Buying CDs at Vanguard vs Online Banks

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dbc47
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Buying CDs at Vanguard vs Online Banks

Post by dbc47 » Mon Sep 30, 2019 10:09 am

The current offerings of CDs at Vanguard are fairly pitiful vs what's available at online banks (Ally and Synchrony come to mind). I didn't check any others but will assume at this point that most online banks beat what's available at Vanguard. I just went through a big headache opening a Trust account at Ally just so I could take advantage of their CD rates. My preference was to stay at Vanguard as I already have other CDs there and I wouldn't have to jump through a bunch of hoops in opening another account. There is lots of extra paperwork involved in opening accounts when a Trust is involved. I assume too that the CDs that are being offered at Vanguard (and perhaps others) are being offered by brick and mortar banks which usually don't offer "competitive rates"?
So I guess my question is: Why don't online banks make their offerings available at Vanguard too? I did a search and noticed that Ally did offer a couple CDs, but the rates were no where near what their website shows. :confused

EvelynTroy
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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Mon Sep 30, 2019 2:00 pm

I purchase CD's on a fairly regular basis. I work I guess you could say broadly as opposed to thinking I want to purchase CD's at one or two particular institutions. I have found it very helpful to become familiar with depositaccounts.com - meaning how to look for and then read about the CD's that offer easy membership, or very low cost membership combined with nice CD promotions. Then I monitor the offerings regularly whether I'm in the exact market for a CD purchase or not. I also choose my CD based on early withdrawal penalties, and financial health of the institution, A or A+ only.

Week or so ago I found this jumbo-IRA one - maybe the offer will extend into Oct. 36 mo. 3.1% https://www.depositaccounts.com/banks/h ... l#overview Hughes Federal, Tucson AZ.

and today I see Langley Federal CU - 14 mo. 3% CD - I haven't looked at the details.

The point these decent paying CDs are there - it takes some effort to look for them, and then act promptly when you see them.
As far as titling in the name of a trust I haven't found the paperwork a problem, I just make the trust the beneficiary.

If you look at these various promotions - it can take some patience because often the institution is overburdened with requests and can't keep up.

I don't particularly care for brokered CD's like Vanguard and other brokerage cos. offer - you can not have your interest reinvested, it is paid out to you each time the interest is due.

Why Vanguard doesn't offer nationwide bank and CU CD offerings - guessing the various banks and CU's don't want to pay Vanguard to market and sell their CD's.

Hope this helps. Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by indexfundfan » Mon Sep 30, 2019 2:12 pm

Currently, the best CDs are those from the credit unions. Buying CDs directly from credit unions is more work but they could yield significantly more than brokered CDs and treasuries.

My recent purchases were from PSECU : 24mo @ 3.0% and 36mo @ 3.25%. These CDs are currently still available, until at least this weekend.
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Re: Buying CDs at Vanguard vs Online Banks

Post by mslaw » Mon Sep 30, 2019 2:13 pm

It does help!

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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Mon Sep 30, 2019 2:25 pm

Sorry, I forgot to add one thing when learning how to use depositaccounts.com -
You need to get the hang of looking at only those that are typically available nationwide, that is you can see a great sounding CD, but after clicking you discover its only available to citizens in for example Idaho. You can waste a lot of time looking at CD's that are only available to a small or limited area.
Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by Mike83 » Mon Sep 30, 2019 2:40 pm

I am a buyer of 12-24 mo CDs from both Synchrony and VG going on a few years. Synchrony has good telephone support and rates that are as good as any non-credit union bank. VG generally has one bank that closely matches the Synchrony rate.

So I am happy with both companies but at this point I am gradually consolidating CDs to my VG accounts. It's just much easier for me and my trust to operate within one set of accounts. This includes inter-bank transfers and impact on heirs. Also the brokered accounts at VG allow you to diversify banks for FICA insurance limits. Decluttering also makes it easier to tack maturity dates of multipole CDs, which in a brokerage account don't annoyingly roll over like they do in banks.

