Large amount of CDs maturing....what to do?

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patrick013
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Thu Jan 14, 2016 2:58 pm

@Kevin

All of these are getting to look kinda lousy. What's your best 5
year CD today regarding EWP.

Here's something from Melrose CU

PENALTIES FOR EARLY REDEMPTION ARE:
18-60 Months term: Forfeiture of the first 180 days Dividend and a
Reduction to the Share Savings Rate at the time of purchase.

So they take 180 days - OK. But then they reduce the CD rate .

I can live with a CD ladder thru 3 years and maybe something in 5 year
also.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Large amount of CDs maturing....what to do?

Post by mouses » Thu Jan 14, 2016 3:35 pm

Kevin M wrote:
patrick013 wrote:Yeah, these credit unions are either very local or require active
transaction accounts for membership.
Not sure exactly what you're referring to, but some credit unions are easy to join regardless of where you live, and do not require any active transactions. I have joined several just to buy CDs, and my only activity is to log on every few months to download a statement. A typical way to qualify for membership is to join some organization for a nominal one-time fee.
The country is full of credit unions that anyone can join.

I have accounts at several credit unions, and none require active transaction accounts for membership. Some require $5 share accounts but some do not.

Not to be confused with the state laws that require accounts like savings accounts to have some transaction every year or so or you have to claw back the money from the state after a few years of that.

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Kevin M
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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 14, 2016 3:58 pm

patrick013 wrote:@Kevin

All of these are getting to look kinda lousy. What's your best 5
year CD today regarding EWP.
I just use DepositAccounts to find CDs. The bread and butter 5-year CDs have been from Synchrony Bank and Barclays Bank, since both have hovered around 2.25% for some time, and have EWPs of 180 days of interest. I would use these as a benchmark. If I were to buy a 5-year CD today, it would be from Patelco, since I am already a member, and would qualify for membership if I applied today; better rate (2.5%), and same EWP.
Here's something from Melrose CU

PENALTIES FOR EARLY REDEMPTION ARE:
18-60 Months term: Forfeiture of the first 180 days Dividend and a
Reduction to the Share Savings Rate at the time of purchase.

So they take 180 days - OK. But then they reduce the CD rate .
Yes, as I understand it, they reduce the rate on the CD to the share savings rate (retroactively), so basically you give up most of your CD interest. Too harsh for me--might as well buy a brokered CD.
I can live with a CD ladder thru 3 years <snip>
Why? Since you're concerned about EWPs, you should be OK preferring an early withdrawal from a 5-year CD if it provides a higher effective rate than a shorter-term CD, or maybe even if the effective rate is slightly lower, since you could end up better off with the higher 5-year rate even if rates rise somewhat.

For example, a 5-year 2.25% CD earns a cumulative return of 1.11768 times the original investment (e.g., $100K grows to $111,768). A 3-year 1.85% earns cumulative 1.05653 after three years, which if invested at 2.75% earns cumulative 1.11544 (times original investment) after two more years. So you are better off investing in a 2.25% CD for five years than investing in a 1.85% CD for three years and reinvesting in a 2.75% CD when it matures. The rate three years from now would have to be higher than 2.85% for the 3-year CD (with proceeds reinvested at maturity) to win.

I'm not saying that you shouldn't necessarily place a bet on 5-year rates being higher than 2.85% three years from now, but just that you should think about now much rates need to increase for the bet to pay off.

Kevin
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protagonist
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Thu Jan 14, 2016 4:05 pm

Kevin M wrote:I actually published a blog post on this topic last October: What To Do With Maturing CDs?.

Be sure to set up your CDs at Ally to roll into your savings account at maturity. You can now do this online (for taxable CDs); I also published a blog post on how to do this.

Patelco credit union now is offering a 5-year CD at 2.5% APY with EWP of 180 days of interest. Very good if you can qualify for membership. Used to be easy to qualify, but now not as much, but at least check it out. I already have IRA CDs there earning 2.5% or else I'd transfer at least some proceeds from a recently matured PenFed CD there.

Synchrony Bank 5-year CD is 2.25% with EWP of 180 days of interest. This rate has been very steady for some time. Ditto for Barclays Bank.

I also have had most of my taxable CDs at Ally mature recently. I would not renew CDs at Ally now, especially taxable, since you can easily get a better rate elsewhere, and moving money in taxable accounts is super easy.

I did the CapitalOne360 savings account thing with $50K, and also did $10K each in Synchrony Bank and Discover Bank savings for the bonuses, viewing these as 60-day or 90-day CDs with super good rates. I also used some of the proceeds from matured Ally CDs to add to the Northwest Federal Credit Union 3-year add-on 3% CD, but of course that is no longer available.

I also have used some of the proceeds from the matured Ally CDs to partially rebalance back to allocation targets for stocks--mostly adding to international. I probably will do some more of that--maybe enough that I won't have much if any left to go into more CDs in taxable.

As you may know, I generally favor sticking with good 5-year direct CDs with low EWPs in preference to a ladder, and you clearly understand the reason why.

You may also want to consider just waiting a few more weeks to see if some really outstanding CD deals pop up, like the NWFCU 3-year 3% we saw last October. Or proceed with some of the already mentioned alternatives with some, and hold some back for a few weeks in case a really good deal comes along.

Kevin
Hi, Kevin!

First, thank you for all of your very helpful and informative posts regarding CD investments. You are a valuable source of information. Your posts about navigating Ally's website in dealing with maturing CDs were particularly helpful to me.
I agree with you....I see very little value in investing in short-term CDs....really anything offering less than 2% APY.
Unfortunately I do not qualify for Patelco or Navy FCU.
I think that NASA FCU's 49 month CD at 2.3% and Bank Gloucester's 36 month CD at 2.17% are probably marginally better choices than Synchrony or Ally. Do you agree? I already have some CDs maturing in 5 years at 3% APY.
I have given some thought about taking my chances and holding back some funds until February, hoping for better offers.
I think keeping enough fluid (my online bank pays 1.06%...some are slightly higher) in order to buy I-bonds is worth it, especially for retirees who are inflation-sensitive, and especially given the pitiful yields available in the CD market. Thus I keep enough for the next few years.
I'll definitely keep you posted if I find anything better.
Thanks again.
p.

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patrick013
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Thu Jan 14, 2016 4:23 pm

Yes, please thank Kevin for his dedication to CD rates
and their conventions. I do have till the end of Feb
to do things as the CD's I have mature then. But it
is an amount I would like to carefully invest 'cause
well I hate to take a lesser yield if possible.

The yields on the old CD's were great, special offers,
small towns, etc.. So this time I need to get on the cart
again for a few extra bucks, huh.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 14, 2016 5:50 pm

protagonist wrote:
Hi, Kevin!

First, thank you for all of your very helpful and informative posts regarding CD investments. You are a valuable source of information. Your posts about navigating Ally's website in dealing with maturing CDs were particularly helpful to me.
Appreciate the feedback!
I think that NASA FCU's 49 month CD at 2.3% and Bank Gloucester's 36 month CD at 2.17% are probably marginally better choices than Synchrony or Ally. Do you agree?

Yes. Synchrony Bank (2.25%) is slightly better than Ally Bank (2.00%), and NASA 4-year at 2.3% with EWP of 180 days of interest is even better. A 3-year at 2.17% also is a pretty good deal, as you're giving up very little yield vs. a 5-year at 2.25%, but this one is listed as a local deal in the DA blog.
I think keeping enough fluid (my online bank pays 1.06%...some are slightly higher) in order to buy I-bonds is worth it, especially for retirees who are inflation-sensitive, and especially given the pitiful yields available in the CD market. Thus I keep enough for the next few years.
My interest in I Bonds has waned with the low rates lately. I did not buy any in 2015, and am not planning on buying any this year. With 5-year TIPS rates in the 0.5% ballpark recently (although now down to 0.3%), the 0.1% real for an I Bond does not look as attractive as when 5-year TIPS rates were about the same as I Bonds or lower (even negative).

