Some 'hints' about brokered CDs

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Some 'hints' about brokered CDs

Post by dm200 » Sat Apr 01, 2017 4:24 pm

As long as you understand the pros and cons of "brokered" CDs, I believe they can be useful for fixed income. I manage investments for an organization (part time) and we hold a lot of Vanguard brokered CDs. A few things I have learned about the ways to better utilize Brokered CDs (at Vanguard):

1. I mostly buy new issue CDs. However, I also search for those on the secondary market selling at a discount (to keep all funds FDIC insured). Occasionally I find the same rate and maturity as a new issue, but selling at a discount (even taking into account the brokerage fee).

2. I buy mostly noncallable brokered CDs, but sometimes (for an extra 5-10 basis points) I buy a callable brokered CD. Small risk (I believe) for a slightly higher return.

3. While I usually look for standard or common terms/maturities (12 months, 24 months, etc.), I also do a search for slightly longer or shorter terms. I recently found that a 13 month term was paying 15 basis points higher than a 12 month. Since it fits my ladder, I have been buying 13 month terms vs 12 month for 2 months. That seems to be a continuing pattern for a while.

4. The settlement date for new issues can be from a few days to a few weeks in the future. You can place an order for a new issue CD without having the funds in the settlement MM fund if you have existing CDs maturing on or before the settlement date. That allows staying more fully invested in these CDs.

5. I keep a daily list of rates and terms so that I can wait a day or two if the desired term/maturity rate seems to be abnormally low, for some reason.

6. I almost always do everything online, but you can always talk to a broker at Vanguard at no additional cost or charge.

If anyone has any other "hints" - I am interested as well.

User avatar
LadyGeek
Site Admin
Posts: 47500
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Some 'hints' about brokered CDs

Post by LadyGeek » Sun Apr 02, 2017 3:06 pm

This thread is now in the Investing - Theory, News & General forum (theory).

See the wiki: Brokered CDs

- You can't withdraw part of a brokered CD for retirement account distributions. The brokered CD will have to be sold.
- Know who issued the CD, as FDIC insurance may not apply as you think.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

sport
Posts: 7185
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Some 'hints' about brokered CDs

Post by sport » Sun Apr 02, 2017 3:36 pm

LadyGeek wrote:This thread is now in the Investing - Theory, News & General forum (theory).

See the wiki: Brokered CDs

- You can't withdraw part of a brokered CD for retirement account distributions. The brokered CD will have to be sold.
- Know who issued the CD, as FDIC insurance may not apply as you think.
LadyGeek,
Please expand on your comment about FDIC. It would seem that FDIC insurance either does or does not apply.

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Sun Apr 02, 2017 3:39 pm

LadyGeek wrote:This thread is now in the Investing - Theory, News & General forum (theory).

See the wiki: Brokered CDs

- You can't withdraw part of a brokered CD for retirement account distributions. The brokered CD will have to be sold.
- Know who issued the CD, as FDIC insurance may not apply as you think.
As best I understand, all Vanguard brokered CDs are from FDIC insured banks/institutions. As long as total holdings from one institution [occasionally there are two named institutions that count as one for FDIC purposes, such as Bank of India NY and Bank of India Chicago] stay within the FDIC limits, you are safe with anything you buy at Vanguard.

smackboy1
Posts: 989
Joined: Wed Mar 14, 2007 9:41 pm

Re: Some 'hints' about brokered CDs

Post by smackboy1 » Sun Apr 02, 2017 3:47 pm

I invest in brokered CDs because at current rates they typically yield more than the equivalent US treasury debt. The risk is the same as US treasury debt because of FDIC insurance up to $250,000.00 per depositor per bank.

Sometimes it is not 100% obvious which issuers are considered the same bank for FDIC purposes. For example: GE Capital Retail Bank changed its name to Synchrony Bank a few years ago. The FDIC #s are the same, which is a clue. Also, some GE Capital CDs were acquired by Goldman Sachs in recent years when GE closed down it's financial arm. So it's possible to inadvertently exceed the FDIC limit by owning $250K of Goldman Sachs CDs and $250K of GE Capital CDs. In some situations, banks with different FDIC #s are actually the same underlying bank e.g. State Bank of India.

If there is any question that the FDIC limit might be exceeded, the easiest way to be sure is to contact the fixed income desk and give them the CUSIPs and ask for confirmation.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

TBillT
Posts: 384
Joined: Sat Sep 17, 2011 1:43 pm

Re: Some 'hints' about brokered CDs

Post by TBillT » Sun Apr 02, 2017 4:16 pm

I've done quite a few brokered CD's at Fidelity. Normally they almost all say FDIC so I assume that means FDIC insured. Right now I am not seeing bargains, many here jumped on the Andrews FCU 3% which is a better deal in some ways. If you have the broker CD and rates go to 5% you are stuck with a capital loss. I have some that have a nice gain, but it is often hard to find a market to sell back to take the gain. Sometimes I can sell back at the gain. I think for very elderly with SO Survivor option, they can play a role. But I agree if you keep on eye on it, and bonds, sometimes you can see a good deal. I am rusty at the moment, and/or the deals aren't there right now.

aristotelian
Posts: 4609
Joined: Wed Jan 11, 2017 8:05 pm

Re: Some 'hints' about brokered CDs

Post by aristotelian » Sun Apr 02, 2017 4:27 pm

Just curious, if I get a bunch of brokered CD's from different banks through VG or Schwab, will I get separate 1099-INT's from each one?