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Re: Buying CDs at Vanguard vs Online Banks

Post by dbc47 » Mon Sep 30, 2019 3:17 pm

Thank you very much Evelyn for taking the time to post a reply! You taught me stuff! You mentioned that you just make your Trust the beneficiary which is something I hadn't thought abount doing. Let me ask you this then: So for me to possibly speed things up as far as paperwork goes......I could just open a Joint Account for my wife and myself and then just make the Trust the Beneficiary? Do banks still want a copy of the Trust for their records? I'm trying to figure out if there is a downside to that approach. There has been a time or two where I was going through the process of opening an account at an online bank as to take advantage of a good CD rate, but by the time the Trust paperwork got through the system the rates changed so it turned out to be a big waste of time. Seems a Joint account can be opened up within a few minutes without having to jump through a whole bunch of hoops?

I'm also with Mike83 in regards to trying to simplify. My wife pretty much leaves it up to me to do the investing and I'm doing my best to keep it as simple and "less cluttered" as possible so if I go first she will have an easy time of it. I'm also thinking of our estate and the person who will be handling it. I've done two estates and it can be a challenge if everything isn't documented well.

Thanks again!

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Re: Buying CDs at Vanguard vs Online Banks

Post by Scooter57 » Mon Sep 30, 2019 3:18 pm

Depending on your balance, you are losing a lot of money with the VG and Synchrony accounts. It takes about 15 minutes to open most online credit union CDs. Then the time to wrte and mail the funding chrck. When opened and funded you then instruct the CU to transfer the maturing proceeds into your share account. A few months before maturity, you link your VG account to the CU share account. On the day of maturity you go to VG and pull the money from the share account. It will be in VG the next day and accessible the next week. Much faster than dealing with any local bank or CU.

The rate is much better, you get the option of early withdrawal with a modest penalty if rates shoot up, and you help ordinary people get much cheaper house and car loans than the big banks offer when you invest in a credit union.

I've done this for years. I loaded up on VG brokered CDs during the brief period when they were comparable with CU CDs last fall, but the lack of compounding is a pain that requires more attention to reinvest the interest payments. Not a good solution even for lazy people.

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Re: Buying CDs at Vanguard vs Online Banks

Post by Scooter57 » Mon Sep 30, 2019 3:21 pm

If you leave everything in Vanguard when you go, your wife will be pressured to turn everything over to Vanguard's new Advisory Service where she will get one size fits all allocations that do not take onto account her unique situation. Is that what you want? Read the threads here about VPAS before deciding.

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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Mon Sep 30, 2019 5:23 pm

You're welcome dbc47.
To tell you the truth dbc I can't exactly remember if I had to actually send a copy of the trust for their records or not - off the top of my head I don't recall sending it. Suggest phoning a CU or even a bank and asking, but then I suppose different institutions may have different requirements. That is a good question.

Personally, and I'm no expert when deciding about different investment options relative to the simplicity of portfolio management, i.e. all in Vanguard, or any other brokerage company vs. having say several CD's at different credit unions or banks along with the brokerage account whats makes simplicity for one is not the same for all. I just try to have a balance.
In my case my equity and small amount of fixed income is in 3 Schwab accounts and 5 CD's. In the Schwab acct. I hold 6 funds/etf's and their accompanying cash accounts. Vast majority of fixed income is in CD's.
I don't find it unwieldy or a burden to keep up with the maturity of the CD's - you can elect when you purchase the CD to tell the CU how you want the proceeds when the CD matures, i.e. send me a check, reinvest the matured CD, or terminate the CD and place the proceeds in the CU savings account, or specify how you want it. If you don't want to elect ahead of time what to do when the CD matures, thats fine - they send you a notice a couple months out asking you. You are also free to change or add an election at any time with a phone call. That said, I just keep a list of the CD's I hold in a Google Doc with the identifying info, i.e. acct. number, date of maturity and date opened, etc. - then when the interest is paid I just go online to my account and check that the interest has been added to my CD, and add it to the Google Doc. I also keep tabs on my maturity dates when I look at my interest amounts.