If 5-year inflation is less than 2.15%, you come out ahead with a 2.25% CD vs. an I Bond. So for the retail investor, the effective 5-year breakeven inflation rate is about 2.15% (comparing 2.25% nominal CD to 0.1% real I Bond). Compare this to the institutional breakeven inflation rate of about 1.2% (comparing 5-year nominal Treasuries and TIPS), and the CD looks like a better deal based on bets being placed by institutional investors.

Finally, the early withdrawal option gives you some protection against unexpected inflation, since nominal rates probably would increase if inflation increased much, and you could then do an early withdrawal to reinvest at higher rates. Not as perfect a hedge as I Bonds, but good enough for me given the better deal on the yields relative to institutional yields.

I Bonds still are fine though, especially since you can't invest much in them. At least the current nominal rate beats a 1% savings account, unlike the 0% rate we had previously.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by john94549 » Thu Jan 14, 2016 8:30 pm

My Alliant "jumbo" IRA CD matures in mid-June of this year, and I'm toying with the idea of moving it for a marginally better rate (2.5 v. 2.2). Pluses: the better rate. Minuses: the hassle. I've been a Patelco member in the past, and am tempted to join once again. Another plus is that Patelco has a "brick-and-mortar" five minutes away, as opposed to Alliant, which is in Oakland.

The 30 bps "delta" works out to a little over $50/mo.

Thoughts?

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Thu Jan 14, 2016 8:35 pm

I understand your logic, Kevin.

Still, at a 0.2-0.4%/year disadvantage vs.5 year TIPS, I-bonds seem like a better deal to me. The increased flexibility that comes with knowing how much you will lose if you sell prematurely , not having to pay taxes every year, and being exempt from state taxes seems to me to offset the slight loss in yield in taxable accounts if I-bonds are chosen.

As for comparison with CDs, my main enemy in retirement is unexpected inflation. I don't use fixed income investments for the purpose of growth.....if I get growth vs inflation, I accept that as a welcome gift. That is the key element in my thinking....if I wanted to accept risk I would be investing elsewhere. I-bonds provide protection that CDs do not. And given their purchase limits, they also provide a bit of diversification.

All that said, I suppose they are all pretty comparable....no one option appears much better than the others.

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 14, 2016 9:36 pm

john94549 wrote:My Alliant "jumbo" IRA CD matures in mid-June of this year, and I'm toying with the idea of moving it for a marginally better rate (2.5 v. 2.2). Pluses: the better rate. Minuses: the hassle. I've been a Patelco member in the past, and am tempted to join once again. Another plus is that Patelco has a "brick-and-mortar" five minutes away, as opposed to Alliant, which is in Oakland.

The 30 bps "delta" works out to a little over $50/mo.

Thoughts?
I wouldn't even think about it now. Who knows what kind of CD deals we'll see in mid-June? I would keep my eyes open for an add-on CD special like the 3-year 3% deal we saw in October, since something like that is a nice placeholder for CD proceeds from CDs maturing over next few months (that's how I used the NWFCU CD opened in October).

If I were making the decision now, I would do the IRA transfer for 2.5% vs. 2.2%--if they would guarantee the rate for the 2-3 weeks it typically takes to do the transfer, and if the CU is not too hard to work with. I've done many IRA transfers, but I think you might have done even more than me, as I think you've been using direct IRA CDs for longer than I have (a little more than five years), so you know as well as I do what's involved here.

With 2.5%, your cumulative return factor is 1.025^5 = 1.131408, and for the 2.2% CD it's 1.022^5 = 1.114948 , so $1,646 more on $100K over five years. Seems worth it to me.

The IRA CD at Patelco is not an option for me, as the IRA CDs I already have there will approach the NCUA limit at maturity (by design).

I reviewed my emails with Patelco from July 2012, and although they were very helpful, there was a lot of back and forth in terms of me getting them what they needed, and verifying that things were on track (although much of this was just because I was monitoring it closely). Probably would make sense just to visit the local branch as necessary, especially since it is very close to you. I did everything online and by email.

Today I notified my Mom about the Patelco CD deal, as they have some taxable cash from a recently matured CD looking for a home, and they too have a branch in their city.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 14, 2016 10:35 pm

protagonist wrote: Still, at a 0.2-0.4%/year disadvantage vs.5 year TIPS, I-bonds seem like a better deal to me.
I don't think they're a much better deal; they just offer a different risk/return trade-off. I Bonds were clearly a better deal when 5-year TIPS rates were negative or even 0.1%, but not so much with TIPS at 0.5% (I wouldn't jump on them at 0.3%).
The increased flexibility that comes with ... <snip> ... seems to me to offset the slight loss in yield in taxable accounts if I-bonds are chosen
Let's take these one at a time.
knowing how much you will lose if you sell prematurely
If you really think there's a good chance that you'll sell in less than 5 years to reinvest at a higher real rate, then fine. But if you end up holding 5 years, you're better off with the TIPS (all things else equal, which they may or may not be for you). A lot of people talk about holding their I Bonds long term, but to the extent that your money is fungible, this doesn't make sense with the 5-year TIPS yield much higher than the I Bond yield. This is just a classic case of deciding how much term risk to take in return for higher yield.

You might want to run through some different rising rate scenarios to see how much real rates would have to rise in year 2, 3, 4 or 5 for you to come out ahead with I Bonds. For example, you'd obviously lose with I Bonds if you couldn't reinvest at a real yield higher the current 5-year TIPS yield in year 2. In other words, at some point it no longer makes sense to hold I Bonds with a real yield of 0.1% if you can get a higher yield with TIPS--you're just throwing money away. The only question is what is the TIPS yield threshold at which holding close-to-zero duration I Bonds at 0.1% no longer makes sense.
not having to pay taxes every year
I don't know your situation, but for me this is no advantage at all, since my marginal tax rate probably will be higher in a few years when I start taking RMDs and SS. At current low yields, the tax-deferral benefit is marginal at best.

And for me, the money I'd invest in TIPS or I Bonds is essentially fungible, because I have space in tax-advantaged for TIPS or CDs. So for me, the trade-off comes down to CDs vs. I Bonds vs. TIPS, regardless of asset location, and as the numbers show, the bet favors CDs for the retail investor relative to the institutional investor.
and being exempt from state taxes
I would not hold TIPS in a taxable account, so not an issue for TIPS, and for CDs, even at a state tax rate of 10%, a 5-year CD at 2.25% is 2.025% after factoring in 10% state tax, which still is about 0.5% more than a 5-year Treasury at 1.52%. So the calculus still favors the CD in terms of risk/return and breakeven inflation based on institutional investor bets.
I-bonds provide protection that CDs do not.
But TIPS also provide the same protection, and at higher yield, and 5-year TIPS provide a higher return if you end up holding 5 years. And again, it's too black and white to say that CDs with an early withdrawal option don't provide any protection from inflation. That's like saying that short-term nominal bonds don't provide any inflation protection, but to the extent that nominal rates rise with increasing inflation, they actually do.

