018 12:43 pm
I reread the discussion, and KevinM noted the Northwest Federal CU offer of 7 mo @ 2.50% - my CD that matured today is from NWFCU - I had requested the proceeds be mailed to me - didn't know what I wanted to do with it. Didn't even check NWFCU's offerings - maybe I can phone first thing Tues. and have the CD reinvested at the 7 mo. offer. Maybe they didn't mail it yet. Thanks KevinM for heads-up on this.
You're welcome. What about my suggestion to consider Treasuries if you pay state income tax? Do you?

Although the NWFCU 7-month CD is not attractive to me, I considered it for my mom, since I expect her state tax rate to be low if not 0% next year. However, even without the state tax exemption, the 6-month Treasury yield is about 2.4%, and I don't think 10 basis points is enough to justify not continuing to consolidate their assets in a single brokerage account, not to mention the much better liquidity of a Treasury. Of the roughly $109K or so from the CD, I entered Treasury auction orders for 40 6-month and 40 1-year Treasury bills in her brokerage account, and will leave the remainder in Prime MM to cover expected and unexpected expenses for the next few months (they have other CDs and Treasuries maturing in less than six months).

You should be able to log onto your account to see if the check has been deducted from your account yet. Even if so, maybe they can stop payment on the check.

Why did you request a check rather than do an ACH transfer to Schwab or whatever bank you'd deposit the check to?

Kevin
I have no idea why I requested a check rather than a transfer - just wasn't thinking, not very smart.
I logged in to NWFCU and it shows only the $1.00 in the savings acct. No other payment or activity of any kind. I'll phone in a.m.
Treasury bill purchase - to be honest I have no idea how to purchase this - just seems over my head. Yes I do pay state tax, Missouri.
I don't even understand what a Treasury bill is - but then I never tried to figure it out either.

Evelyn

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Re: Which is better CD - rates and terms?

Post by Kevin M » Mon Oct 08, 2018 8:21 pm

EvelynTroy wrote:
Mon Oct 08, 2018 7:25 pm
<snip>
I logged in to NWFCU and it shows only the $1.00 in the savings acct. No other payment or activity of any kind. I'll phone in a.m.
Do you still see a CD in your account? If not, then they probably just mailed you a check from some sort of general account after depositing the CD proceeds into it. Since I always do ACH or wire, I didn't think about the fact that they wouldn't draw a check on the savings account.
Treasury bill purchase - to be honest I have no idea how to purchase this - just seems over my head. Yes I do pay state tax, Missouri.
I don't even understand what a Treasury bill is - but then I never tried to figure it out either.

Buying Treasuries at a broker is done almost the same as buying CDs at a broker. It is quite easy, especially if you buy at auction (a 6-month Treasury bill is auctioned weekly). I'd be glad to walk you through how to do it at Schwab if you ever decide to pursue it.

Looks like the tax rate is 6% if your taxable income is more than $9,072 in Missouri. Unless you itemize deductions and get a full deduction for your state income tax on Schedule A, your taxable-equivalent yield (TEY) also depends to some extent on your marginal federal tax rate. But, as an approximation, your TEY for a Treasury is yield / (1- state tax rate). So your TEY on a 6-month Treasury at 2.4% yield and 6% state tax rate would be 2.4% / (1-6%) = 2.55%.

If you don't itemize or don't get the state income tax deduction on Schedule A on marginal income (e.g., because of exceeding the $10K SALT cap), your TEY is y * (1-f) / (1- f - s), where f and s = marginal federal and state tax rates. So at 12% federal and 6% state, a Treasury at 2.4% would have TEY = 2.4% * (1-12%) / (1-18%) = 2.58%.

Since you already have a Schwab account, buying a 6-month Treasury at Schwab would simplify your portfolio, as well as probably providing a higher TEY than the NWFCU CD. Especially if they've already mailed the check, I'd consider doing so. Treasuries also are much more liquid, so if for whatever reason you needed the money before maturity, it would cost less to sell the Treasury than to do an early withdrawal from an NWFCU CD or to sell a brokered CD.

