2-year CDs at Vanguard and Fidelity Today

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gips
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by gips » Wed Sep 26, 2018 2:32 pm

I'm trying my first ira-to-ira transfer to take advantage of achieva's 4.2%, no ewp if you're over 59.5, certificate. If I can affect the transfer in time, I believe it's far superior to a 2-year cd at vg or fid.

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Ricchan
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Ricchan » Wed Sep 26, 2018 5:30 pm

Just logged in to Vanguard (after hours) and saw Wells Fargo with a 2.950% new issue 2 year CD.

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RetiredTrvl
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by RetiredTrvl » Wed Sep 26, 2018 7:35 pm

gips wrote:
Wed Sep 26, 2018 2:32 pm
I'm trying my first ira-to-ira transfer to take advantage of achieva's 4.2%, no ewp if you're over 59.5, certificate. If I can affect the transfer in time, I believe it's far superior to a 2-year cd at vg or fid.
It is IF you have the 75K minimum AND you're over 59.5 so you can withdraw the money after 2 years without penalty. However, comparing apples to apples, their regular CD rates pale in comparison to Vanguard & Fidelity.

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Kevin M
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Thu Sep 27, 2018 8:11 pm

Ricchan wrote:
Wed Sep 26, 2018 5:30 pm
Just logged in to Vanguard (after hours) and saw Wells Fargo with a 2.950% new issue 2 year CD.
Yep, at Fidelity too.

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Kevin M
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Fri Sep 28, 2018 12:20 pm

Fidelity and Schwab now also have a 2-year new-issue at 2.95% offered by JP Morgan Chase, in addition to the one from Wells Fargo. JPM settlement is 10/16 with interest paid semi-annually. WF settlement is 10/12 with interest paid monthly. There are much larger quantities of the WF CD at both Schwab and Fidelity.

I don't see any competitive secondary market offerings at Fidelity or Schwab.

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HereToLearn
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by HereToLearn » Fri Sep 28, 2018 1:54 pm

Kevin M wrote:
Fri Sep 28, 2018 12:20 pm
Fidelity and Schwab now also have a 2-year new-issue at 2.95% offered by JP Morgan Chase, in addition to the one from Wells Fargo. JPM settlement is 10/16 with interest paid semi-annually. WF settlement is 10/12 with interest paid monthly. There are much larger quantities of the WF CD at both Schwab and Fidelity.

I don't see any competitive secondary market offerings at Fidelity or Schwab.

Kevin
The JP Morgan Chase one is not call protected. Should I be concerned about this? I like that the interest is paid semi-annually, and keep hoping someone else will appear with a semi-annual, call-protected at 2.95%.

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Kevin M
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Sep 29, 2018 3:08 pm

HereToLearn wrote:
Fri Sep 28, 2018 1:54 pm
Kevin M wrote:
Fri Sep 28, 2018 12:20 pm
Fidelity and Schwab now also have a 2-year new-issue at 2.95% offered by JP Morgan Chase, in addition to the one from Wells Fargo. JPM settlement is 10/16 with interest paid semi-annually. WF settlement is 10/12 with interest paid monthly. There are much larger quantities of the WF CD at both Schwab and Fidelity.
The JP Morgan Chase one is not call protected. Should I be concerned about this? I like that the interest is paid semi-annually, and keep hoping someone else will appear with a semi-annual, call-protected at 2.95%.
I hadn't noticed that--thanks for pointing it out. I would prefer a call-protected CD available at same rate, so would go with Wells Fargo. If not call protected, they can call it if rates drop, so an asymmetrical situation that benefits the bank over you.

What's wrong with monthly interest? Letting it sit in your settlement fund for a few months won't make much difference in return.

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dollarsaver
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by dollarsaver » Sat Sep 29, 2018 3:27 pm

Kevin M wrote:
Sat Sep 29, 2018 3:08 pm
HereToLearn wrote:
Fri Sep 28, 2018 1:54 pm
Kevin M wrote:
Fri Sep 28, 2018 12:20 pm
Fidelity and Schwab now also have a 2-year new-issue at 2.95% offered by JP Morgan Chase, in addition to the one from Wells Fargo. JPM settlement is 10/16 with interest paid semi-annually. WF settlement is 10/12 with interest paid monthly. There are much larger quantities of the WF CD at both Schwab and Fidelity.
The JP Morgan Chase one is not call protected. Should I be concerned about this? I like that the interest is paid semi-annually, and keep hoping someone else will appear with a semi-annual, call-protected at 2.95%.
I hadn't noticed that--thanks for pointing it out. I would prefer a call-protected CD available at same rate, so would go with Wells Fargo. If not call protected, they can call it if rates drop, so an asymmetrical situation that benefits the bank over you.

What's wrong with monthly interest? Letting it sit in your settlement fund for a few months won't make much difference in return.

Kevin
Question, Kevin. With a 1 yr CD I believe interest is posted at maturity. With a 2 yr CD is interest put into the settlement fund each month? Also with 2 yr CD's paying 2.95% does it make financial sense to buy a 2 yr over a 1 yr CD? Thanks!