So although the inflation protection of I Bonds is more reliable than direct CDs, it comes at a cost, as does all insurance. With current rates, the yield I sacrifice for the minimal insurance just isn't worth it. The relatively small amount I can put into I Bonds just isn't going to make much difference if inflation gets ugly; I'd really have to go heavy into TIPS to make much difference, or just bet on nominal rates increasing if inflation increases much, which historically has usually been the case. I'm placing my chips on the latter scenario, and patiently waiting for higher TIPS yields.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Fri Jan 15, 2016 9:16 am

Kevin M wrote:
protagonist wrote:and being exempt from state taxes
I would not hold TIPS in a taxable account, so not an issue for TIPS, and for CDs, even at a state tax rate of 10%, a 5-year CD at 2.25% is 2.025% after factoring in 10% state tax, which still is about 0.5% more than a 5-year Treasury at 1.52%. So the calculus still favors the CD in terms of risk/return and breakeven inflation based on institutional investor bets.
My reasoning is similar to protagonist's. I keep I Bonds in taxable accounts, and TIPS in retirement accounts. Thus, I do two separate comparisons:
1. Taxable space: I Bonds vs. CDs.
2. Tax-advantaged space: TIPS vs. CDs.
Kevin M wrote:
protagonist wrote:not having to pay taxes every year
I don't know your situation, but for me this is no advantage at all, since my marginal tax rate probably will be higher in a few years when I start taking RMDs and SS. At current low yields, the tax-deferral benefit is marginal at best.
My plan is to eliminate RMDs by completing ALL my Roth conversions by the age of 70. I am even making conversions in the 28% bracket to have high AGI before my income is used for assessing Medicare Part B premiums. The Medicare lookback is 2 years, and so I want to do as much converting as possible before the year when I turn 63.

My logic is that in the future both taxes and Medicare premiums are more likely to go up than down. I want to minimize my future taxable income and restrict it to Social Security, two pensions, and I Bonds.

If necessary, I will aggregate cashing of I bonds. For example, if maturing I Bonds will be pushing me into the next tax or Medicare Part B bracket, I will cash 28-, 29-, and 30-year I bonds in one year, and have no I Bond income in the next two years. It's also valuable to me not to pay state income tax on maturing I Bonds.
Kevin M wrote:And for me, the money I'd invest in TIPS or I Bonds is essentially fungible, because I have space in tax-advantaged for TIPS or CDs.
I agree that in the tax-advantaged space TIPS and CDs are fungible.

Kevin, thank you for your contributions to the Forum. I always read your analysis with great interest.

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Fri Jan 15, 2016 2:15 pm

VictoriaF wrote:
Kevin M wrote:And for me, the money I'd invest in TIPS or I Bonds is essentially fungible, because I have space in tax-advantaged for TIPS or CDs.
I agree that in the tax-advantaged space TIPS and CDs are fungible.
What I really meant is that TIPS and I Bonds are fungible. This is especially true for me since I currently own no TIPS, so have tons of tax-advantaged space in which I could hold TIPS if I wanted to own more low-yield, inflation-hedged securities.

For someone like you, Victoria, who seems to be in it for the long haul, I'm curious that you would want to own I Bonds at 0.1% when you could have purchased 5-year TIPS at 0.5% a couple of weeks ago. Do TIPS already consume 100% of your tax-advantaged space? The only other reason that makes sense to me is that you're betting that real yields will increase enough in the next 2-3 years that you'll do better be swapping I Bonds for TIPS (or a higher yielding nominal investment) in that time frame.

For most of the last five years, 5-year TIPS yields have been negative, so I Bonds even at 0% real have been a great deal. With 5-year TIPS recently bouncing into the 0.5% ballpark, not so much:

Image

Is there a 5-year (or some other maturity) TIPS yield at which you'd sell your I Bonds and buy more TIPS in tax advantaged?

I understand the argument for the tax deferral benefit in your particular situation. Your approach may be more rational than mine, but I can't bring myself to do Roth conversions deep into the 25% bracket, much less the 28% bracket, especially when it causes me to lose tax credits such as the AOTC, although I did do one fairly large conversion a few years ago.

However, I'll repeat that deferring tax or not paying state tax at very low yields on relatively small amounts has minimal benefit. At the current I Bond composite rate of 1.64%, you earn $164 in one year on $10K of I bonds, so even with 10% state tax you save only $16.40 in state taxes, and at a 25% federal tax rate you defer only $41 in federal tax, and with no change in federal tax rate, the value of that deferral is almost nothing. Of course if you are in a lower tax bracket when you sell, as it seems you plan on being, the value of the deferral is greater.

At any rate, the amount of I Bonds one can buy is small enough that for someone with a sizable portfolio, it's not going to help or hurt much either way. If I were really going to put my money 100% where my mouth is, I probably would sell my I Bonds and buy either TIPS or more CDs, as I believe tfb aka TheFinanceBuff did, perhaps when the PenFed 3% CD popped up ... quick Google ... yes, that was it: 2014 I Bonds vs PenFed CD. But the small amount involved isn't enough to motivate me yet--maybe if/when 5-year TIPS hit 1%, it will be too painful to continue holding even a small amount of 0% or 0.1% real I Bonds, especially if some rebalancing into stocks is warranted at the time, or if the 5-year CD yield premium over 5-year Treasuries is back into the 1% ballpark (my average for CDs purchased over the last five years).

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Fri Jan 15, 2016 2:31 pm

Hi Kevin,

Thank you for detailed comments! As always, I highly value your opinion.

My asset allocation is atypical. I hold the G fund in the TSP, and I treat it as a TIPS "supplement" in tax-advantaged accounts. Eventually, I will be forced by the TSP rules to move all my TSP holdings to Vanguard in order to do Roth conversions. Some of these money will go into TIPS.

Another feature of my asset allocation is that I currently have a very small allocation to stocks. I don't want to be restricted by the markets in my retirement activities, and I have to be able to pay taxes on my Roth conversions. As I am spending cash, my asset allocation is changing towards higher equity percentage. At the age of 70, my need for cash will greatly diminish: I will finish Roth conversions and I will start receiving Social Security. At that time, I will decide what my asset allocation should be.

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Sat Jan 16, 2016 4:42 am

VictoriaF wrote:Hi Kevin,

Thank you for detailed comments! As always, I highly value your opinion.
As I do yours, Victoria!
My asset allocation is atypical. I hold the G fund in the TSP, and I treat it as a TIPS "supplement" in tax-advantaged accounts.
Lucky you, for having access to the TSP G fund! With the G fund, you basically are making the same bet I am; i.e., holding nominal fixed income with a yield available only to a subset of retail investors (in your case, access to TSP, in my case, assets in IRA that I have the flexibility to invest pretty much as I please), minimal-to-no term risk, and essentially betting on our nominal yield adjusting to any unexpected inflation.
Another feature of my asset allocation is that I currently have a very small allocation to stocks.
Me too! I don't know what you mean by "small allocation", but my target stock allocation is only 30% of my liquid portfolio (i.e., not including real estate), as it has been since I retired in 2007. I think you and I both understand the wisdom of not taking more risk than we have the need or ability to take; and we are fortunate enough not to have higher need to take risk when we don't have sufficient ability to take risk.
As I am spending cash, my asset allocation is changing towards higher equity percentage.
One difference here is that I have been at least partially "spending stocks" in the last few years, thus keeping my allocation to stocks fairly steady. So I now am in the situation of being somewhat below target in stocks after the recent declines, which gets back to part of my answer to the OP: a fair chunk of my "large amount of CDs maturing" has been going into stocks over the last week or so, and I bet probably still more to go. Anyone with maturing CDs should be checking their stock/fixed-income allocation, and perhaps adding to stocks instead of looking for another CD (or buying I Bonds).
At the age of 70, my need for cash will greatly diminish: I will finish Roth conversions and I will start receiving Social Security. At that time, I will decide what my asset allocation should be.
Makes perfect sense to me.

Do you have a target stock/fixed-income allocation now? Does your investment policy include a rebalancing policy? Why have you not been funding expenses with stocks in recent years? At first I wrote, "I'm wondering if whatever cash you would use to buy I Bonds might be better deployed into rebalancing back to target in stocks", but then remembered that you have allowed your stock allocation to drift higher by spending cash.