User avatar
Kevin M
Posts: 10004
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Some 'hints' about brokered CDs

Post by Kevin M » Sun Apr 02, 2017 4:31 pm

Good tips, dm200.

TBillT, nice, concise summary of some of the tradeoffs between brokered and direct CDs, and also good to point out the death put option. I've been sticking with direct CDs for last 6+ years due to generally higher yields and the very valuable early withdrawal option, but I understand dm200s reasons for using brokered CDs. Either way you generally have been getting nice yield premiums over Treasuries of same maturity (my average over last 6+ years is > 100 basis points, and over last 1.5 years about 150 basis points).

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
Artsdoctor
Posts: 3454
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Some 'hints' about brokered CDs

Post by Artsdoctor » Sun Apr 02, 2017 4:44 pm

I have used brokered CDs for many years and agree with your assessment. I have bought brokered CDs at a premium as well, although I am very well aware that the CD is only FDIC-insured for par (e.g., if you pay $26,000 for a $25,000 CD to get a "higher" monthly payment and the bank runs into problems, you're only guaranteed to get that $25,000).

You can sell brokered CDs, and in a falling rate environment, you can sell a premium CD for a relatively "fair" price. However, you shouldn't count on it; if you buy a brokered CD, you should anticipate holding it until maturity.

Also, if you're holding a very high balance in brokered CDs in your IRA and you're taking RMDs, your RMDs will be calculated based on market value and not par value. This can be beneficial, or not, depending on your needs. In this regard, they really operate like individual bonds.

larryswedroe
Posts: 15700
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Some 'hints' about brokered CDs

Post by larryswedroe » Sun Apr 02, 2017 5:55 pm

FWIW, almost always better off buying in secondary market, higher yields. Also would avoid callables as historically not well rewarded and risks don't mix well with equities
Larry

Geologist
Posts: 1186
Joined: Fri Jan 02, 2009 7:35 pm

Re: Some 'hints' about brokered CDs

Post by Geologist » Sun Apr 02, 2017 6:08 pm

aristotelian wrote:Just curious, if I get a bunch of brokered CD's from different banks through VG or Schwab, will I get separate 1099-INT's from each one?
If you buy from Vanguard, you will get all the interest summarized on your Vanguard Brokerage 1099. The redemptions will show up there too; if you buy at issue, then cost equals redemption value, so there is no capital gain.

curmudgeon
Posts: 1583
Joined: Thu Jun 20, 2013 11:00 pm

Re: Some 'hints' about brokered CDs

Post by curmudgeon » Sun Apr 02, 2017 6:41 pm

A timely thread for me, as I expect to build a few years of a fixed income ladder in the next few months. I'm chewing over options of individual bonds, brokered CDs, direct CDs, and bond funds. I will probably end up with a mixture.

S17C
Posts: 208
Joined: Wed Jan 18, 2017 1:05 pm

Re: Some 'hints' about brokered CDs

Post by S17C » Sun Apr 02, 2017 9:18 pm

I invested into CDs during 2008-2009 (and far too long afterward).
dm200 wrote: 4. The settlement date for new issues can be from a few days to a few weeks in the future. You can place an order for a new issue CD without having the funds in the settlement MM fund if you have existing CDs maturing on or before the settlement date. That allows staying more fully invested in these CDs.
Fidelity won't allow this (at least as of 2014-2015). A couple years ago I wanted to buy 50 of 3.35% that wouldn't settle for two weeks and the available quantity was selling-out fast. I had a 75 CD maturing in one day. I called the fixed income desk. Supervisor said maturing Brokered CDs can sometimes snag and be held for a month before paying out to Fidelity. Therefore, Fidelity won't give any 'credit' for imminently maturing CDs. Fidelity, however, allows buying up to 25 immediately as long as a bank transfer into Fidelity for 25K has been scheduled.

I've had Fidelity CDs miss a scheduled interest payment. Each time I called in, Fidelity already had a note in the system that they were following-up with the issuer. Interest usually showed-up in the account about a week late.

Also, I learned: If a CD is selling fast and sells out, then check back the next day. Often it will be replenished with more shares to sell.

I pay attention to the quantity available, and I used to be surprised that 12 month CDs with lower interest rates would sell well compared to other 12 month CDs with higher interest rates. I used to think that investors were purposely trying to keep their taxable income low by purchasing the lower interest rate. Probably not. Then I had thought that purchasers were shying away from foreign bank names, thinking it was a riskier investment (even though it had FDIC). Nope. Here's why investors probably purchase a CD with a lower interest rate: interest in the lower rate CD is paid out monthly compared to the higher rate CD which only pays out semiannually. I guess buyers like more frequent payouts and are willing to take lower interest. There's probably more to this story.

If bought into a CD and am waiting for the purchase to go settle(could take days), then I can still cancel it if there's a new offering at higher interest rate.