A Treasury bill is just a type of fixed-income security issued by the US Treasury. As with all Treasuries, it's about as safe as you can get--at least as safe as an FDIC- or NCUA-insured CD. A bill, as opposed to a note or a bond, is sold at a discount and pays no interest before maturity. So all of your interest is in the form of the difference between the purchase price and the maturity price.

For example, if you pay 99 and receive 100 at maturity six months later, that's about 1% in six months or about 2% per year. You don't have to calculate this yourself, since the Treasury provides an auction results document that shows the yield, and we know from recent yields about what the yield will be at auction (although we don't know it exactly before the auction).

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Tue Oct 09, 2018 7:30 am

Kevin M wrote:
Mon Oct 08, 2018 8:21 pm
EvelynTroy wrote:
Mon Oct 08, 2018 7:25 pm
<snip>
I logged in to NWFCU and it shows only the $1.00 in the savings acct. No other payment or activity of any kind. I'll phone in a.m.
Do you still see a CD in your account? If not, then they probably just mailed you a check from some sort of general account after depositing the CD proceeds into it. Since I always do ACH or wire, I didn't think about the fact that they wouldn't draw a check on the savings account.
Treasury bill purchase - to be honest I have no idea how to purchase this - just seems over my head. Yes I do pay state tax, Missouri.
I don't even understand what a Treasury bill is - but then I never tried to figure it out either.

Buying Treasuries at a broker is done almost the same as buying CDs at a broker. It is quite easy, especially if you buy at auction (a 6-month Treasury bill is auctioned weekly). I'd be glad to walk you through how to do it at Schwab if you ever decide to pursue it.

Looks like the tax rate is 6% if your taxable income is more than $9,072 in Missouri. Unless you itemize deductions and get a full deduction for your state income tax on Schedule A, your taxable-equivalent yield (TEY) also depends to some extent on your marginal federal tax rate. But, as an approximation, your TEY for a Treasury is yield / (1- state tax rate). So your TEY on a 6-month Treasury at 2.4% yield and 6% state tax rate would be 2.4% / (1-6%) = 2.55%.

If you don't itemize or don't get the state income tax deduction on Schedule A on marginal income (e.g., because of exceeding the $10K SALT cap), your TEY is y * (1-f) / (1- f - s), where f and s = marginal federal and state tax rates. So at 12% federal and 6% state, a Treasury at 2.4% would have TEY = 2.4% * (1-12%) / (1-18%) = 2.58%.

Since you already have a Schwab account, buying a 6-month Treasury at Schwab would simplify your portfolio, as well as probably providing a higher TEY than the NWFCU CD. Especially if they've already mailed the check, I'd consider doing so. Treasuries also are much more liquid, so if for whatever reason you needed the money before maturity, it would cost less to sell the Treasury than to do an early withdrawal from an NWFCU CD or to sell a brokered CD.

A Treasury bill is just a type of fixed-income security issued by the US Treasury. As with all Treasuries, it's about as safe as you can get--at least as safe as an FDIC- or NCUA-insured CD. A bill, as opposed to a note or a bond, is sold at a discount and pays no interest before maturity. So all of your interest is in the form of the difference between the purchase price and the maturity price.

For example, if you pay 99 and receive 100 at maturity six months later, that's about 1% in six months or about 2% per year. You don't have to calculate this yourself, since the Treasury provides an auction results document that shows the yield, and we know from recent yields about what the yield will be at auction (although we don't know it exactly before the auction).

Kevin
Kevin,
I can't thank you enough for taking time to explain and calculate the Treasury Bill option to me, my guess is I might not be the only one totally in the dark about what looks like a very good option. Not to mention an investing option I need to be knowledgeable about. At this particular time with the NWFCU CD arriving in the mail, I have couple days to make sure I know how to do the process. Going to call Schwab, guess it would be the bond desk that can walk me thru a trial run - think I can take that CD check to my local Schwab branch for faster deposit.

Your explanation makes perfect sense, seems like its one of those things that after you do it once there's really nothing to it.
I'll report back how it goes. Anytime I can make those pesky taxes work in my favor I need to do it.

