Ally Bank 12 month CD now 2.00%

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doneat53
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Re: Ally Bank 12 month CD now 2.00%

Post by doneat53 » Thu Feb 08, 2018 11:56 am

Sorry for the newb question but how does one go about evaluating Munis?

1) where does one go to see the available rates
2) Are they traded, purchased and sold like bonds and bond funds?
3) Do you go to a city market place or purchase from standard brokerage accounts at Fidelity or Vanguard?
4) What should I watch out for?

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dual
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Re: Ally Bank 12 month CD now 2.00%

Post by dual » Thu Feb 08, 2018 12:39 pm

Kevin M wrote:
Mon Feb 05, 2018 1:39 pm
1-year Treasury at 1.98% (at Fidelity).
If you live in a high tax state, the after tax yield of the TBill is substantially higher than the CD. Here in CA with a marginal rate of ~9.3%, the Treasury at 2% is equivalent to a CD at ~2.2%

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Kevin M
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Re: Ally Bank 12 month CD now 2.00%

Post by Kevin M » Fri Feb 09, 2018 8:46 pm

dual wrote:
Thu Feb 08, 2018 12:39 pm
Kevin M wrote:
Mon Feb 05, 2018 1:39 pm
1-year Treasury at 1.98% (at Fidelity).
If you live in a high tax state, the after tax yield of the TBill is substantially higher than the CD. Here in CA with a marginal rate of ~9.3%, the Treasury at 2% is equivalent to a CD at ~2.2%
Not quite that good. First, you have to account for commissions. If you're paying $2 per bond at Vanguard, 1.98% is 1.86% after commission. Next, it depends whether or not you itemize, and if you don't, what your federal marginal tax rate is. If you pay the $2 commission, itemize and marginal rate is 9.3%, after-tax yield is 2.05%. So yes, a bit better than the 2% CD, and good to factor in taxes.

Kevin
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Hodor
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Re: Ally Bank 12 month CD now 2.00%

Post by Hodor » Fri Feb 09, 2018 10:25 pm

Kevin M wrote:
Fri Feb 09, 2018 8:46 pm
dual wrote:
Thu Feb 08, 2018 12:39 pm
Kevin M wrote:
Mon Feb 05, 2018 1:39 pm
1-year Treasury at 1.98% (at Fidelity).
If you live in a high tax state, the after tax yield of the TBill is substantially higher than the CD. Here in CA with a marginal rate of ~9.3%, the Treasury at 2% is equivalent to a CD at ~2.2%
Not quite that good. First, you have to account for commissions. If you're paying $2 per bond at Vanguard, 1.98% is 1.86% after commission. Next, it depends whether or not you itemize, and if you don't, what your federal marginal tax rate is. If you pay the $2 commission, itemize and marginal rate is 9.3%, after-tax yield is 2.05%. So yes, a bit better than the 2% CD, and good to factor in taxes.

Kevin
Vanguard does not charge commissions to trade treasury securities (https://investor.vanguard.com/investing ... ommissions). Also, you would have to both itemize deductions and be under the new $10,000 state and local tax deduction cap to not get the full state tax advantage of treasury bonds, which is probably relatively rare now.

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Kevin M
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Re: Ally Bank 12 month CD now 2.00%

Post by Kevin M » Sat Feb 10, 2018 2:00 pm

doneat53 wrote:
Thu Feb 08, 2018 11:56 am
Sorry for the newb question but how does one go about evaluating Munis?

1) where does one go to see the available rates
You can get a rough view here at Vanguard: Find Bonds and CDs, and at Fidelity here: Fixed Income, Bonds & CDs . However, the rates shown are the highest rates available, may be for a very small quantity, and may be for a bond with qualities you don't want.

With the Vanguard table you can click on the yield in a cell and get to the list of available bonds that fit the critieria, without having to log on. You can even edit the search criteria and run a search with the updated criteria, but you can edit more criteria and look deeper into the bonds if you're logged on. For the Fidelity table, you need to be logged on to go deeper. And of course you need to be logged on to actually buy something.
2) Are they traded, purchased and sold like bonds and bond funds?
They are bonds, so yeah, they're traded like bonds. Bond funds are traded differently, since trades are only executed after the market closes, you can't place limit orders, etc.
3) Do you go to a city market place or purchase from standard brokerage accounts at Fidelity or Vanguard?
The latter.
4) What should I watch out for?
Bonds with calls, extraordinary redemption, and sinking fund provisions. Also, since most muni defaults have occurred for hospitals and housing, you can exclude these if you want to lower your default risk, in addition to sticking with higher ratings. A Vanguard or Fidelity fixed-income broker told me extraordinary redemptions often are associated with housing, so by excluding housing you'll minimize ER. You can set all of these things in the search criteria screen.