I respect a policy of only rebalancing out of stocks in retirement, not into them. I respect a policy of not rebalancing at all, as long as ability, need and willingness to take risk are considered. All else equal, an increase in stock value results in a reduced need to take risk, so might as well take more off the table, while one's (limited) ability to take risk may not justify adding to stocks after a decrease in stock value. In my case, the need is not there, but the ability is, and the willingness has not been much tested since 2008/2009.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Sat Jan 16, 2016 8:31 am

Kevin M wrote:
VictoriaF wrote:At the age of 70, my need for cash will greatly diminish: I will finish Roth conversions and I will start receiving Social Security. At that time, I will decide what my asset allocation should be.
Makes perfect sense to me.

Do you have a target stock/fixed-income allocation now? Does your investment policy include a rebalancing policy? Why have you not been funding expenses with stocks in recent years? At first I wrote, "I'm wondering if whatever cash you would use to buy I Bonds might be better deployed into rebalancing back to target in stocks", but then remembered that you have allowed your stock allocation to drift higher by spending cash.

I respect a policy of only rebalancing out of stocks in retirement, not into them. I respect a policy of not rebalancing at all, as long as ability, need and willingness to take risk are considered. All else equal, an increase in stock value results in a reduced need to take risk, so might as well take more off the table, while one's (limited) ability to take risk may not justify adding to stocks after a decrease in stock value. In my case, the need is not there, but the ability is, and the willingness has not been much tested since 2008/2009.

Kevin
Hi Kevin,

My stock/fixed income allocation after the age of 70 will probably be 40/60, if most of my expenses will be met by the Social Security, pensions, and maturing I Bonds. If I need to rely on my assets, which by that time will be all-Roth, I will lower the allocation to 30/70. Predicting my future expenses is difficult because:
(a) I rent in a metropolitan area. My current rent is relatively low, and it's likely to rise. I will want to live in a metro area and will be spending more on rent with time.
(b) I don't have any medical expenses but with time this may change.

Depending on the future levels of my expenses and assets, I may consider getting an SPIA after the age of 80. Right now, this does not seem likely, because I already have two pensions, but an SPIA will serve as my Plan-B.

I don't have a typical IPS. I have a few guiding principles such as:
1. Convert all traditional accounts to Roth by the age of 70 to avoid RMDs.
2. Keep the TSP G-Fund for as long as possible, but close the TSP account if in-plan conversions will not be allowed.
3. Sell appreciated stocks in taxable accounts to realize capital gains now, before my income is used to determine my Medicare Part B premiums.
4. Have a lot of cash to pay taxes for Roth conversions and capital gains, and to spend on the activities that give me pleasure.
5. Use early retirement for doing the things I always wanted to do, with no little regard for how much they cost.

Importantly, my financial goals are not driven by maximizing my assets or the greatest portfolio efficiency. The guiding principle is that right now is my opportunity to do the things I always wanted to do.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Large amount of CDs maturing....what to do?

Post by J295 » Sat Jan 16, 2016 9:27 am

Victoria wrote:
Importantly, my financial goals are not driven by maximizing my assets or the greatest portfolio efficiency. The guiding principle is that right now is my opportunity to do the things I always wanted to do.
Love it!

Somewhat similar perspective from our IPS:
"To retain awareness that there are two risks impacting our financial choices. One, the risk that we could someday run out of money. The other, more subtle, that we die without living fully because we are unduly inhibited by the first risk. We shall strike a balance and retain flexibility. Phil. 4:12"

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sat Jan 16, 2016 9:50 am

J295 wrote:Victoria wrote:
Importantly, my financial goals are not driven by maximizing my assets or the greatest portfolio efficiency. The guiding principle is that right now is my opportunity to do the things I always wanted to do.
Love it!

Somewhat similar perspective from our IPS:
"To retain awareness that there are two risks impacting our financial choices. One, the risk that we could someday run out of money. The other, more subtle, that we die without living fully because we are unduly inhibited by the first risk. We shall strike a balance and retain flexibility. Phil. 4:12"
Yes!!!!!!!!
We are in agreement here.
Not saving enough is a gamble.
Saving too much (or having too many fears) to "live fully" (your expression) is also a gamble.
I'm not sure which is worse. I think probably the second. The first negatively impacts your latter days of life. The second negatively impacts your entire life (and you still have no real guarantees for your latter days).
The problem is that different people have different definitions of what it means to "live fully", and how affordable (and risky.... I am not only referring to money...) that is.

As a physician I have heard many people on their death bed, as well as elderly folks, lamenting how they could have lived better. The responses ran the gamut from "I wish I had children", "I wish I spent more time with my family", "I wish I traveled more", "I wish I took up ____(fill in with sport, instrument, whatever)", "I wish I went to college", etc.

The one thing I cannot recall hearing is "I wish I made more money".

But I'm getting sidetracked....I suppose because I can identify with both of your sentiments.
Back to CD's. If anybody finds a better offer please let me know. Thanks.

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Re: Large amount of CDs maturing....what to do?

Post by hsv_climber » Sat Jan 16, 2016 11:09 am

protagonist wrote:But I'm getting sidetracked....I suppose because I can identify with both of your sentiments.
Back to CD's. If anybody finds a better offer please let me know. Thanks.
I have not replied earlier, because I saw that you were only looking for CDs in taxable, but since this thread has started discussing IRAs, nobody has mentioned yet Andrews FCU CD - 7 years, 3%, IRA only.
I've opened an account with them last month and moved there my matured CDs from PenFed IRA.
Getting membership @ Andrews is easy, but they do hard pull on TransUnion on new accounts.

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Re: Large amount of CDs maturing....what to do?

Post by hsv_climber » Sat Jan 16, 2016 11:21 am

Personally, in taxable, I've also been buying 20-year can-not-touch-your-money 3.5% tax-deferred bonds, fully backed by US government.

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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Sat Jan 16, 2016 4:35 pm

One good thing about Everbank is it currently has a
yield pledge MM account which pays 1.6 % for six
months. Plenty of time for funds to settle and new
CD offers to appear. Has great transfer program
and interest can go to checking if desired on CD's.
Might get a Barclays 5 year if nothing better shows up.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Sat Jan 16, 2016 6:30 pm

hsv_climber wrote:<snip> nobody has mentioned yet Andrews FCU CD - 7 years, 3%, IRA only.
This CD looks very good: yield is 120 basis points higher than most recent 7-year Treasury yield (1.8%), which is a significantly higher premium than a 5-year 2.25% CD over a 5-year 1.46% Treasury (about 80 basis points). Even compared to a 5-year 2.5% CD, you're picking up 50 basis points, or 25 bps per extra year of maturity, which is quite good.

After some digging, I found the CD early withdrawal penalties (EWPs) documented in the Truth in Savings document. The relevant disclosure:
Andrews FCU Truth in Savings wrote:If your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends
Very competitive EWP, especially for a 7-year CD, and makes the extra yield for extending maturity by two years even more enticing.

Interesting factoid: From reading their terms, it seems as if interest is compounded quarterly as opposed to daily. This really makes no difference since the APY of 3.0% is specified, so the nominal rate is just a tad higher (2.97%) for the quarterly compounding to result in a 3.0% APY, as opposed to the nominal rate of 2.96% for daily compounding.
hsv_climber wrote:I've opened an account with them last month and moved there my matured CDs from PenFed IRA.
I'm happy to hear this! I will consider doing the same with proceeds from a recently matured PenFed IRA CD.