Not that its important, but thinking about why on earth I had that check mailed to me instead of deposited directly to Schwab, still don't know, never had a check mailed to me before. I won't do that again. Worse mistakes could have been made I suppose.

I've printed out your post, and will read on Schwab website and talk to them today. Thanks again.
Evelyn

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Re: Which is better CD - rates and terms?

Post by djpeteski » Tue Oct 09, 2018 7:51 am

Currently on FIDO:


2.1 3 month
2.25 6 month
2.6 1 year

I'd go about a 1/3 in each, favoring the 3 month-er. I don't think we are done with interest rates yet.

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Re: Which is better CD - rates and terms?

Post by Kevin8696 » Tue Oct 09, 2018 8:10 am

tvinayak wrote:
Sun Oct 07, 2018 1:40 pm
I recently went through a similar exercise and settled for a 12 month CD @ 2.55% from Marcus by Goldman Sachs. Likewise I am thinking that since interest rates are creeping up, might as well not lock up the capital for too long.

Tony
I looked at Marcus by Goldman Sachs too, but passed when I saw that the early withdrawal penalty for a 12-month CD was 270 days of interest, with no cap... so the penalty could invade principal. Yipes. Mostly banks charge 60-90 day penalty... some cap the penalty at the accrued interest amount.

I opted for a "no penalty" CD from Ally Bank.... cancel anytime, and/or roll-up to higher rate when appropriate.

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Re: Which is better CD - rates and terms?

Post by Goldrush » Tue Oct 09, 2018 8:34 am

Kevin M wrote:
Mon Oct 08, 2018 8:21 pm

"If you don't itemize or don't get the state income tax deduction on Schedule A on marginal income (e.g., because of exceeding the $10K SALT cap), your TEY is y * (1-f) / (1- f - s), where f and s = marginal federal and state tax rates. So at 12% federal and 6% state, a Treasury at 2.4% would have TEY = 2.4% * (1-12%) / (1-18%) = 2.58%."

Kevin, help me understand the math here. If marginal federal tax rate is 12% and marginal state tax rate is 6% as in your example, how do you arrive at 18% when y * (1-f) / (1- f - s). It looks like you added 12% plus 6% when you should have subtracted 6% from 12% (1- f - s)? What am I missing?

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Tue Oct 09, 2018 8:39 am

Kevin,
Quick follow-up on the T-bill purchase.
Phoned Schwab - advised if I bring the check of my CD proceeds to my local branch. I can place the trade over the phone at the office, and it will be made that day. No commission to purchase the T-Bills, and I don't have to wait a number of days for the check to clear.
Glad my proceeds can be put to work promptly.
Evelyn

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Re: Which is better CD - rates and terms?

Post by jeffyscott » Tue Oct 09, 2018 11:02 am

EvelynTroy wrote:
Tue Oct 09, 2018 8:39 am
Phoned Schwab - advised if I bring the check of my CD proceeds to my local branch. I can place the trade over the phone at the office, and it will be made that day. No commission to purchase the T-Bills...
There is no commission, but don't they have a $25 "service charge" for broker assisted trade?
press on, regardless - John C. Bogle

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Re: Which is better CD - rates and terms?

Post by Sandtrap » Tue Oct 09, 2018 11:09 am

EvelynTroy wrote:
Mon Oct 08, 2018 11:31 am
Consider "brokered" new issue CD's at Vanguard, or other brokerage. There are some advantages over bank issued.

Sandtrap,
I'd like to know the advantages. I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
I understand no EWP, but if you sell before maturity its probably going to cost you something.

Thanks.
Evelyn
One of the advantages of a brokered CD over a bank direct issue is avoidance of the "window" for automatic renewal (in case you miss it). The brokered CD will most often be deposited into your brokerage "sweep account" on maturity. Whereas, the direct bank issue CD will most often auto renew if you miss the cash out on maturity window.
Assumes both are held to term.
j

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Tue Oct 09, 2018 12:49 pm

jeffyscott wrote:
Tue Oct 09, 2018 11:02 am
EvelynTroy wrote:
Tue Oct 09, 2018 8:39 am
Phoned Schwab - advised if I bring the check of my CD proceeds to my local branch. I can place the trade over the phone at the office, and it will be made that day. No commission to purchase the T-Bills...
There is no commission, but don't they have a $25 "service charge" for broker assisted trade?
The phone rep. said this service charge will be waived.