Can sometimes tell if my callable CD will be called by looking at the offerings ahead of the call date. If that particular bank is offering CDs for lower rates than what they are paying me, then they are taking others' money at a lower interest rate and will probably pay me off.

Have never once been called at premium above par. The issuer waits until the next par call and then pays it off.

I despise callable CDs with a call schedule of 05-01-2017; 06-01-2017; 07-01-2017; 08-01-2017; 09-01-2017....for years, all the way until maturity.

anoop
Posts: 690
Joined: Tue Mar 04, 2014 1:33 am

Re: Some 'hints' about brokered CDs

Post by anoop » Mon Apr 03, 2017 12:03 am

smackboy1 wrote:I invest in brokered CDs because at current rates they typically yield more than the equivalent US treasury debt. The risk is the same as US treasury debt because of FDIC insurance up to $250,000.00 per depositor per bank.
No state tax for UST, and also much more liquid if need to sell before maturity.

jebmke
Posts: 8285
Joined: Thu Apr 05, 2007 2:44 pm

Re: Some 'hints' about brokered CDs

Post by jebmke » Mon Apr 03, 2017 1:14 am

anoop wrote:
smackboy1 wrote:I invest in brokered CDs because at current rates they typically yield more than the equivalent US treasury debt. The risk is the same as US treasury debt because of FDIC insurance up to $250,000.00 per depositor per bank.
No state tax for UST, ...
True, but for many, taxable bonds are held in IRAs so the state tax exemption doesn't apply.
When you discover that you are riding a dead horse, the best strategy is to dismount.

User avatar
Kevin M
Posts: 10004
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Some 'hints' about brokered CDs

Post by Kevin M » Mon Apr 03, 2017 11:40 am

anoop wrote:
smackboy1 wrote:I invest in brokered CDs because at current rates they typically yield more than the equivalent US treasury debt. The risk is the same as US treasury debt because of FDIC insurance up to $250,000.00 per depositor per bank.
No state tax for UST, and also much more liquid if need to sell before maturity.
Even after considering state tax, the yield premium on a good CD is paying you a very nice illiquidity premium compared to Treasuries.

As mentioned, my average yield premium over last six years has been more than 100 bps, so let's say 2.5% for CD compared to 1.5% for Treasury. After CA state tax of 9.3%, for example, the CD yield is 2.27%, so still a yield premium of 77 bps. And if you go with direct CDs with good early withdrawal terms, in preference to brokered CDs, the early withdrawal option reduces your term risk significantly, especially in the early years of the term.

Keep some Treasuries if you want for the liquidity you need, or just keep it in a 1% savings account. Yield on 1-month Treasury is 0.74%. After state tax of 9.3%, yield on 1% savings account is 0.91%, so an FDIC-insured savings account has higher yield and even better liquidity (less term risk) than a comparable Treasury, even after state tax. You have to go to the 6-month Treasury at 0.91%, taking on the additional term risk, to match the after-state-tax yield of the 1% savings account.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

baliktad
Posts: 42
Joined: Sun Mar 26, 2017 12:13 pm

Re: Some 'hints' about brokered CDs

Post by baliktad » Thu Oct 05, 2017 1:12 pm

Have browsed several threads on brokered CD's and this one seems the closest to my question.

I submitted orders for 2 brokered CD's through Fidelity yesterday, both new issues:

CD1:
Duration: 3 months
Interest Accrual Date: 11 Oct 2017
Maturity Date: 11 Jan 2018

CD2:
Duration: 6 months
Interest Accrual Date: 20 Oct 2017
Maturity Date: 20 Apr 2017

I wasn't exactly sure whether the orders would complete yesterday, on the interest accrual date, or some other date. I was somewhat surprised that the order for CD1 filled today, taking the funds out of my cash balance. My understanding is that the Interest Accrual Date is the date that interest begins to be paid, so is it correct to state that I am not compensated for the time after purchase but prior to the Interest Accrual Date?

Is this normal to have a period of 1-2+ weeks of lag time after the CD is purchased but before interest starts accruing?

What exactly causes the order to be filled? If a CD is listed for purchase and I place an order for it, what determines when the order will complete? Does the issuing bank approve/accept orders manually or is this determined by the broker or some determined schedule?

Thanks for any tips or insight.

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Thu Oct 05, 2017 1:21 pm

baliktad wrote:
Thu Oct 05, 2017 1:12 pm
Have browsed several threads on brokered CD's and this one seems the closest to my question.
I submitted orders for 2 brokered CD's through Fidelity yesterday, both new issues:
CD1:
Duration: 3 months
Interest Accrual Date: 11 Oct 2017
Maturity Date: 11 Jan 2018
CD2:
Duration: 6 months
Interest Accrual Date: 20 Oct 2017
Maturity Date: 20 Apr 2017
I wasn't exactly sure whether the orders would complete yesterday, on the interest accrual date, or some other date. I was somewhat surprised that the order for CD1 filled today, taking the funds out of my cash balance. My understanding is that the Interest Accrual Date is the date that interest begins to be paid, so is it correct to state that I am not compensated for the time after purchase but prior to the Interest Accrual Date?
Is this normal to have a period of 1-2+ weeks of lag time after the CD is purchased but before interest starts accruing?
What exactly causes the order to be filled? If a CD is listed for purchase and I place an order for it, what determines when the order will complete? Does the issuing bank approve/accept orders manually or is this determined by the broker or some determined schedule?
Thanks for any tips or insight.
For an organization I manage, I buy a lot of brokered CD at Vanguard - mostly new issues.