Questions:
  • Did you find the IRA transfer easy to do? Were you able to do it completely online, or with a bare minimum of emails (e.g., to email picture of ID and signed IRA application)? Or was their some hard-copy mailing required?
  • Did you ask for and receive a guarantee that the rate would be honored once they had received the IRA transfer form (or any other form of rate-lock guarantee)? It usually has taken 2-3 weeks for me to do an IRA transfer, and I don't want to get a reduced rate if they drop their rate before the transfer is complete. That happened to me once.
  • Did PenFed require a signature guarantee on the IRA transfer form?
I will call on Tuesday to get answers for myself, but since you've already done the groundwork here, would appreciate your insights.
hsv_climber wrote:Getting membership @ Andrews is easy, but they do hard pull on TransUnion on new accounts.
Looks like the universal eligibility is achieved by joining the American Consumer Council first, paying $5. Sometimes I wonder if I've already joined one of these organizations to qualify for another CU, buy this one doesn't ring a bell.

Thanks for bringing this to our attention!

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sun Jan 17, 2016 7:59 am

patrick013 wrote:One good thing about Everbank is it currently has a
yield pledge MM account which pays 1.6 % for six
months. Plenty of time for funds to settle and new
CD offers to appear. Has great transfer program
and interest can go to checking if desired on CD's.
Might get a Barclays 5 year if nothing better shows up.
This is a good find. Thanks!

Have you had experience with Everbank? Is it easy to transfer funds same day or next day between Everbank and another account?

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sun Jan 17, 2016 8:05 am

Kevin M wrote:
hsv_climber wrote:<snip> nobody has mentioned yet Andrews FCU CD - 7 years, 3%, IRA only.
This CD looks very good: yield is 120 basis points higher than most recent 7-year Treasury yield (1.8%), which is a significantly higher premium than a 5-year 2.25% CD over a 5-year 1.46% Treasury (about 80 basis points). Even compared to a 5-year 2.5% CD, you're picking up 50 basis points, or 25 bps per extra year of maturity, which is quite good.

After some digging, I found the CD early withdrawal penalties (EWPs) documented in the Truth in Savings document. The relevant disclosure:
Andrews FCU Truth in Savings wrote:If your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends
Very competitive EWP, especially for a 7-year CD, and makes the extra yield for extending maturity by two years even more enticing.

Interesting factoid: From reading their terms, it seems as if interest is compounded quarterly as opposed to daily. This really makes no difference since the APY of 3.0% is specified, so the nominal rate is just a tad higher (2.97%) for the quarterly compounding to result in a 3.0% APY, as opposed to the nominal rate of 2.96% for daily compounding.
hsv_climber wrote:I've opened an account with them last month and moved there my matured CDs from PenFed IRA.
I'm happy to hear this! I will consider doing the same with proceeds from a recently matured PenFed IRA CD.

Questions:
  • Did you find the IRA transfer easy to do? Were you able to do it completely online, or with a bare minimum of emails (e.g., to email picture of ID and signed IRA application)? Or was their some hard-copy mailing required?
  • Did you ask for and receive a guarantee that the rate would be honored once they had received the IRA transfer form (or any other form of rate-lock guarantee)? It usually has taken 2-3 weeks for me to do an IRA transfer, and I don't want to get a reduced rate if they drop their rate before the transfer is complete. That happened to me once.
  • Did PenFed require a signature guarantee on the IRA transfer form?
I will call on Tuesday to get answers for myself, but since you've already done the groundwork here, would appreciate your insights.
hsv_climber wrote:Getting membership @ Andrews is easy, but they do hard pull on TransUnion on new accounts.
Looks like the universal eligibility is achieved by joining the American Consumer Council first, paying $5. Sometimes I wonder if I've already joined one of these organizations to qualify for another CU, buy this one doesn't ring a bell.

Thanks for bringing this to our attention!

Kevin
One other question....
Can seniors do withdrawals penalty-free, as is the case with Penfed IRA certificates and some others?

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Re: Large amount of CDs maturing....what to do?

Post by hsv_climber » Sun Jan 17, 2016 10:58 am

Kevin M wrote: Questions:
  • Did you find the IRA transfer easy to do? Were you able to do it completely online, or with a bare minimum of emails (e.g., to email picture of ID and signed IRA application)? Or was their some hard-copy mailing required?
  • Did you ask for and receive a guarantee that the rate would be honored once they had received the IRA transfer form (or any other form of rate-lock guarantee)? It usually has taken 2-3 weeks for me to do an IRA transfer, and I don't want to get a reduced rate if they drop their rate before the transfer is complete. That happened to me once.
  • Did PenFed require a signature guarantee on the IRA transfer form?
I will call on Tuesday to get answers for myself, but since you've already done the groundwork here, would appreciate your insights.

Looks like the universal eligibility is achieved by joining the American Consumer Council first, paying $5. Sometimes I wonder if I've already joined one of these organizations to qualify for another CU, buy this one doesn't ring a bell.

Thanks for bringing this to our attention!

Kevin
- Yes, I've used American Consumer Council membership. $5 fee is an optional donation.

- I've opened regular membership account online (easy). I've added free checking (not really necessary and I don't need it either) and that has required me to upload signature card. Also done online. Quick and easy. Hard pull on TransUnion.

- I've filled (really means pre-filled) IRA forms online then printed them out, got signature guarantee at the local bank and mailed IRA forms to Andrews. Does PenFed requires sig. guarantee? I don't know, since it was faster for me to stop by at the local bank on my way from work, than to deal with PenFED CSRs who might provide conflicting info.

- While the process was very smooth, CSRs @ Andrews were fairly clueless when I've called. For example, I've been told that transfer process should be initiated by PenFed (wrong). I've even printed PenFED IRA transfer form after talking with Andrews CSR, before realizing that it was wrong info.

- Are rates guaranteed? I've asked CSR this question and got a blah, blah, blah answer. But I think that rates are guaranteed. Here is why - when you will be printing your pre-filled IRA forms from their website, rate is mentioned on the form. Basically, you will be mailing a form that will say something like: "I, John Smith, would like to open a 7-year IRA CD @ 3.0% APY". Since rate is mentioned on the form, I don't see how they could not honor it.
Last edited by hsv_climber on Sun Jan 17, 2016 11:07 am, edited 2 times in total.

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Re: Large amount of CDs maturing....what to do?

Post by hsv_climber » Sun Jan 17, 2016 11:00 am

protagonist wrote:One other question....
Can seniors do withdrawals penalty-free, as is the case with Penfed IRA certificates and some others?
Sorry, I don't know. I am not a senior and have not researched this issue.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sun Jan 17, 2016 11:13 am

hsv_climber wrote:
protagonist wrote:One other question....
Can seniors do withdrawals penalty-free, as is the case with Penfed IRA certificates and some others?
Sorry, I don't know. I am not a senior and have not researched this issue.
Thanks.

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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Sun Jan 17, 2016 12:47 pm

protagonist wrote:
patrick013 wrote:One good thing about Everbank is it currently has a
yield pledge MM account which pays 1.6 % for six
months. Plenty of time for funds to settle and new
CD offers to appear. Has great transfer program
and interest can go to checking if desired on CD's.
Might get a Barclays 5 year if nothing better shows up.
This is a good find. Thanks!

Have you had experience with Everbank? Is it easy to transfer funds same day or next day between Everbank and another account?
I designated three bank accounts in just a few minutes but have
to verify deposits next week. Then it's 100 % operational. The
yield pledge MM has a $150,000 limit but I have another place that
started paying 1.25% on $35,000 if I need it. Their EWP is 1/4
of total interest so that isn't great.

But if you look around their website they have quite an array of products.

Stocks are $9.
Mutual funds are available.
CDAR's are always available.
Individual bonds online or broker assist.
Foreign bonds and stocks.
Foreign CD's and currency.

And they'll send you a debit card and a box of checks without even
asking. Pretty good for a second account to organize cash and CD's
or whatever.
age in bonds, buy-and-hold, 10 year business cycle

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Andrews FCU 7-year 3% IRA CD.