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Kevin M
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Sat Sep 29, 2018 5:35 pm

dollarsaver wrote:
Sat Sep 29, 2018 3:27 pm
Question, Kevin. With a 1 yr CD I believe interest is posted at maturity.
Looking at the 1-year new-issue CDs at Fidelity, I see at maturity, semi-annual, and monthly, so it depends in the CD.
With a 2 yr CD is interest put into the settlement fund each month?
It depends on the interest payment frequency. Some are monthly, but semi-annual is at least as common. Interest is deposited into your settlement fund at the specified frequency. I typically move it to a higher-yielding money market fund when I notice it--only takes a minute.
Also with 2 yr CD's paying 2.95% does it make financial sense to buy a 2 yr over a 1 yr CD? Thanks!
I think so. At Fidelity new-issue 1-year is 2.50% and 2-year is 2.95%, so that's 45 basis points for extending maturity by one year. In IRAs, I use Vanguard Prime MM as my 0-year comparison, so with Prime MM at 2.13% the 1-year CD at 2.50% gives you 37 basis points for extending from 0-year to 1-year. So you get even more compensation for extending from 1-year to 2-year.

At Vanguard I see the top 1-year CD yield at 2.60%. So this is 47 basis points for extending from 0-year, and extending from 1-year to 2-year gives you 35 basis points, which still is quite good.

Consider holding some of each, but perhaps use a 1-year Treasury instead of a 1-year CD. The 1-year Treasury yield is a little higher than 2.60%, so with same as or higher than yield of 1-year CD, but more liquid (much lower bid/ask spread).

This is for IRAs or no/low state income tax. In taxable with moderate to high state income tax, Treasuries can have higher taxable-equivalent yields (TEYs) than CDs. They do for me out to 3-year maturity. I am buying 1-year to 2-year Treasuries in taxable.

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dollarsaver
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by dollarsaver » Sat Sep 29, 2018 6:02 pm

Kevin M wrote:
Sat Sep 29, 2018 5:35 pm
dollarsaver wrote:
Sat Sep 29, 2018 3:27 pm
Question, Kevin. With a 1 yr CD I believe interest is posted at maturity.
Looking at the 1-year new-issue CDs at Fidelity, I see at maturity, semi-annual, and monthly, so it depends in the CD.
With a 2 yr CD is interest put into the settlement fund each month?
It depends on the interest payment frequency. Some are monthly, but semi-annual is at least as common. Interest is deposited into your settlement fund at the specified frequency. I typically move it to a higher-yielding money market fund when I notice it--only takes a minute.
Also with 2 yr CD's paying 2.95% does it make financial sense to buy a 2 yr over a 1 yr CD? Thanks!
I think so. At Fidelity new-issue 1-year is 2.50% and 2-year is 2.95%, so that's 45 basis points for extending maturity by one year. In IRAs, I use Vanguard Prime MM as my 0-year comparison, so with Prime MM at 2.13% the 1-year CD at 2.50% gives you 37 basis points for extending from 0-year to 1-year. So you get even more compensation for extending from 1-year to 2-year.

At Vanguard I see the top 1-year CD yield at 2.60%. So this is 47 basis points for extending from 0-year, and extending from 1-year to 2-year gives you 35 basis points, which still is quite good.

Consider holding some of each, but perhaps use a 1-year Treasury instead of a 1-year CD. The 1-year Treasury yield is a little higher than 2.60%, so with same as or higher than yield of 1-year CD, but more liquid (much lower bid/ask spread).

This is for IRAs or no/low state income tax. In taxable with moderate to high state income tax, Treasuries can have higher taxable-equivalent yields (TEYs) than CDs. They do for me out to 3-year maturity. I am buying 1-year to 2-year Treasuries in taxable.

Kevin
Thanks!!!

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jeffyscott
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Mon Oct 01, 2018 10:53 am

Kevin M wrote:
Sat Sep 29, 2018 3:08 pm
HereToLearn wrote:
Fri Sep 28, 2018 1:54 pm
Kevin M wrote:
Fri Sep 28, 2018 12:20 pm
Fidelity and Schwab now also have a 2-year new-issue at 2.95% offered by JP Morgan Chase, in addition to the one from Wells Fargo. JPM settlement is 10/16 with interest paid semi-annually. WF settlement is 10/12 with interest paid monthly. There are much larger quantities of the WF CD at both Schwab and Fidelity.
The JP Morgan Chase one is not call protected. Should I be concerned about this? I like that the interest is paid semi-annually, and keep hoping someone else will appear with a semi-annual, call-protected at 2.95%.
I hadn't noticed that--thanks for pointing it out. I would prefer a call-protected CD available at same rate, so would go with Wells Fargo. If not call protected, they can call it if rates drop, so an asymmetrical situation that benefits the bank over you.

What's wrong with monthly interest? Letting it sit in your settlement fund for a few months won't make much difference in return.