As far as I know and understand, there should be no delay or lack of compensation for the time you hold the CD.

For new orders (at Vanguard), there is a settlement day - some number of days in the future.

Are you sure the funds were actually taken from the cash balance? At Vanguard, the funds are made "unavailable" for some number of days before the settlement date - when the funds actually move. My best guess is that the funds are "unavailable" and not actually gone.

baliktad
Posts: 42
Joined: Sun Mar 26, 2017 12:13 pm

Re: Some 'hints' about brokered CDs

Post by baliktad » Fri Oct 06, 2017 1:01 am

dm200 wrote:
Thu Oct 05, 2017 1:21 pm
For an organization I manage, I buy a lot of brokered CD at Vanguard - mostly new issues.

As far as I know and understand, there should be no delay or lack of compensation for the time you hold the CD.

For new orders (at Vanguard), there is a settlement day - some number of days in the future.

Are you sure the funds were actually taken from the cash balance? At Vanguard, the funds are made "unavailable" for some number of days before the settlement date - when the funds actually move. My best guess is that the funds are "unavailable" and not actually gone.
Fidelity shows "Cash (core)" which is the total cash I was holding prior to the purchase, a negative "Cash Debit" value equivalent to the amount of the CD purchased, and the remainder as "settled cash" and "cash available to withdraw." So yes, the purchase does seem to have reduced the actual cash available to me. If the CD purchase is like other securities, I expect the cash debit to clear in 2 days once the transaction "settles." This will still be a few days prior to the Interest Accrual date on the CD.

Mostly just wondering if this is normal/expected to buy and pay for a CD days/weeks before the interest starts accruing.

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Fri Oct 06, 2017 7:32 am

baliktad wrote:
Fri Oct 06, 2017 1:01 am
dm200 wrote:
Thu Oct 05, 2017 1:21 pm
For an organization I manage, I buy a lot of brokered CD at Vanguard - mostly new issues.
As far as I know and understand, there should be no delay or lack of compensation for the time you hold the CD.
For new orders (at Vanguard), there is a settlement day - some number of days in the future.
Are you sure the funds were actually taken from the cash balance? At Vanguard, the funds are made "unavailable" for some number of days before the settlement date - when the funds actually move. My best guess is that the funds are "unavailable" and not actually gone.
Fidelity shows "Cash (core)" which is the total cash I was holding prior to the purchase, a negative "Cash Debit" value equivalent to the amount of the CD purchased, and the remainder as "settled cash" and "cash available to withdraw." So yes, the purchase does seem to have reduced the actual cash available to me. If the CD purchase is like other securities, I expect the cash debit to clear in 2 days once the transaction "settles." This will still be a few days prior to the Interest Accrual date on the CD.
Mostly just wondering if this is normal/expected to buy and pay for a CD days/weeks before the interest starts accruing.
Sounds like Fidelity does some things dofferently than Vanguard. At Vanguard, the funds for the future settlement of the CD purchase are in the Settlement fund (Federal MM) and earning dividends -- BUT are unavailable to me for withdrawal or transactions.

hirlaw
Posts: 230
Joined: Tue Sep 29, 2009 10:20 am

Re: Some 'hints' about brokered CDs

Post by hirlaw » Fri Oct 06, 2017 9:18 am

I have both brokered and non-brokered CD's (purchased from online banks). My one problem with brokered is that the interest is not reinvested --- so, I end up having these small amounts accumulating in a core money market account. Does anyone else consider this issue?

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Fri Oct 06, 2017 9:21 am

hirlaw wrote:
Fri Oct 06, 2017 9:18 am
I have both brokered and non-brokered CD's (purchased from online banks). My one problem with brokered is that the interest is not reinvested --- so, I end up having these small amounts accumulating in a core money market account. Does anyone else consider this issue?
Yes - that is an aspect of brokered CDs. Depending on all the details and circumstances, it may or may not be an issue.

In my case, managing an organization (part time), we do not reinvest any CD interest - for accounting, management, etc. reasons.

hirlaw
Posts: 230
Joined: Tue Sep 29, 2009 10:20 am

Re: Some 'hints' about brokered CDs

Post by hirlaw » Fri Oct 06, 2017 9:27 am

Yes - that is an aspect of brokered CDs. Depending on all the details and circumstances, it may or may not be an issue.

In my case, managing an organization (part time), we do not reinvest any CD interest - for accounting, management, etc. reasons.
Right. If you are a retiree (or organization) and are intending to spend the interest and/or stock dividends in your brokerage accounts, then it would make sense, but otherwise I feel like I am losing the benefits of compounding.