Post by Kevin M » Sun Jan 17, 2016 8:16 pm

@hsv_climber, thanks for the answers! I do think I'll get going on joining the CU and submitting the IRA transfer form. I'll try to get a rate lock from them in writing, but I've done many IRA transfers without this, and have only been burned once (and the rate was still good enough). I'll also try to get an answer from PenFed on the signature guarantee, but if unsure, will just get one (from local Fidelity office).

Thanks again--great deal!

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by ogrehead » Sun Jan 17, 2016 9:32 pm

protagonist wrote:I'm avoiding bonds.....I know some disagree with this strategy, but I want to know that I can at least preserve my principal, and I fear bonds have little room to go anywhere but down.
I don't mean to argue with you, but in general the interest rate risk situation is exactly the same with CDs as with bonds of the same duration. When interest rates go up, the value of a CD goes down. That said, the interest rates of CDs can be attractive compared to treasuries of the same duration.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sun Jan 17, 2016 11:55 pm

ogrehead wrote:
protagonist wrote:I'm avoiding bonds.....I know some disagree with this strategy, but I want to know that I can at least preserve my principal, and I fear bonds have little room to go anywhere but down.
I don't mean to argue with you, but in general the interest rate risk situation is exactly the same with CDs as with bonds of the same duration. When interest rates go up, the value of a CD goes down. That said, the interest rates of CDs can be attractive compared to treasuries of the same duration.
Yes, but you can't lose principal with a CD when interest rates go up. I am not committed to holding to maturity. There are many differing views on this, and it has been discussed on several threads in this forum.

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Re: Large amount of CDs maturing....what to do?

Post by Hshmelody » Mon Jan 18, 2016 12:06 am

Would you consider double tax free bonds or an annuity

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Mon Jan 18, 2016 1:46 pm

ogrehead wrote:
protagonist wrote:I'm avoiding bonds.....I know some disagree with this strategy, but I want to know that I can at least preserve my principal, and I fear bonds have little room to go anywhere but down.
I don't mean to argue with you, but in general the interest rate risk situation is exactly the same with CDs as with bonds of the same duration. When interest rates go up, the value of a CD goes down. That said, the interest rates of CDs can be attractive compared to treasuries of the same duration.
This is true for a brokered CD, but not for a direct CD. The advantage of direct CDs is that you can do an early withdrawal and pay a pre-determined early withdrawal penalty, which limits your downside risk.

For the 7-year 3% CD mentioned here, the EWP is about six months of interest, so about 1.5%, so your maximum loss is 1.5%. So if you had an opportunity to reinvest at 4% a year from now, you lose only 1.5% to take advantage of the opportunity. Contrast that to the roughly 5% loss if a 7-year bond with 3% coupon was sold a year later if 6-year yield had risen to 4%.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Tue Jan 19, 2016 1:24 pm

I found another good one.

Pioneer Valley FCU in Springfield, MA.

57 month certificate at 2.57% APY with 6 month EWP.

Joining is easy....sign up when you apply for either Pioneer Valley Local First or Amer. Consumer Council MA chapter. The credit union will cover your membership fee. Please choose Pioneer Valley Local First, for my sake. They benefit local businesses in and around my community. Thanks.

Get multiple small CDs instead of one large one, because if you make partial withdrawals the EWP applies to the entire certificate value.

You can charge $500 to a credit card when you open your account, and the rep told me it would be processed as a purchase rather than a cash advance. If true you may be able to cash in on some airline points on the side.

If you are a MA resident I suppose you would also benefit from the favorable state tax rate if you bank in state.

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IRA transfer from PenFed to Andrews FCU

Post by Kevin M » Thu Jan 21, 2016 2:16 pm

I've made the phone calls and got things rolling with the IRA transfer from PenFed to Andrews FCU (AFCU) to buy the 7-year 3% CD. Here are my own answers to the questions I asked up-thread (thanks again to hsv_climber for bringing this to our attention, and for taking a pass at answering my questions).
Kevin M wrote: Looks like the universal eligibility is achieved by joining the American Consumer Council first, paying $5. Sometimes I wonder if I've already joined one of these organizations to qualify for another CU, buy this one doesn't ring a bell.
On the first page of the AFCU online application, there is a link to the American Consumer Council (ACC) web page. You must provide your ACC member number to proceed with the AFCU online application, so I clicked the link, then filled out the simple form to join ACC, and paid my $5 by credit card (this did not appear to be optional). I immediately received an email with a receipt for payment, and about 30 minutes later received the email with my ACC member number (when we did this later in the day for another household member, we didn't receive the membership number email for several hours).
Kevin M wrote: Did you find the IRA transfer easy to do? Were you able to do it completely online, or with a bare minimum of emails (e.g., to email picture of ID and signed IRA application)? Or was their some hard-copy mailing required?
Pretty easy, and all done by filling things out online, and printing out, signing, and mailing the IRA application (2 pages) and transfer form (2 pages).

It took about 20 minutes to complete the online application. This includes creating a login for their Online Applications Center. For those who bought a NWFCU CD or USAlliance CD last year, this is exactly the same application system, but it requires setting up a new login.

I then received three emails from "loanorg", indicating that my Online App Center login had been created, my application had been received, and my application had been accepted. The last email included this:
To assist us with our application review, please submit a signed and dated copy of the Membership Application and Signature Card to us, either by mail or by scanning and uploading the document to your application (the Signature Card is available as a PDF document within your application)
I did not do this, since the application itself said that a signature card was only required if a checking account was opened, and I did not open a checking account.

The next day I received an email from "Meridian Link via DocuSign", requesting that I electronically sign a document. I didn't do this, probably because when I first checked my email that day, I also had another email from "loanorg" indicating that I had a message in the Online Application Center, and when I logged on and checked, I saw that my membership had been approved, and that my member number had been provided.

At that point I created my online login to AFCU. For those who haven't been through this before, don't get the login created for the Online Application Center confused with the login to your actual account at AFCU--they are two separate logins. I probably didn't have to actually set up online access at this point, but will want to have it eventually.

I found that you can't actually open the IRA and complete the IRA transfer form from within your online account, which is why setting up online access at this point was unnecessary. All you need to proceed with the IRA part is your member number.

So next I poked around until I found the online IRA application: On the AFCU home page, click PERSONAL in the top menu bar, then click either "IRA/Retirement Center" or "Welcome to the Retirement Center". This opens another browser tab for "Retirement Central". On that page, click "Open an IRA", then click "Traditional IRA or SEP", or "Roth IRA", whichever is applicable to you. This brings up the first page of the online IRA application form.

If you use a web page autofill solution (e.g., LastPass or browser auto-fill), you can auto-fill most of the form. The only possibly confusing entry on the first page was "IRA Account Identification", but I figured the only thing that made sense here was my AFCU member number, so that's what I entered here (and later confirmed by phone that this is correct).

Since I am doing an IRA transfer, I selected "Move assets from a Traditional IRA at another financial organization" under "What would you like to do?" (other choices include "Make a contribution to a Traditional IRA"). The subsequent online form pages collected all information required for the IRA application and the IRA transfer form.

After all online form pages are completed, you are able to preview the PDF of the application and IRA transfer form, as well as the 10-page disclosure and a 1-page information sheet on projected growth of the account. I printed/saved this to a local PDF file so I'd have an electronic copy, and then just printed the four pages that require signature and mailing.
Kevin M wrote: Did you ask for and receive a guarantee that the rate would be honored once they had received the IRA transfer form (or any other form of rate-lock guarantee)? It usually has taken 2-3 weeks for me to do an IRA transfer, and I don't want to get a reduced rate if they drop their rate before the transfer is complete. That happened to me once.
I asked about this in a comment section on my membership application, and in the membership approval note, was told that the rate would not be guaranteed. I also saw a statement to this effect somewhere in the online IRA application, noting that if the product you requested is no longer available, you will be contacted to select an alternative. I also was told this directly by the IRA specialist I talked to by phone, but she also told me that she thought the rate would still be in place by the time they received the transfer.