I don't know perhaps there is something to be said for not having all your eggs in one basket. I agree with Scooter you could be losing substantial amounts with VG and Synchrony accounts. I had 2 brokered CD's - thankfully one matured last month, but as Scooter said figuring out how to reinvest those interest payments is a pain, much less having those interest payments placed in the brokerage cash account and earn something like 0.21% not for me. And as Scooter noted, I forgot the early withdrawal penalty being often quite modest at a CU can be important.

As far as simplified and "less cluttered" for your wife, I'm with you. Here is my basic system. I am single and upon my death the few family I have wouldn't have a clue what to do with a large amount of money, or how to begin. I fear them being taken in by some well-meaning acquaintance, "oh we have a great broker, who can really help you out." :(
I used this organizer from Vanguard: https://personal.vanguard.com/pdf/FM_inventory.pdf ( you can type on it so its easy to make changes)
That tells all the details - accounts to close, accounts I have, my pensions info, credit card, etc., etc.
Then that stays in a binder with plastic pocket pages - in goes car title, homeowners/car insurance info, birth certificate, social security card, a sheet with all my online accounts, etc.
Also my trust info. papers.
Then I will use a Trust services company to do everything connected with closing out my estate - from bill paying to selling my home, to distributing proceeds, paying taxes. Its a bit costly, but I decided for me - my family would be under so much stress as to "what to do." Its a gift to them, and I'm happy to pay it. In my case the estate gets closed out - there is no specialty asset management involved like caring for a handicapped child.
Also the Trust services company will take over my financial affairs if I should become mentally or physically incapacitated.
I wanted a local company that my family members can walk in the door and talk face to face with someone.

I've gone on and on - sorry one thing lead to the next. Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by rich126 » Mon Sep 30, 2019 5:51 pm

I'm using Fidelity and the same is true. The highest new CD rate I see is for 8+ years and only around 2.5%. Anything shorter it maxes out around 2% or less. I'm been playing around with various fixed income investments on Fidelity and have bought some CDs and various short term treasuries. Certainly not exciting rates but I may need the money in 2-4 years.

I'm not interested in chasing extra money from various online banks.

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Re: Buying CDs at Vanguard vs Online Banks

Post by dbc47 » Mon Sep 30, 2019 8:00 pm

Thanks again Evelyn for your terrific advice and for taking the time to write.

Thanks to all who replied!

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Re: Buying CDs at Vanguard vs Online Banks

Post by patelbhavesh » Mon Sep 30, 2019 10:46 pm

Any thoughts on vanguard ultra short bond fund instead of buying CD's.
https://investor.vanguard.com/mutual-fu ... file/VUBFX
I understand the duration is fixed unlike various brokered CD's.
But dividends competitive ?

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Re: Buying CDs at Vanguard vs Online Banks

Post by Scooter57 » Tue Oct 01, 2019 11:00 am

The duration of the ultra short bond fund is .9 years, so if rates were to rise you could lose principal which isn't the case with CDs. The SEC rate is just .17% higher than the Vanguard Prime Money Market Fund. The risk probably cancels out the benefit of the very slightly higher rate.

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Re: Buying CDs at Vanguard vs Online Banks

Post by jeffyscott » Tue Oct 01, 2019 2:54 pm

Scooter57 wrote:
Tue Oct 01, 2019 11:00 am
The duration of the ultra short bond fund is .9 years, so if rates were to rise you could lose principal which isn't the case with CDs. The SEC rate is just .17% higher than the Vanguard Prime Money Market Fund. The risk probably cancels out the benefit of the very slightly higher rate.
With $50K, it's a 0.27% higher yield. Rates can go down as well, giving a boost to returns and lowering the actual return of the money market to less than it's current yield over the next several months or more. There are also ultrashort term funds with lower duration, Vanguard's is, I think, somewhat long for this category :?: .