92irish
Posts: 195
Joined: Thu Mar 01, 2007 12:05 pm

Re: Some 'hints' about brokered CDs

Post by 92irish » Fri Oct 06, 2017 9:43 am

Another Tip: If you are going to buy a secondary market CD at a premium, you should double check the bank's credit worthiness. As pointed out above, FDIC does not cover the amount you have paid at a premium. Bankrate.com has a "Safe & Sound" rating system that you can plug in the name of the bank and get some idea of its financial position.

User avatar
TheTimeLord
Posts: 5284
Joined: Fri Jul 26, 2013 2:05 pm

Re: Some 'hints' about brokered CDs

Post by TheTimeLord » Fri Oct 06, 2017 9:46 am

hirlaw wrote:
Fri Oct 06, 2017 9:18 am
I have both brokered and non-brokered CD's (purchased from online banks). My one problem with brokered is that the interest is not reinvested --- so, I end up having these small amounts accumulating in a core money market account. Does anyone else consider this issue?
Nope, just invest it in my Total Market Fund.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

hudson
Posts: 1474
Joined: Fri Apr 06, 2007 9:15 am

My first brokered CD order

Post by hudson » Wed Jul 11, 2018 6:26 am

just some facts about my first brokered CD order

The minimum order is 10K; if you order ten, that's 10K. It says price 100; it seems like the price should be 1000?
The calculate button on the order page helped me get it right. (It's impossible to make everything idiot-proof.)

Before I placed the order, I got several warnings...here's one about the "order period": "New-issue CD orders will remain open until the end of the order period, generally two to three business days before first settlement. During this time, you can view open new-issue CD orders by going to My Accounts and selecting Order status. (14285)"

When I placed the order, I couldn't find anything that showed that I had placed an order. I believe that somewhere in the process I got a notice from Vanguard that that there would be no feedback on order day.

I placed the order on July 9th. On the 10th, "Order Status" showed that an order had been placed....but it had not executed.
I called Vanguard and asked if I'd done everything right. I was transferred to the "bond desk" and was told that I placed the order correctly. The rep said that it would probably go through by Friday the 13th....but could take 10 days. (I didn't remember the warning that I was given on the order page....shown in quotes above.)

Update 9:30 AM on July 11th:
Status: Executed
WELLS FARGO BANK NA SIOUX FALLS SD CD FDIC #03511 3.3% 07/13/23 07/13/18
Stop/Limit Price: Limit:$100.00
Executed Price: $100.00

The update wasn't there earlier this morning; it didn't show up until around 9:30 am.
I'm not sure why it says $100 when the CDs seem to be in $1000 increments...minimum 10K?
My "Balances" page is missing the "Current Balance".
The "Expense Ratio" is blank; maybe it will stay that way?
Last edited by hudson on Wed Jul 11, 2018 9:01 am, edited 2 times in total.

User avatar
jeffyscott
Posts: 7179
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: My first brokered CD order

Post by jeffyscott » Wed Jul 11, 2018 7:38 am

hudson wrote:
Wed Jul 11, 2018 6:26 am
just some facts about my first brokered CD order

The minimum order is 10K; if you order ten, that's 10K. It says price 100; it seems like the price should be 1000?
The calculate button on the order page helped me get it right.
I've just bought my first few recently.

The minimum varies at least at Schwab and Fidelity. I bought 6 new issue at Schwab min was 1, a secondary I bought had a minimum of 15, I saw but did not buy a secondary at Fido that had a min. of 1.

I have found Schwab to be preferable because they include the commission in the listing of quotes. This makes it very easy to compare new issues and secondaries in a single list, right on your screen. There is no need for additional offline calculations or analysis.

The one downside to Schwab is the minimum commission for secondary is $10, so ones with less than 10 available will not be competitive. But to take advantage of some of these small batches at Fidelity or Vanguard (or secondaries at all) requires more work at those brokerages, because they ignore the commission until you click through as if buying. Vanguard also requires $500K to get $1 per $1000 commission.
When I placed the order, I couldn't find anything that showed that I had placed an order.
I think at Schwab and Fidelity, they show up right away in order status, certainly did not have to wait a day to see them.
press on, regardless - John C. Bogle

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Wed Jul 11, 2018 8:25 am

At Vanguard - no commission on new issues.

In the last year, it seems that - for new issue purchases - Vamguard takes a few days longer to show the purchase. Actually - that is better because funds in the settlement account are available until the purchase is executed.

User avatar
Blueskies123
Posts: 417
Joined: Sat Nov 15, 2014 7:18 pm
Location: South Florida

Re: Some 'hints' about brokered CDs

Post by Blueskies123 » Wed Jul 11, 2018 8:43 am

92irish wrote:
Fri Oct 06, 2017 9:43 am
Another Tip: If you are going to buy a secondary market CD at a premium, you should double check the bank's credit worthiness. As pointed out above, FDIC does not cover the amount you have paid at a premium. Bankrate.com has a "Safe & Sound" rating system that you can plug in the name of the bank and get some idea of its financial position.
This is worth reading carefully for those of you speed reading. I always wondered how ETFs and mutual funds deal with this issue. I assume short term and intermediate bond funds must be buying bonds at a premium unless they only buy new issues.