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Tue Oct 09, 2018 12:57 pm

Sandtrap wrote:
Tue Oct 09, 2018 11:09 am
EvelynTroy wrote:
Mon Oct 08, 2018 11:31 am
Consider "brokered" new issue CD's at Vanguard, or other brokerage. There are some advantages over bank issued.

Sandtrap,
I'd like to know the advantages. I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
I understand no EWP, but if you sell before maturity its probably going to cost you something.

Thanks.
Evelyn
One of the advantages of a brokered CD over a bank direct issue is avoidance of the "window" for automatic renewal (in case you miss it). The brokered CD will most often be deposited into your brokerage "sweep account" on maturity. Whereas, the direct bank issue CD will most often auto renew if you miss the cash out on maturity window.
Assumes both are held to term.
j
Thats good to know - thanks Sandtrap.
With credit union Cd you can avoid the problem of missing the renewal window by giving instructions when you open the CD of exactly what you want done with the CD at the time of maturity - at least thats been my experience. Might not have that option at banks or other institutions I wouldn't be familiar with.
The brokered CD is just not for me. I'll never say never, who knows, but rather not use them.
Evelyn

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Re: Which is better CD - rates and terms?

Post by sport » Tue Oct 09, 2018 1:49 pm

Sandtrap wrote:
Tue Oct 09, 2018 11:09 am
EvelynTroy wrote:
Mon Oct 08, 2018 11:31 am
Consider "brokered" new issue CD's at Vanguard, or other brokerage. There are some advantages over bank issued.

Sandtrap,
I'd like to know the advantages. I prefer to have my interest added on to the CD each month, rather than paid out to the brokerage cash account - just don't like the smaller amounts laying there waiting to accumulate in order to reinvest the money. Just seems like a better way to grow the value of the CD to me.
I understand no EWP, but if you sell before maturity its probably going to cost you something.

Thanks.
Evelyn
One of the advantages of a brokered CD over a bank direct issue is avoidance of the "window" for automatic renewal (in case you miss it). The brokered CD will most often be deposited into your brokerage "sweep account" on maturity. Whereas, the direct bank issue CD will most often auto renew if you miss the cash out on maturity window.
Assumes both are held to term.
j
In my experience, the competitive CD rates are only for "special" CDs. If they auto-renew, the renewal is for "regular" CDs at very unattractive rates. This makes the auto-renew feature doubly undesirable.

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Re: Which is better CD - rates and terms?

Post by EvelynTroy » Tue Oct 09, 2018 2:28 pm

In my experience, the competitive CD rates are only for "special" CDs. If they auto-renew, the renewal is for "regular" CDs at very unattractive rates. This makes the auto-renew feature doubly undesirable.
Yes of course I can't think of any scenario where you would just want to automatically renew.
I think the point previous poster was making was you typically have a 7 to 10 day window to give instructions for what you want to do with the maturing CD - if you miss that 7-10 day window it will automatically renew and as you noted the new rate might not be favorable whether it was a "special CD" offering to begin with or not.
In other words you have to pay attention to when your bank/ CU CD's are maturing as opposed to a brokered CD where the matured CD automatically gets paid out to you and proceeds put in your cash account.

Having the "advantage" of the brokered CD automatically have the proceeds deposited in my cash account is not important feature for me.

Evelyn

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Re: Which is better CD - rates and terms?

Post by Kevin M » Tue Oct 09, 2018 5:41 pm

EvelynTroy wrote:
Tue Oct 09, 2018 7:30 am
Kevin,
I can't thank you enough for taking time to explain and calculate the Treasury Bill option to me, my guess is I might not be the only one totally in the dark about what looks like a very good option. Not to mention an investing option I need to be knowledgeable about.
Glad you found it useful.
EvelynTroy wrote:
Tue Oct 09, 2018 8:39 am
Phoned Schwab - advised if I bring the check of my CD proceeds to my local branch. I can place the trade over the phone at the office, and it will be made that day. No commission to purchase the T-Bills, and I don't have to wait a number of days for the check to clear.
That's great. Be aware that unless you deposit the check when the auction is open (usually Thursday morning until Monday morning), you would be buying on the secondary market if you bought the same day. That's fine at Schwab, since they have excellent pricing for smaller quantities--much better than Vanguard or Fidelity; they often have the best pricing for quantities between 10 and 300, whereas Fidelity and Vanguard almost always have the best pricing for minimum quantities of 100, 200 or more (quantity 1 = $1,000 face value).