Seems like an okay option to me, if one doesn't want the hassle of moving money (especially IRA money) all over the place chasing CD yields and would rather take a little credit risk than invest in brokered CDs at about a 1.9% yield.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Buying CDs at Vanguard vs Online Banks

Post by Ricchan » Wed Oct 02, 2019 12:54 pm

From what I've seen, brokered CDs tend to react to interest rate changes faster and more dramatically than retail bank CDs. Back when rates were rising in 2018, brokered CDs at Vanguard almost always had higher yields than those found at Ally, Synchrony, etc. Now that rates are falling, brokered CD yields have fallen below that of the average competitive retail bank CD.

Regarding the extra paperwork involved in setting up trust accounts at a bank, I've found it varies according to the bank. In some cases, I've had to mail in hard copies of certain pages from the trust document. In other cases, I've been able to scan and upload them during the registration process. And in others, I've only needed to check a couple boxes during signup, no need to even upload or mail in anything.

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Re: Buying CDs at Vanguard vs Online Banks

Post by Scooter57 » Wed Oct 02, 2019 5:50 pm

I agree that IRA money is more difficult to invest with credit unions. My CD money is in taxable accounts.

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Re: Buying CDs at Vanguard vs Online Banks

Post by LISD » Wed Oct 02, 2019 6:40 pm

Making a Trust the beneficiary of a retirement account is not a good idea. My father did that and it was a headache.

From an internet search:

"Trusts and individual retirement accounts are complicated. When they converge — for instance, when someone names a trust as a beneficiary to an IRA — things can go very wrong, and that can be very expensive.

“The first thing I tell clients to do is not to do it,” says attorney James Davis""

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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Wed Oct 02, 2019 7:19 pm

Thank you very much LISD for taking time to point this out. I have to double check and see if I knew what I was talking about in the first place, perhaps those I've made the trust the beneficiary of are not IRA CD's maybe just taxable CD's. Any which way I will look carefully at this and make changes if needed.
Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by FIREchief » Sat Oct 05, 2019 9:18 pm

LISD wrote:
Wed Oct 02, 2019 6:40 pm
From an internet search:

"Trusts and individual retirement accounts are complicated. When they converge — for instance, when someone names a trust as a beneficiary to an IRA — things can go very wrong, and that can be very expensive.

“The first thing I tell clients to do is not to do it,” says attorney James Davis""
In some situations, this is simply awful advice. :oops: This sounds like an attorney who is not qualified to draft the proper type of trust (and, there are a lot of them). See my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Mon Oct 07, 2019 4:38 pm

FIREchief wrote:
Sat Oct 05, 2019 9:18 pm
LISD wrote:
Wed Oct 02, 2019 6:40 pm
From an internet search:

"Trusts and individual retirement accounts are complicated. When they converge — for instance, when someone names a trust as a beneficiary to an IRA — things can go very wrong, and that can be very expensive.

“The first thing I tell clients to do is not to do it,” says attorney James Davis""
In some situations, this is simply awful advice. :oops: This sounds like an attorney who is not qualified to draft the proper type of trust (and, there are a lot of them). See my signature.
I was thinking this advice over and just today I phoned the trust services company that will be administering my trust when I pass away (guess thats the right term administering). It just doesn't sound right to me that you can't have the trust as your beneficiary of an IRA CD, or regular CD for that matter.
Hopefully will get a call back tomorrow, and I will report.
Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by FIREchief » Mon Oct 07, 2019 5:35 pm

EvelynTroy wrote:
Mon Oct 07, 2019 4:38 pm
FIREchief wrote:
Sat Oct 05, 2019 9:18 pm
LISD wrote:
Wed Oct 02, 2019 6:40 pm
From an internet search:

"Trusts and individual retirement accounts are complicated. When they converge — for instance, when someone names a trust as a beneficiary to an IRA — things can go very wrong, and that can be very expensive.