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Some 'hints' about brokered CDs

Post by dm200 » Wed Jul 11, 2018 8:50 am

Blueskies123 wrote:
Wed Jul 11, 2018 8:43 am
92irish wrote:
Fri Oct 06, 2017 9:43 am
Another Tip: If you are going to buy a secondary market CD at a premium, you should double check the bank's credit worthiness. As pointed out above, FDIC does not cover the amount you have paid at a premium. Bankrate.com has a "Safe & Sound" rating system that you can plug in the name of the bank and get some idea of its financial position.
This is worth reading carefully for those of you speed reading. I always wondered how ETFs and mutual funds deal with this issue. I assume short term and intermediate bond funds must be buying bonds at a premium unless they only buy new issues.
Depending on the rates and direction rates have been moving, they might be buying at a discount - seems to me.

For most individuals, small premiums on CDs are really "noise level" since the majority (if you stay under the limit) of the CD is backed and it is very rare that all of the uninsured amount is lost. For example, if you purchase a $100K CD at a 1% premium - you have $1,000 "at risk". if the bank fails and the FDIC pays 75% (very common) - you would only lose $250.

User avatar
jeffyscott
Posts: 7179
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Some 'hints' about brokered CDs

Post by jeffyscott » Wed Jul 11, 2018 9:04 am

dm200 wrote:
Wed Jul 11, 2018 8:25 am
At Vanguard - no commission on new issues.
That is the case at Fidelity, Schwab, and most others as well.
press on, regardless - John C. Bogle

User avatar
jeffyscott
Posts: 7179
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Some 'hints' about brokered CDs

Post by jeffyscott » Wed Jul 11, 2018 9:19 am

Blueskies123 wrote:
Wed Jul 11, 2018 8:43 am
92irish wrote:
Fri Oct 06, 2017 9:43 am
Another Tip: If you are going to buy a secondary market CD at a premium, you should double check the bank's credit worthiness. As pointed out above, FDIC does not cover the amount you have paid at a premium. Bankrate.com has a "Safe & Sound" rating system that you can plug in the name of the bank and get some idea of its financial position.
This is worth reading carefully for those of you speed reading. I always wondered how ETFs and mutual funds deal with this issue. I assume short term and intermediate bond funds must be buying bonds at a premium unless they only buy new issues.
ETFs and Funds are not buying CDs, at least in part because the $250K limit for FDIC is too low for funds with hundreds of millions or billions to invest. FDIC does not insure bonds.
press on, regardless - John C. Bogle

User avatar
Blueskies123
Posts: 417
Joined: Sat Nov 15, 2014 7:18 pm
Location: South Florida

Re: Some 'hints' about brokered CDs

Post by Blueskies123 » Wed Jul 11, 2018 4:40 pm

But many money market funds have a healthy dose of CD's in their portfolio. They are probably buying very short term original issue CD's. I suppose it is possible they might by an older large CD from another fund where the maturity only has a few weeks or months left. If they do I imagine they avoid paying a premium, especially with the dollar value of their transactions/

User avatar
jeffyscott
Posts: 7179
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Some 'hints' about brokered CDs

Post by jeffyscott » Wed Jul 11, 2018 4:56 pm

Blueskies123 wrote:
Wed Jul 11, 2018 4:40 pm
But many money market funds have a healthy dose of CD's in their portfolio.
I did not know that. I guess they must be worthwhile for them, after-all, despite mostly getting no FDIC insurance due to the amounts.

I guess you could look up the CUSIPS of some to see if they were issued as short term or were originally longer term and purchased by the fund as they neared maturity.
press on, regardless - John C. Bogle

hudson
Posts: 1474
Joined: Fri Apr 06, 2007 9:15 am

Re: My first brokered CD order...UPDATE

Post by hudson » Thu Jul 19, 2018 4:39 am

My original contribution...long and boring...above:
viewtopic.php?p=4014281#p4014281

Short version: I bought my 1st brokered CDs for a Roth from Vanguard....details in link above.

I also learned...
Vanguard posts a daily value for my brokered CDs; I guess from any buying and selling activity? Each $100 that I bought is now worth $99.994

I had around $800 left over in the Settlement Fund. I kept thinking that I had to have a minimum of $1000 to buy a mutual fund. Then it hit me...ETFs! So I bought 10 shares of BND. Then I had around $60...so I bought 1 share of VMBS. Now I have $2 in my settlement fund.

Wells Fargo quotes their brokered CDs in $100 batches. Vanguard doesn't use $100 batches; they use $1000 batches with a $10,000 minimum. I think that's right.