So my plan here is that if the rate has dropped to an unacceptable level by the time the transfer is complete, I'll inform them to just put the proceeds in an IRA savings or money market account, and then I'll do another transfer somewhere else. PITA, but this is the kind of thing you need to do to beat the 7-year Treasury rate by more than 120 basis points.
Kevin M wrote: Did PenFed require a signature guarantee on the IRA transfer form?
No, they do not. I was told this by an assistant manager by phone (lots of hold time as the first-level CSR tried to find the answer), and also received the same answer in writing in response to a message I sent.

Also, I was told by the IRA specialist at AFCU that they do not require a signature guarantee on outbound IRA transfers, so if their rate drops and I have to transfer out, it will be slightly less of a PITA.

Hope this is useful info to some of you, but ...

****** CAUTION FOR CREDIT UNION AND/OR IRA TRANSFER NOVICES ******

Joining some credit unions, opening CDs, and doing IRA transfers can be confusing and challenging for some people. There were 7 pages of replies in a thread I started on the NWFCU CD last year (Northwest FCU 3-year 3.04% Add-On CD - Bogleheads.org), there were many, many complaints about problems with the process, and the process at AFCU is very similar. Although I don't find doing this kind of thing particularly challenging, and have done it many times, even I can get confused at some points in the process (every financial institution has their quirks), and sometimes have to pick up the phone and ask questions. So please don't even start down this path unless you are prepared to experience some confusion, ask a few questions, maybe spend some phone time on hold, and have some patience.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by mur44 » Thu Jan 21, 2016 3:37 pm

Protagonist,

I telephoned Pioneer Valley FCU in Springfield, MA.
They said, I can NOT open a CD at their CU because
I am a resident of New Jersey. I told them my son lives
in Massachusetts.

Do you live in Massachusetts?

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 21, 2016 4:46 pm

mur44 wrote:Protagonist,

I telephoned Pioneer Valley FCU in Springfield, MA.
They said, I can NOT open a CD at their CU because
I am a resident of New Jersey. I told them my son lives
in Massachusetts.

Do you live in Massachusetts?
It does not matter, and the rep gave you bad info (not surprising--happens often). @protagonist told you how to join, and I'll re-emphasize it: you join an organization that qualifies you. Here is a link the first screen of the online membership application: Eligibility. Note that the third choice under Membership Requirements is "I want to join through an association", which is the one you choose. Also note that the American Consumer Council is the same organization you can join to become a member of Andrews FCU, but it appears that you have to join the local MA chapter for Pioneer Valley FCU.

By simply checking the "I want to join through an association", leaving the default organization selected, and clicking the boxes next to the four disclosure documents, I was able to proceed to the next screen (but did not continue, as I am not joining now).

Note that protagonist requested that we join Pioneer Valley Local First instead of the default choice of ACC-MA chapter, so I would do that.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Thu Jan 21, 2016 5:30 pm

I just timed how long it took to do the second Andrews FCU IRA application and transfer request: about 10 minutes to get to the screen where you review the PDF forms, and about 23 minutes including time to review forms, print and sign, address, stamp and stuff envelope. Here are the timed steps with some cryptic notes about what is done on each page of the online application, and what choices I made:

Code: Select all

11:43 page 1
11:44 page 2 (transfer, transfer, owner)
11:44 page 3 transfer info
11:48 page 4 (select CD: percentage, 100)
11:49 page 5 (cash or check)
11:50 page 6 (beneficiaries)
11:53 page 7 (review: view/print, view all forms, print to PDF file)
11:58 print pages 2-5, double sided
12:06 printed, signed, in envelope
I cheated a bit, because the person for whom we were doing this collected some of the required information before I started (e.g., AFCU member number, PenFed account number, address and phone number), so that saved a few minutes. Also, since this was my second time through, I knew exactly what to enter and which boxes to check without having to think about it.

Now for the 2-3 week waiting period to see if both of our transfers are completed before the rate drops.

Kevin
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tomd37
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Re: Large amount of CDs maturing....what to do?

Post by tomd37 » Thu Jan 21, 2016 5:44 pm

After reading all these posts on Cds, I am thankful that I was able to participate in the recent and now expired Navy Federal Credit Union 30-month 2.5% APY certificate. For those people eligible for membership, NFCU periodically comes up with some very good certificate offerings of varying lengths.
Tom D.

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VictoriaF
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Re: Large amount of CDs maturing....what to do?

Post by VictoriaF » Fri Jan 22, 2016 9:25 am

tomd37 wrote:After reading all these posts on Cds, I am thankful that I was able to participate in the recent and now expired Navy Federal Credit Union 30-month 2.5% APY certificate. For those people eligible for membership, NFCU periodically comes up with some very good certificate offerings of varying lengths.
I agree, Tom. I missed the opportunity for the 30-month 2.5% CDs but now I am thinking of opening a 20-month 2% CD in an IRA. Navy Fed has good offers often enough to justify continuing membership, and their customer service is excellent.

Victoria
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Fri Jan 22, 2016 8:48 pm

mur44 wrote:Protagonist,

I telephoned Pioneer Valley FCU in Springfield, MA.
They said, I can NOT open a CD at their CU because
I am a resident of New Jersey. I told them my son lives
in Massachusetts.

Do you live in Massachusetts?
Yes, I live in MA.

I was unaware that state residency is a requirement, and acc. to Kevin you got misinformed. You might check again.

By the way, I have been dealing with Alex via a number of phone calls, who is in some kind of supervisory role at PVFCU. So far I have found their customer service to be excellent. When I get their recorded message I hit "O" once, get a human being on the line very quickly, and have had no trouble getting through to Alex.

After applying they sent me another form for electronic signature and requested that I scan and email a copy of a photo CD, which I did and instantly got my account number .

Unfortunately I don't qualify for Navy FCU. I would like to open up an IRA CD account with Andrews, but it would involve selling the remaining stock I hold in my IRA and doing a rollover from Fidelity (I held stock in my IRA before I learned through this forum that it was better to keep stock in taxable accounts).

I realize that market timing is a bad thing, but I am still loath to sell my Fidelity Spartan S&P 500 index fund at a time when it is about 20% off its high to buy a CD yielding 3%. Irrational?? I'm a bit embarrassed to admit this here. I figure I will wait a few months....if the market bounces back and the CD is still available at Andrews I may initiate paperwork.

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Fri Jan 22, 2016 10:41 pm

protagonist wrote:I would like to open up an IRA CD account with Andrews, but it would involve selling the remaining stock I hold in my IRA and doing a rollover from Fidelity (I held stock in my IRA before I learned through this forum that it was better to keep stock in taxable accounts).

I realize that market timing is a bad thing, but I am still loath to sell my Fidelity Spartan S&P 500 index fund at a time when it is about 20% off its high to buy a CD yielding 3%. Irrational?? I'm a bit embarrassed to admit this here. I figure I will wait a few months....if the market bounces back and the CD is still available at Andrews I may initiate paperwork.
Why don't you sell the fund in the Fidelity IRA, and on the same day buy the same amount of the same or similar stock fund with some of the proceeds from your matured taxable CDs? This helps solve your problem of what to do with proceeds from matured taxable CDs, moves you toward the asset-location solution you prefer, and opens up the opportunity to grab the better CD deal.

Keep in mind that the rate might fall before your transfer is complete, but that doesn't hurt you much, since you will have replaced the stocks in the IRA with stocks in taxable, and you'll just have to resume the hunt for a good IRA CD deal.