“The first thing I tell clients to do is not to do it,” says attorney James Davis""
In some situations, this is simply awful advice. :oops: This sounds like an attorney who is not qualified to draft the proper type of trust (and, there are a lot of them). See my signature.
I was thinking this advice over and just today I phoned the trust services company that will be administering my trust when I pass away (guess thats the right term administering). It just doesn't sound right to me that you can't have the trust as your beneficiary of an IRA CD, or regular CD for that matter.
Hopefully will get a call back tomorrow, and I will report.
Evelyn
It may be that your trust has no language to address stretch treatment of qualified assets (i.e. IRA's and similar). IIRC, that would require liquidation within five years. See my signature.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Buying CDs at Vanguard vs Online Banks

Post by LISD » Tue Oct 08, 2019 2:57 pm

Evelyn, Interesting that you have a company that will manage the trust once your gone. Is this company a legal firm (a group of lawyers)? Are they the same company that wrote the trust for you? I think it's more typical to have a relative/friend as the successor trustee but if that isn't practical or possible, this is a good option. I might go this route on my next trust iteration.

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Re: Buying CDs at Vanguard vs Online Banks

Post by EvelynTroy » Tue Oct 08, 2019 6:58 pm

LISD wrote:
Tue Oct 08, 2019 2:57 pm
Evelyn, Interesting that you have a company that will manage the trust once your gone. Is this company a legal firm (a group of lawyers)? Are they the same company that wrote the trust for you? I think it's more typical to have a relative/friend as the successor trustee but if that isn't practical or possible, this is a good option. I might go this route on my next trust iteration.
This doesn't tell you a lot, but this is the firm https://www.pfbt.com/index.php The website is in middle of redesign. I think you would call it a private banking and trust company.
This firm was recommended by estate attorney. Its not cheap.

My situation is simple as far as estates go - the bulk going to a charity.
I have no on-going financial situations that need attending to like handicapped child, or children that need their part of a trust attended to, say for education funding, or a business involved.

I am single and my family is very small - they are very simple people and would not have a clue what to do with closing an estate, taking control of a large amount of money, etc. - it would be unbearably stressful for them. There is zero likilihood of any family fighting over money or assets. I also fear the possibility of the friend who just off-handed says, "oh I have a terrific broker who can help you out." Potential to be a bad situation in many ways.

So this firm will close out the estate - pay bills, close accounts, pay taxes, stop the pensions, sell my home, sell the car, close digital accounts, see that assets are distributed properly via the trust. They are a fiduciary. Also should I become incapacitated physically or mentally they will see that my finances are managed and my needs taken care of. In the case of money management they will see that it gets turned over to Buckingham Asset Management (Larry Swedroe's firm). The trust service has worked with Buckingham clients, and I am a former Buckingham client - I have the highest respect for the firm. They served me very well.

It was a worry lifted off my shoulders to know that my family will not have to deal with figuring out an estate - just impossible for them, so they would try and figure out someone to help them - I simply figured it out for them ahead of time. It is also nice that this is a local firm, my family can walk in the door and have face to face discussion about the process.
Other nice thing - there is no contract or commitment upfront with the trust service. So as time goes on if I want to change trust services I just have the change made in the trust.
Evelyn

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Re: Buying CDs at Vanguard vs Online Banks

Post by afan » Wed Oct 09, 2019 7:35 am

These are typical services of a corporate trustee. Except for the part about taking over when you become incapacitated. Does the company have your durable power of attorney? Most corporate trustees will not do that. Even if they have a DPOA, how will they know when you are no longer capable of managing your affairs? I would think it safer to have them take over while you are competent. You get to see how they do, make sure all the bills go to them and there will be no questions about whether they are acting with your permission.
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Re: Buying CDs at Vanguard vs Online Banks

Post by LadyGeek » Fri Oct 11, 2019 11:55 am

This thread is now in the Personal Finance (Not Investing) forum (CD).
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