User avatar
dm200
Posts: 17767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: My first brokered CD order...UPDATE

Post by dm200 » Thu Jul 19, 2018 8:38 am

hudson wrote:
Thu Jul 19, 2018 4:39 am
My original contribution...long and boring...above:
viewtopic.php?p=4014281#p4014281
Short version: I bought my 1st brokered CDs for a Roth from Vanguard....details in link above.
I also learned...
Vanguard posts a daily value for my brokered CDs; I guess from any buying and selling activity? Each $100 that I bought is now worth $99.994
I had around $800 left over in the Settlement Fund. I kept thinking that I had to have a minimum of $1000 to buy a mutual fund. Then it hit me...ETFs! So I bought 10 shares of BND. Then I had around $60...so I bought 1 share of VMBS. Now I have $2 in my settlement fund.
Wells Fargo quotes their brokered CDs in $100 batches. Vanguard doesn't use $100 batches; they use $1000 batches with a $10,000 minimum. I think that's right.
Not exactly - that daily value amount is an approximation - it will go up and down according to current interest rates for the same maturity/duration. What that value does not take into account is the bid/ask spread if you want to sell it. If you sell before maturity - you likely will net 1-2% less.

hudson
Posts: 1474
Joined: Fri Apr 06, 2007 9:15 am

Re: My first brokered CD order...UPDATE

Post by hudson » Thu Jul 19, 2018 9:39 am

dm200 wrote:
Thu Jul 19, 2018 8:38 am
hudson wrote:
Thu Jul 19, 2018 4:39 am
My original contribution...long and boring...above:
viewtopic.php?p=4014281#p4014281
Short version: I bought my 1st brokered CDs for a Roth from Vanguard....details in link above.
I also learned...
Vanguard posts a daily value for my brokered CDs; I guess from any buying and selling activity? Each $100 that I bought is now worth $99.994
I had around $800 left over in the Settlement Fund. I kept thinking that I had to have a minimum of $1000 to buy a mutual fund. Then it hit me...ETFs! So I bought 10 shares of BND. Then I had around $60...so I bought 1 share of VMBS. Now I have $2 in my settlement fund.
Wells Fargo quotes their brokered CDs in $100 batches. Vanguard doesn't use $100 batches; they use $1000 batches with a $10,000 minimum. I think that's right.
Not exactly - that daily value amount is an approximation - it will go up and down according to current interest rates for the same maturity/duration. What that value does not take into account is the bid/ask spread if you want to sell it. If you sell before maturity - you likely will net 1-2% less.
Thanks DM200! I didn't think about interest rates for a like CD...that makes much more sense than my idea.

User avatar
Kevin M
Posts: 10004
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: My first brokered CD order...UPDATE

Post by Kevin M » Thu Jul 19, 2018 7:25 pm

hudson wrote:
Thu Jul 19, 2018 4:39 am
I had around $800 left over in the Settlement Fund. I kept thinking that I had to have a minimum of $1000 to buy a mutual fund. Then it hit me...ETFs! So I bought 10 shares of BND. Then I had around $60...so I bought 1 share of VMBS. Now I have $2 in my settlement fund.
Minimum initial purchase for most mutual funds is $3,000 ($10K for index Admiral shares). Once you own the fund, the balance can drop below $3,000, and you can buy any dollar amount of additional shares. So if you already own VBMFX, for example, you could buy $800 of additional shares. At least that's the way it has always worked for me.
Wells Fargo quotes their brokered CDs in $100 batches. Vanguard doesn't use $100 batches; they use $1000 batches with a $10,000 minimum. I think that's right.
I can't even figure out how to view brokered CDs in my Wells Fargo Advisors account. I only see mutual funds, stocks/ETFs, and options.

At both Vanguard and Fidelity, quantity of 1 = $1,000 face value, so that's the minimum you can buy.

I've always seen minimum quantity of 10 for new issue CDs at Vanguard, but you can buy smaller quantities on secondary market--the minimum quantity depends on the particular offer, but for some offers, the minimum quantity is 1.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
dougger5
Posts: 264
Joined: Fri Nov 27, 2015 11:58 am
Location: Not far from Malvern

Re: My first brokered CD order

Post by dougger5 » Thu Jul 19, 2018 7:48 pm

hudson wrote:
Wed Jul 11, 2018 6:26 am
just some facts about my first brokered CD order....
Caught my attention, as I too purchased my first brokered CD at Vanguard, around the same time - settled on 7/11.

Maturity of just 1 month - 1.95%. A bit more than currently earning at Ally.

Main purpose was just to get the hang of the platform, while not tying up the money for longer than I could float on a CC if needed - and to just watch it for 4 weeks and...see what it do, so to speak. And it matures 2 weeks before our annual school tax (~$8k) is due, so I'll just let it sit in the settlement fund and write a check drawn from same for the tax bill.

One of these days we'll have a large enough EF to try out the ol' ladder business.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

hudson
Posts: 1474
Joined: Fri Apr 06, 2007 9:15 am

Re: Some 'hints' about brokered CDs

Post by hudson » Thu Jul 19, 2018 8:47 pm

Kevin M: I purchased my Wells CDs from Vanguard...but you probably already knew that.
Thanks for the useful info on smaller quantities than 10K for the secondary market.

Dougger5: I agree; the only real way to learn about something is to buy it. You can only learn so much by reading discussions.