Buying on the secondary market is more complicated, but gives you more choices. If you are getting broker assistance with no commission or fee, then you could always say something like, "I'd like to buy X dollars worth of the most recently auctioned 6-month Treasury", although this may not be the highest yield for that particular maturity. The broker can tell you the quantity you can buy without exceeding your X dollar limit.

If you want to poke around to see examples of 6-month Treasuries online at Schwab, here's how I do it. When logged in, hover your cursor over Trade in the top-banner menu, then click Find Bonds & Fixed Income under Bonds in the second column. Then click the Overview tab (to the left of the Find Bonds & Fixed Income tab). Scroll down, and under the 6 Mo column, click the yield in the row for U.S. Treasuries (showing 2.42 at this moment). This brings up a search results screen with Treasuries maturing between 3/28/2019 and 4/25/2019 (as of now).

It's probably better to do this when the market is open, since now that it's closed, what's being displayed is not representative of what was displayed when the market was open today.

This shows notes, bonds and bills that mature in roughly six months. The bills have a coupon of 0%, and are clearly marked BILL in the description. I don't really care whether I'm buying a note (with a non-zero coupon) or a bill when buying on secondary market.

When the market was open today, I was seeing the 6-month bill that was auctioned today, maturing on 4/11/2019, available at a yield of about one basis point less than the auction yield of 2.442%, with a little telephone icon instead of a Buy link in the action column, indicating that you could call Schwab to place an order for this bill (I assume).

You can modify the search criteria by clicking the Modify Search button near the top left of the search results table. You might want to modify the Face Value (top right of search criteria screen) to something close to what you have to invest, since you'll then see the estimated total for that quantity in the right column of the search results screen.

You can click the View link in the far right column for a particular Treasury to see the different prices and yields for different minimum and maximum quantities. Do this when the market is open, as you'll often see the highest yield (lowest price) for minimum quantity 10; this is not the case now that the market is closed.

Kevin
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Re: Which is better CD - rates and terms?

Post by Kevin M » Tue Oct 09, 2018 5:46 pm

Goldrush wrote:
Tue Oct 09, 2018 8:34 am
Kevin M wrote:
Mon Oct 08, 2018 8:21 pm
"If you don't itemize or don't get the state income tax deduction on Schedule A on marginal income (e.g., because of exceeding the $10K SALT cap), your TEY is y * (1-f) / (1- f - s), where f and s = marginal federal and state tax rates. So at 12% federal and 6% state, a Treasury at 2.4% would have TEY = 2.4% * (1-12%) / (1-18%) = 2.58%."

Kevin, help me understand the math here. If marginal federal tax rate is 12% and marginal state tax rate is 6% as in your example, how do you arrive at 18% when y * (1-f) / (1- f - s). It looks like you added 12% plus 6% when you should have subtracted 6% from 12% (1- f - s)? What am I missing?
You're reading it as 1 - (f - s), but it's just 1 - f - s = 1 - (f+s). So 1 - 12% - 6% = 1 - (12% + 6%) = 1 - 18%. In other words, your combined tax rate is f + s = 12% + 6% = 18%.

Kevin
Last edited by Kevin M on Tue Oct 09, 2018 5:55 pm, edited 1 time in total.
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Re: Which is better CD - rates and terms?

Post by Kevin M » Tue Oct 09, 2018 5:54 pm

EvelynTroy wrote:
Tue Oct 09, 2018 12:57 pm
The brokered CD is just not for me. I'll never say never, who knows, but rather not use them.
Brokered CDs aren't much different than Treasuries, except that the bid/ask spread usually is much higher, so I only buy brokered CDs when planning to hold to maturity. Of course you don't get the state tax exemption, and you need to be cognizant of FDIC insurance limits with CDs.