That's what I'd do.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by grok87 » Sat Jan 23, 2016 10:29 am

psychoslowmatic wrote:This is my go-to for CD info:

https://www.depositaccounts.com/blog/

There's a rumor Penfed will have a new 1.51% 15 month CD offering on 1/23: https://www.depositaccounts.com/blog/20 ... 016.html#1

I would split it up into a few Ally 5 year CDs and plan to break some if it becomes cost effective later. Or wait for the Penfed thing, whichever has the higher return.
yep the penfed cd is here
will be interesting to see how long it lasts
https://penfed.org/Money-Market-Certificate/?WT.ac=1880
Keep calm and Boglehead on. KCBO.

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Re: Large amount of CDs maturing....what to do?

Post by john94549 » Sat Jan 23, 2016 2:37 pm

Never thought I'd see the day when folks were enamored with such a paltry yield. That said, rates these days are what they are, I suppose.

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Sun Jan 24, 2016 9:24 am

Kevin M wrote:
protagonist wrote:I would like to open up an IRA CD account with Andrews, but it would involve selling the remaining stock I hold in my IRA and doing a rollover from Fidelity (I held stock in my IRA before I learned through this forum that it was better to keep stock in taxable accounts).

I realize that market timing is a bad thing, but I am still loath to sell my Fidelity Spartan S&P 500 index fund at a time when it is about 20% off its high to buy a CD yielding 3%. Irrational?? I'm a bit embarrassed to admit this here. I figure I will wait a few months....if the market bounces back and the CD is still available at Andrews I may initiate paperwork.
Why don't you sell the fund in the Fidelity IRA, and on the same day buy the same amount of the same or similar stock fund with some of the proceeds from your matured taxable CDs? This helps solve your problem of what to do with proceeds from matured taxable CDs, moves you toward the asset-location solution you prefer, and opens up the opportunity to grab the better CD deal.

Keep in mind that the rate might fall before your transfer is complete, but that doesn't hurt you much, since you will have replaced the stocks in the IRA with stocks in taxable, and you'll just have to resume the hunt for a good IRA CD deal.

That's what I'd do.



Kevin
In fact, I am thinking of doing this. It's just that I am out of the country until mid-March, and doing anything from where I am is complicated and time-consuming. Thanks.

If I miss this opportunity, I imagine more similar opportunities will arise within the next few months. That seems to be the rule these days, plus which Fed. interest rates are supposed to rise.

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Sun Jan 24, 2016 1:31 pm

protagonist wrote:
Kevin M wrote: Why don't you sell the fund in the Fidelity IRA, and on the same day buy the same amount of the same or similar stock fund with some of the proceeds from your matured taxable CDs?
In fact, I am thinking of doing this.
That's great. Based on your previous posts, it didn't seem like you had thought of it.
protagonist wrote:If I miss this opportunity, I imagine more similar opportunities will arise within the next few months. That seems to be the rule these days, plus which Fed. interest rates are supposed to rise.
It does seem to have been the case over the last few months, but I don't know if I'd count on the federal funds rate (FFR) increasing anytime soon: Pondering The Fed’s Next Move For Monetary Policy | The Capital Spectator. Also, it's questionable that the FFR will have much impact on 5-year rates, especially direct CD rates.

The 5-year Treasury rate has dropped from 1.8% at the end of December to 1.44% on Thursday (with a bump up to 1.49% on Friday). It has been trading in a range of about 1.3% to 1.8% since early September 2013, so now actually is closer to the bottom of that range than to the top.

Image

It's hard to see that the recent 25 basis point increase in the target FFR was any more significant for the 5-year Treasury rate than whatever random events have been influencing it over the last couple of years, and any minor impact it did have (on December 16) has been more than reversed.

So there may be other good reasons to wait, but I'd question that another FFR increase in the near future is one of them.

Having said all of that, the best direct CD rates don't seem to have much to do with recent changes in Treasury rates, much less the FFR, so I'd guess that chances are pretty good that more good CD deals will pop up now and then.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Mon Jan 25, 2016 3:49 pm

I think a flight to quality is occurring raising prices of govt. bonds
lowering prices of corporate bonds. The supply of govt. bonds
in particular being able to absorb increased demand but higher
prices have been set by busy sellers. But that's just a supply/demand
observation. A hand full of banks have CD's 2.25% and higher. A
different market. Better yields.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Mon Jan 25, 2016 9:54 pm

I was basing my comment more on the announcement by the Fed that they are planning to raise rates by 1% per year over the next 3 years.

I have no idea if they will stick to the plan

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Re: Large amount of CDs maturing....what to do?

Post by Kevin M » Tue Jan 26, 2016 10:13 pm

protagonist wrote:I was basing my comment more on the announcement by the Fed that they are planning to raise rates by 1% per year over the next 3 years.
Understood, but I think a consistent component of their policy is that any rate increases are data dependent. I don't profess to pay much attention to this stuff, but I get the impression that the data over the last few weeks does not demonstrate the kind of economic robustness that would necessarily warrant additional rate hikes in the near future. And for investment decisions over the next month or two, I don't know that our guess about what they'll do over the next few years matters much if at all.

The touchstone 5-year CD rates (e.g., Synchrony Bank, Barclays Bank) haven't changed since the December FFR increase, and brokered CD rates actually seem to have declined a bit, so I just don't think what the Fed does with the FFR over the next few months matters much to CD investment decisions. I figured I'd give it a few weeks to see if the December FFR rate hike had any impact on CD rates, but there doesn't seem to have been, so time to move ahead with whatever deals we can find.

Kevin
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Re: Large amount of CDs maturing....what to do?

Post by protagonist » Wed Jan 27, 2016 9:39 am

Kevin M wrote:
protagonist wrote:I was basing my comment more on the announcement by the Fed that they are planning to raise rates by 1% per year over the next 3 years.
Understood, but I think a consistent component of their policy is that any rate increases are data dependent. I don't profess to pay much attention to this stuff, but I get the impression that the data over the last few weeks does not demonstrate the kind of economic robustness that would necessarily warrant additional rate hikes in the near future. And for investment decisions over the next month or two, I don't know that our guess about what they'll do over the next few years matters much if at all.

The touchstone 5-year CD rates (e.g., Synchrony Bank, Barclays Bank) haven't changed since the December FFR increase, and brokered CD rates actually seem to have declined a bit, so I just don't think what the Fed does with the FFR over the next few months matters much to CD investment decisions. I figured I'd give it a few weeks to see if the December FFR rate hike had any impact on CD rates, but there doesn't seem to have been, so time to move ahead with whatever deals we can find.

Kevin
That sounds very reasonable, Kevin, and it is, in fact, the strategy I am pursuing. I have no desire to leave my money in a 1.06% APY bank account for an indefinite period of time while I wait for CD yields to increase.

As you might know if you have followed my posts over the years, I have no faith in financial predictions. Catching the future based on expert pronouncements or prior data is like trying to catch a cloud with a pitchfork. But that said, as irrational and self-contradictory as it seems, if I didn't make some assumptions, I would never know what to do with my money. Besides, it gives me the opportunity to laugh at myself.

Again, I want to put a pitch in for the customer service at Pioneer Valley FCU. I ran into a snag with transferring funds from Fidelity, and Alex promised me that he would hold the current rate for me for an extra week. Besides which, I always seem to get a rep on the line after one or two rings, and they have been very helpful.

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Re: Large amount of CDs maturing....what to do?

Post by patrick013 » Wed Jan 27, 2016 2:03 pm

If we can freely converse as bit....

Large investors on Wall Street will lose money if the Fed raises
rates "twice in a row". Consumers and the consumer staple sector
will win. All about winning and losing ? I think 5 year CD's are
a good deal either way.
age in bonds, buy-and-hold, 10 year business cycle

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