User avatar
Kevin M
Posts: 10004
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Some 'hints' about brokered CDs

Post by Kevin M » Thu Jul 19, 2018 9:54 pm

hudson wrote:
Thu Jul 19, 2018 8:47 pm
Kevin M: I purchased my Wells CDs from Vanguard...but you probably already knew that.
Thanks for the useful info on smaller quantities than 10K for the secondary market.
Then I don't understand your comment about WF quoting their brokered CDs in $100 batches. Vanguard sells WF CDs in the same $1,000 face value increments as the CDs from any other bank.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

hudson
Posts: 1474
Joined: Fri Apr 06, 2007 9:15 am

Re: Some 'hints' about brokered CDs

Post by hudson » Fri Jul 20, 2018 4:50 am

Kevin M:
Thanks for the reply!

When I go to Vanguard and open up info about the WF CD, it shows:

"CD snapshot...Research bonds and CDs
Price $100.002"

Also...before buying, the CD description page also showed a price of $100. When I went to buy, I had to enter the number of CDs that I wanted. I did the math based on $100. When I hit enter and moved on, the total was 10 times what I wanted, so I backed up and used $1000 instead of $100.
The Vanguard Fixed Income Trading Page shows: "Price at issue 100.000"

Therefore on the Vanguard website, the price is listed as $100; but the working price is $1000. $10,000 is the minimum order.
...but you've done this many times; I'm just on my first.
Last edited by hudson on Fri Jul 20, 2018 5:03 am, edited 1 time in total.

mouses
Posts: 3653
Joined: Sat Oct 24, 2015 12:24 am

Re: Some 'hints' about brokered CDs

Post by mouses » Fri Jul 20, 2018 4:53 am

Artsdoctor wrote:
Sun Apr 02, 2017 4:44 pm

Also, if you're holding a very high balance in brokered CDs in your IRA and you're taking RMDs, your RMDs will be calculated based on market value and not par value. This can be beneficial, or not, depending on your needs. In this regard, they really operate like individual bonds.
What does a very high balance have to do with the RMD value?

Although it is useful to know the RMD calc depends on market value not face value, I had not realized that, but fortunately I bought my brokered CDs this year.

User avatar
jeffyscott
Posts: 7179
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Some 'hints' about brokered CDs

Post by jeffyscott » Fri Jul 20, 2018 9:58 am

hudson wrote:
Fri Jul 20, 2018 4:50 am
Kevin M:
Thanks for the reply!

When I go to Vanguard and open up info about the WF CD, it shows:

"CD snapshot...Research bonds and CDs
Price $100.002"

Also...before buying, the CD description page also showed a price of $100. When I went to buy, I had to enter the number of CDs that I wanted. I did the math based on $100. When I hit enter and moved on, the total was 10 times what I wanted, so I backed up and used $1000 instead of $100.
The Vanguard Fixed Income Trading Page shows: "Price at issue 100.000"

Therefore on the Vanguard website, the price is listed as $100; but the working price is $1000. $10,000 is the minimum order.
...but you've done this many times; I'm just on my first.
In bond lingo price of 100 means $1000.

https://www.investopedia.com/terms/b/bondquote.asp
press on, regardless - John C. Bogle

User avatar
Kevin M
Posts: 10004
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Some 'hints' about brokered CDs

Post by Kevin M » Fri Jul 20, 2018 2:24 pm

hudson wrote:
Fri Jul 20, 2018 4:50 am
Kevin M:
Thanks for the reply!

When I go to Vanguard and open up info about the WF CD, it shows:

"CD snapshot...Research bonds and CDs
Price $100.002"

Also...before buying, the CD description page also showed a price of $100. When I went to buy, I had to enter the number of CDs that I wanted. I did the math based on $100. When I hit enter and moved on, the total was 10 times what I wanted, so I backed up and used $1000 instead of $100.
The Vanguard Fixed Income Trading Page shows: "Price at issue 100.000"

Therefore on the Vanguard website, the price is listed as $100; but the working price is $1000. $10,000 is the minimum order.
...but you've done this many times; I'm just on my first.
The thing is, this is no different for a Wells Fargo CD than for any other brokered CD. Brokered CDs are priced like bonds, for which the convention is to quote price as a percentage of face value (par), so price of 100 = 100% of face value.

I understand your initial confusion, since bonds typically are sold in units of $1,000 face value, so 1 bond = $1,000 face value.

Now that you understand that, it should no longer be an issue. Just want to emphasize that this is the case for all CDs, not just WF CDs.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
Artsdoctor
Posts: 3454
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Some 'hints' about brokered CDs

Post by Artsdoctor » Fri Jul 20, 2018 6:28 pm

mouses wrote:
Fri Jul 20, 2018 4:53 am
Artsdoctor wrote:
Sun Apr 02, 2017 4:44 pm

Also, if you're holding a very high balance in brokered CDs in your IRA and you're taking RMDs, your RMDs will be calculated based on market value and not par value. This can be beneficial, or not, depending on your needs. In this regard, they really operate like individual bonds.
What does a very high balance have to do with the RMD value?

Although it is useful to know the RMD calc depends on market value not face value, I had not realized that, but fortunately I bought my brokered CDs this year.
If you only have $10,000 in brokered CDs, it's not going to be affecting your RMD significantly. However, if you have large quantities, you're going to feel those swings, especially if they're long CDs. This may not make a difference to some people but you should know going into it that your RMD amount is calculated using that market value.

Post Reply