I have been buying brokered CDs with with mostly 2-year to 3-year maturities in my IRAs as my direct CDs mature (after doing an IRA transfer from the bank or CU to the broker). The CD yields have been a bit higher than Treasury yields (since the Treasury state tax exemption is irrelevant in an IRA), and if I plan hold to maturity, I consider this an illiquidity yield premium. Treasuries have had higher yields for maturities of one-year or less, so if I wanted shorter-maturity fixed income in an IRA, I'd buy Treasuries. Nothing wrong with a combination of Treasuries and CDs in an IRA.

Brokered CDs have been competitive with direct CDs over the last year or so, and gradually consolidating at a brokerage simplifies my portfolio.

Kevin
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Re: Which is better CD - rates and terms?

Post by Goldrush » Tue Oct 09, 2018 6:51 pm

Kevin M wrote:
Tue Oct 09, 2018 5:46 pm
Goldrush wrote:
Tue Oct 09, 2018 8:34 am
Kevin M wrote:
Mon Oct 08, 2018 8:21 pm
"If you don't itemize or don't get the state income tax deduction on Schedule A on marginal income (e.g., because of exceeding the $10K SALT cap), your TEY is y * (1-f) / (1- f - s), where f and s = marginal federal and state tax rates. So at 12% federal and 6% state, a Treasury at 2.4% would have TEY = 2.4% * (1-12%) / (1-18%) = 2.58%."

Kevin, help me understand the math here. If marginal federal tax rate is 12% and marginal state tax rate is 6% as in your example, how do you arrive at 18% when y * (1-f) / (1- f - s). It looks like you added 12% plus 6% when you should have subtracted 6% from 12% (1- f - s)? What am I missing?
You're reading it as 1 - (f - s), but it's just 1 - f - s = 1 - (f+s). So 1 - 12% - 6% = 1 - (12% + 6%) = 1 - 18%. In other words, your combined tax rate is f + s = 12% + 6% = 18%.

Kevin
Got it! Thanks!

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Re: Which is better CD - rates and terms?

Post by txranger » Tue Oct 09, 2018 8:19 pm

Kevin,

Question for you —

Would you recommend selling vwiux to buy 1 yr tbills or say bbb- Corp notes that yield ~4-4.5% for 2-3 yr holding period.

I m sitting on 9k paper loss on vwiux and it’s interest been barely keeping up w nav losses. I have a long term holding period, over 10 yrs.

Just tired of losing $ on interm munies w rising rates. Would vwiux have a higher total return than rolling tbills over 10+ yrs?

Tnx appr

Ps. Side note — in all of bond market I think vanguard prime mm seems like the best deal no? No nav drop and keeps up w 3 mo tbills w immed liquidity? Thoughts?

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Re: Which is better CD - rates and terms?

Post by Kevin M » Wed Oct 10, 2018 2:58 pm

txranger wrote:
Tue Oct 09, 2018 8:19 pm
Kevin,

Question for you —

Would you recommend selling vwiux to buy 1 yr tbills or say bbb- Corp notes that yield ~4-4.5% for 2-3 yr holding period.

I m sitting on 9k paper loss on vwiux and it’s interest been barely keeping up w nav losses. I have a long term holding period, over 10 yrs.

Just tired of losing $ on interm munies w rising rates. Would vwiux have a higher total return than rolling tbills over 10+ yrs?

Tnx appr

Ps. Side note — in all of bond market I think vanguard prime mm seems like the best deal no? No nav drop and keeps up w 3 mo tbills w immed liquidity? Thoughts?
I am holding my intermediate-term muni (and long-term) bond fund shares, but not adding to them. As a CA resident, I use the vanguard CA muni funds. If I had significant losses, I would exchange into the national muni funds to harvest the losses; VWIUX actually has a higher taxable-equivalent yield (TEY) for me, so I would be happy to hold that fund for at least the 30 days required before possibly transferring back into the CA fund.

I consider my intermediate-term bond funds as my hedge against prolonged low intermediate-term yields, or even falling yields. No one can predict future interest rates. However, these are a relatively small portion of my fixed income.