I started out buying only AAA-rated munis, but then decided I was comfortable with AA out to three year maturities, and lately even A or BBB for maturities of a year or less. The longer the maturity, the higher the rating I want, since there's more time for the municipality financials to deteriorate and for the rating to be downgraded, leading to higher probability of default.

I'm also trying to diversify among states. Typically you'll find lots of Illinois bonds among the highest yielding AA bonds, and lots of Texas school district bonds among the highest-yielding AAA bonds, so unless you want too much concentration in any one state, you may have to accept something less than the highest yields, or just keep looking, since other states do pop up with higher yields on some days. Of munis I've bought so far, I currently have about 20% in CA (see next paragraph), 19% in IL, and 24% in TX. I'm less worried about the concentration in TX due to the AAA ratings. In a private message exchange with Larry Swedroe, he said that their guideline is no more than 35% in any one state.

Interestingly, as a CA resident, I often find better taxable-equivalent yields in non-CA munis for a given rating, but I am not at the highest CA marginal tax rate--I am at 8%, while most moderately high earners are at 9.3%, and although I will be in the 22% federal tax bracket for 2018 (if LTCG/QD are included), my marginal federal rate will be 27% because of more LTCG/QD being pushed from 0% to 15%, while each extra dollar of ordinary income will be taxed at 12%. All else being equal, I'd rather own a CA muni since I won't need to worry about amortizing bond premiums for state tax purposes (for federal tax purposes it's not an issue, since no taxable interest is reported).

I'm generally finding better rates at Fidelity, and Fidelity charges $1 per bond (1000 face value) for all customers, while Vanguard charges $2 per bond unless you have at least $500K in Vanguard products (which does not include individual bonds or CDs), so I would recommend Fidelity over Vanguard for buying individual bonds, and secondary market CDs (they both usually have the same or similar yields on new-issue CDs, but not always).

For most Bogleheads, the Vanguard Limited Term Bond fund would be the preferred choice for a muni bond portfolio with somewhat similar characteristics to the muni bond portfolio I'm building, and I have some in that fund as well as the individual munis (and quite a bit more in the CA int-term and long-term bond funds that I've held for many years). I see various benefits in the individual muni ladder that appeal to me in my particular situation, but owning a fund is a lot easier.

Kevin
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William4u
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Re: Ally Bank 12 month CD now 2.00%

Post by William4u » Sat Feb 10, 2018 2:08 pm

Navy FCU has a 3% 12 month CD for both share and IRA accounts ($3000 max).... https://www.navyfederal.org/products-se ... -rates.php

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Kevin M
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Re: Ally Bank 12 month CD now 2.00%

Post by Kevin M » Sat Feb 10, 2018 2:49 pm

Hodor wrote:
Fri Feb 09, 2018 10:25 pm
Kevin M wrote:
Fri Feb 09, 2018 8:46 pm
dual wrote:
Thu Feb 08, 2018 12:39 pm
Kevin M wrote:
Mon Feb 05, 2018 1:39 pm
1-year Treasury at 1.98% (at Fidelity).
If you live in a high tax state, the after tax yield of the TBill is substantially higher than the CD. Here in CA with a marginal rate of ~9.3%, the Treasury at 2% is equivalent to a CD at ~2.2%
Not quite that good. First, you have to account for commissions. If you're paying $2 per bond at Vanguard, 1.98% is 1.86% after commission. Next, it depends whether or not you itemize, and if you don't, what your federal marginal tax rate is. If you pay the $2 commission, itemize and marginal rate is 9.3%, after-tax yield is 2.05%. So yes, a bit better than the 2% CD, and good to factor in taxes.

Kevin
Vanguard does not charge commissions to trade treasury securities (https://investor.vanguard.com/investing ... ommissions).
Good point. I've been buying mostly munis and CDs, so had forgotten about no commissions on secondary market Treasuries. So it's only the few basis points you will lose by buying quantities less than 100 that you have to factor in. I stand corrected.

Currently (as seen at Fidelity), minimum quantity is 300 for best yield of 1.961% for a non-zero coupon Treasury maturing 2/15/2019. Yield drops to 1.898% for min quantity 10, and 1.826% for min quantity 1.
Also, you would have to both itemize deductions and be under the new $10,000 state and local tax deduction cap to not get the full state tax advantage of treasury bonds, which is probably relatively rare now.
Another good point. So at 1.898%, and 22% federal and 9.3% state, your taxable-equivalent yield would be 2.15% without itemizing and 2.09% with itemizing.