In the long-term, you'll eventually come out ahead with an intermediate-term bond fund with rising yields--at least in nominal terms. The bigger risk for intermediate-term or long-term bonds is inflation.

You might look at exchanging into something like short-term Treasury index fund to harvest the tax loss. If you are more concerned about rising yields (term risk) than reinvestment risk, you could stick with shorter-term fixed income until your risk aversion profile changes, but most will ding such a move as market timing. Exchanging into another intermediate-term fund for at least 30 days would not be market timing, but simply TLH'ing.

I would not buy BBB corporate bonds.

Kevin
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Re: Which is better CD - rates and terms?

Post by txranger » Wed Oct 10, 2018 5:27 pm

Thank you Kevin, much appr

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Re: Which is better CD - rates and terms?

Post by Doc » Wed Oct 10, 2018 6:38 pm

Kevin M wrote:
Wed Oct 10, 2018 2:58 pm
If you are more concerned about rising yields (term risk) than reinvestment risk, you could stick with shorter-term fixed income until your risk aversion profile changes, but most will ding such a move as market timing
Kevin, would you please elaborate on this idea. I'm having a problem understanding what you are trying to
communicate.

Thanks.
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Re: Which is better CD - rates and terms?

Post by Kevin M » Wed Oct 10, 2018 8:07 pm

Doc wrote:
Wed Oct 10, 2018 6:38 pm
Kevin M wrote:
Wed Oct 10, 2018 2:58 pm
If you are more concerned about rising yields (term risk) than reinvestment risk, you could stick with shorter-term fixed income until your risk aversion profile changes, but most will ding such a move as market timing
Kevin, would you please elaborate on this idea. I'm having a problem understanding what you are trying to
communicate.

Thanks.
I'm saying that if you exchange from an intermediate-term bond fund to a short-term bond fund, or shorter term individual bonds, because of a concern about increasing yields, most people would consider that market timing. Since no one is good at predicting future rates, we don't really know whether short-term or intermediate-term will have a higher return over the intermediate term.

If one follows some variable term strategy, there is a reasonable argument that that is no more likely to produce higher future returns than a fixed-term strategy. If you overweight shorter-term maturities where the yield curve is steepest, you are reducing term risk but taking on more reinvestment risk.

If yields generally remain low or fall over the next N years (where N is greater than whatever maturities you are overweighting), you would have ended up better off holding N-year maturities. If N-year yield remains about the same, you won't have earned much more, but a little more (due to relatively flat yield curves beyond 2-3 years)--OK, maybe more than a little if the yield curve cooperates, and you are able to earn some decent roll-down return by rolling before maturity. If yields are generally lower when your shorter-term securities mature, you reinvest at lower yields, and end up earning less over N years (this is the reinvestment risk).

I am more averse to term risk than to reinvestment risk, hence am keeping maturities relatively short with new cash (where the yield curve is steepest), but am hedging the reinvestment risk by continuing to hold my intermediate-term bond funds and some direct CDs maturing in five years or more (unless yields increase enough to make it sufficiently profitable to do early withdrawals from the direct CDs and reinvest at the higher yields).

If I were to extend maturity with new cash, I think I'd go with TIPS over nominal bonds, since unexpected inflation is the greater long-term risk (compared to nominal term risk).

Kevin
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Re: Which is better CD - rates and terms?

Post by Doc » Thu Oct 11, 2018 9:35 am

Kevin, thanks for the feedback.

I have trouble getting my mind around these "which FI security is best" threads because the discussion is almost always about yield and the risk associated with the FI alone whether it be term or credit risk. I look at my high quality FI in terms of how it reacts with the equity portion of our our portfolio not how much return I get from the FI itself. So I tend to ignore the minutiae of these "which is best" threads.

(I do not disagree with the idea you presented here.)
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Re: Which is better CD - rates and terms?

Post by Kevin M » Thu Oct 11, 2018 1:59 pm

Doc wrote:
Thu Oct 11, 2018 9:35 am
Kevin, thanks for the feedback.