The only 1-year Treasury purchase I've done recently was for my mom and step-dad, and their CA tax rate has been 0% in recent years, and probably won't be much higher next year, so they won't get much benefit from the state tax exemption. This probably is why I didn't think about the state tax exemption in my earlier post. Also, unfortunately, yields were lower when I bought this Treasury for them, so they only got 1.709%, and this was a few days before Ally came out with the 1-year 2% CD :oops:.

Comparing to munis, I recently bought a 13.2-month A2/AA muni with a taxable equivalent yield (TEY) of 2.586%, and a 9.7 month A2/AA- muni with a TEY of 2.347% (again my federal marginal rate is 27% and CA marginal rate is 8%).

Kevin
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nova1968
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Re: Ally Bank 12 month CD now 2.00%

Post by nova1968 » Wed Feb 14, 2018 12:37 pm

There are a lot of favorable post on the BH site about Ally Bank, I took the advice and opened an account and attempted to place 25 K in savings account and 25k in a CD, its not a good impression when you make several attempts to log on and cannot access the account to make your first deposit. I am going to have to look elsewhere.

MandyT
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Re: Ally Bank 12 month CD now 2.00%

Post by MandyT » Thu Feb 15, 2018 10:22 am

nova1968 wrote:
Wed Feb 14, 2018 12:37 pm
There are a lot of favorable post on the BH site about Ally Bank, I took the advice and opened an account and attempted to place 25 K in savings account and 25k in a CD, its not a good impression when you make several attempts to log on and cannot access the account to make your first deposit. I am going to have to look elsewhere.
Data point: last year, I was going to open a Roth IRA CD at Ally. First, the paperwork they sent me was missing a necessary (blank) form. When I called to ask them to send it to me, the representative gave me some unsolicited wrong information (she told me I'd need to fill out the form marked "Rollover" when I had already told her it was going to be a contribution of new funds). Maybe I was just unlucky and everyone else who works there is knowledgeable and efficient, but I had had enough: I ended up opening the CD elsewhere.

doneat53
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Re: Ally Bank 12 month CD now 2.00%

Post by doneat53 » Sat Feb 17, 2018 1:37 pm

Thank you Kevin M for your detailed response to my question. Very helpful.

radiowave
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Re: Ally Bank 12 month CD now 2.00%

Post by radiowave » Sat Feb 17, 2018 5:57 pm

nova1968 wrote:
Wed Feb 14, 2018 12:37 pm
There are a lot of favorable post on the BH site about Ally Bank, I took the advice and opened an account and attempted to place 25 K in savings account and 25k in a CD, its not a good impression when you make several attempts to log on and cannot access the account to make your first deposit. I am going to have to look elsewhere.
Did you call Ally on their 800 #?
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AntsOnTheMarch
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Re: Ally Bank 12 month CD now 2.00%

Post by AntsOnTheMarch » Sat Feb 17, 2018 6:03 pm

I wonder why I see quite a few posts from people having trouble with Ally’s website when I have a silky smooth experience on both OS X and iOS. In fact, I’d say one the better banking sites I’ve used. Maybe a client side tech issue due to an older browser/OS?

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Kevin M
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Re: Ally Bank 12 month CD now 2.00%

Post by Kevin M » Sat Feb 17, 2018 8:36 pm

doneat53 wrote:
Sat Feb 17, 2018 1:37 pm
Thank you Kevin M for your detailed response to my question. Very helpful.
You're welcome!

Kevin
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Nova1967
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Re: Ally Bank 12 month CD now 2.00%

Post by Nova1967 » Sun Feb 18, 2018 12:36 pm

radiowave wrote:
Sat Feb 17, 2018 5:57 pm
nova1968 wrote:
Wed Feb 14, 2018 12:37 pm
There are a lot of favorable post on the BH site about Ally Bank, I took the advice and opened an account and attempted to place 25 K in savings account and 25k in a CD, its not a good impression when you make several attempts to log on and cannot access the account to make your first deposit. I am going to have to look elsewhere.
Did you call Ally on their 800 #?
I did talk to a Rep but I did not find the service very compared to services at Fidelity and Vanguard. I found GS bank to be very effective and I was able to get a higher rate of return. Even if I could get a higher rate I would rather deal with a functional web site and better service, I would rather buy a CD at 1.9% with a competent bank vs 2% at Ally,

radiowave
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Re: Ally Bank 12 month CD now 2.00%

Post by radiowave » Sun Feb 18, 2018 1:36 pm

Nova1967, glad things work out for you.
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