I have trouble getting my mind around these "which FI security is best" threads because the discussion is almost always about yield and the risk associated with the FI alone whether it be term or credit risk. I look at my high quality FI in terms of how it reacts with the equity portion of our our portfolio not how much return I get from the FI itself. So I tend to ignore the minutiae of these "which is best" threads.

(I do not disagree with the idea you presented here.)
Good to point this out.

My equity allocation is relatively small at 30%, so yield and risk of the fixed income is more important to me than for those with higher equity allocations.

Still, I think about liquidity, as well as the possible increase of Treasury prices, for rebalancing purposes when stocks tank. Note however that Treasury yields have been increasing (prices falling) as stock prices have been declining lately, including the relatively big drop in stocks yesterday (10-year yield increased by 1 basis point yesterday, 5-year and 7-year unchanged).

I've been buying Treasuries lately in taxable, with higher taxable-equivalent yields than CDs of the shorter maturities I'm buying, as well as the much better liquidity, so win/win in this case.

Kevin
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Re: Which is better CD - rates and terms?

Post by JackoC » Thu Oct 11, 2018 3:40 pm

Kevin M wrote:
Thu Oct 11, 2018 1:59 pm
Doc wrote:
Thu Oct 11, 2018 9:35 am
Kevin, thanks for the feedback.

I have trouble getting my mind around these "which FI security is best" threads because the discussion is almost always about yield and the risk associated with the FI alone whether it be term or credit risk. I look at my high quality FI in terms of how it reacts with the equity portion of our our portfolio not how much return I get from the FI itself. So I tend to ignore the minutiae of these "which is best" threads.

(I do not disagree with the idea you presented here.)
Good to point this out.

My equity allocation is relatively small at 30%, so yield and risk of the fixed income is more important to me than for those with higher equity allocations.

Still, I think about liquidity, as well as the possible increase of Treasury prices, for rebalancing purposes when stocks tank. Note however that Treasury yields have been increasing (prices falling) as stock prices have been declining lately, including the relatively big drop in stocks yesterday (10-year yield increased by 1 basis point yesterday, 5-year and 7-year unchanged).

I've been buying Treasuries lately in taxable, with higher taxable-equivalent yields than CDs of the shorter maturities I'm buying, as well as the much better liquidity, so win/win in this case.

Kevin
Just to further clarify an increase in treasury prices when stocks fall (*if* it happens and yesterday was nothing new historically when it didn't happen) is relevant for whatever portion of fixed income you would therefore shift to stocks to keep your allocation constant. If that's your strategy.

But even for a heavy stock allocation that's only a limited part of your fixed income. If for example you plan to always be 60/40 stock/bond and stocks decline 75% you'd still only have to reallocate 18 or the original 40 in bonds to come back to 60%/40% (33/22 in terms of the original amounts), assuming for simplicity bonds didn't move.

But same general idea if they do: for all but very high stock allocations a large portion of fixed income is not realistically subject to being sold to buy stocks and there will almost always be some which is not. And for that portion, for a given maturity, the fact that treasuries show a price increase and CD's do not is irrelevant. For securities you aren't going to sell, treasuries and CD's of the same maturities are reacting the same to changes in rates. It's just a psychological boost in case of the treasury if the price rises in the 'layers' of your fixed income that are not going to be sold to buy stocks. If you buy a 3% 5 yr treasury or 3.5% CD on day 1 and rates fall 100 bps on day 2, neither return to maturity will change (give or take coupon reinvestment) from what it was day 1, both can be viewed as having a 100 bp opportunity cost gain as of day 2. The fact that the treasury opportunity cost gain is also manifested in a ~4.7% market price rise is irrelevant unless you sell it, that price rise is by definition offset by the yield of now only 2% if you hold to term. The CD, 3.5% at par before and after, is just like the treasury 100 bps more attractive than new CD offerings assuming CD's drop to 2.5%.

The comparison is a little more complicated in case of constant maturity portfolio's of treasuries, funds. But not fundamentally different. Treasuries *which you are not going to sell*, which will always be a least some and often most as far as rebalancing, are not 'reacting better' with your stock portfolio than CD's of the same maturity. That's an illusion.

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