Kevin
Shopping to add a CD today and WF was still the only non-callable one I saw at 2.95% for 2 year new issue. I went for a secondary with 2.5 years remaining at 3.068% (net). Most of the secondaries were not better than that 2.95% new issue, IMO. There were only 3 exceptions that looked worthwhile to me: The one I bought, a 3.096% one with ~31-32 months remaining (gone before I could buy), and a 2.891% with about 20-21 months remaining.

This was the first time I was buying without funds already in settlement account and I found that Schwab did allow this, which is good because their settlement account is lousy. The cost of the CD is shown as "estimated cost", so when I entered trade to fund the settlement account, I sold a bit extra in case that really is an estimate. Not sure if that was necessary, though?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Oct 01, 2018 2:27 pm

jeffyscott wrote:
Mon Oct 01, 2018 10:53 am
This was the first time I was buying without funds already in settlement account and I found that Schwab did allow this, which is good because their settlement account is lousy. The cost of the CD is shown as "estimated cost", so when I entered trade to fund the settlement account, I sold a bit extra in case that really is an estimate. Not sure if that was necessary, though?
As far as I can tell, Schwab does not provide details in order status. However, they do provide details in transaction history. Click on Trade Details for the trade, and a window pops up showing principal, commission, and accrued interest, with the total amount at the bottom. This should be the exact amount required to settle the trade.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Mon Oct 01, 2018 3:42 pm

Kevin M wrote:
Mon Oct 01, 2018 2:27 pm
jeffyscott wrote:
Mon Oct 01, 2018 10:53 am
This was the first time I was buying without funds already in settlement account and I found that Schwab did allow this, which is good because their settlement account is lousy. The cost of the CD is shown as "estimated cost", so when I entered trade to fund the settlement account, I sold a bit extra in case that really is an estimate. Not sure if that was necessary, though?
As far as I can tell, Schwab does not provide details in order status. However, they do provide details in transaction history. Click on Trade Details for the trade, and a window pops up showing principal, commission, and accrued interest, with the total amount at the bottom. This should be the exact amount required to settle the trade.

Kevin
Thanks, I see that. As expected, it is exactly the same as the "estimated" amount.

I noticed they also show the amount as "money due", under "funds available" on status page and as a negative balance in cash position on the main account summary page. So next time, I will know where to look to verify the exact amount.
press on, regardless - John C. Bogle

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by garlandwhizzer » Mon Oct 01, 2018 8:39 pm

I'm not interested in CDs for a number of reasons, lack of instant liquidity without penalty being one of them. What if rates go up as they are expected to do (about 1% over the next 12 - 15 months)? While short term bonds may not reflect that full 1% rise, money market funds being essentially zero term will likely rise accordingly. In short before the 2 or 3 year term is up, the CD may well be yielding less than MMF and short term bonds in addition to which with the latter you have instantly liquid money if and when you need it. Investors have a great attraction for slightly higher nominal yields which is why annuities, long duration bonds, and high yield bonds all have robust demand in spite of the fact that all carry the risks of unexpected inflation and more difficult liquidity if money is needed before term. A 25 - 50 basis point spread in fixed income yield at issuance today is not going to make anyone rich in 3 years. I don't think it's worth it to tie up money for 3 years especially in today's rising yield environment to get it. Personally, I prefer MMF and ST bonds and am willing to accept their lower initial yields.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by rotorhead » Mon Oct 01, 2018 8:49 pm

Re: 2-year CDs at Vanguard and Fidelity Today
Unread post by garlandwhizzer » Mon Oct 01, 2018 9:39 pm

I'm not interested in CDs for a number of reasons, lack of instant liquidity without penalty being one of them. What if rates go up as they are expected to do (about 1% over the next 12 - 15 months)? While short term bonds may not reflect that full 1% rise, money market funds being essentially zero term will likely rise accordingly. In short before the 2 or 3 year term is up, the CD may well be yielding less than MMF and short term bonds in addition to which with the latter you have instantly liquid money if and when you need it. Investors have a great attraction for slightly higher nominal yields which is why annuities, long duration bonds, and high yield bonds all have robust demand in spite of the fact that all carry the risks of unexpected inflation and more difficult liquidity if money is needed before term. A 25 - 50 basis point spread in fixed income yield at issuance today is not going to make anyone rich in 3 years. I don't think it's worth it to tie up money for 3 years especially in today's rising yield environment to get it. Personally, I prefer MMF and ST bonds and am willing to accept their lower initial yields.

Garland Whizzer
Eloquently stated, sir. I could not agree with you more!

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Oct 02, 2018 3:22 pm

garlandwhizzer wrote:
Mon Oct 01, 2018 8:39 pm
Personally, I prefer MMF and ST bonds and am willing to accept their lower initial yields.
Most people would define short-term bonds as 1-3 year maturity. For example, the Vanguard Short-Term Treasury Index bond fund holds Treasuries in this maturity range, with an average maturity of two years. These are exposed to more term risk than a 3-year CD(/Treasury) ladder, since the CDs(/Treasuries) are allowed to mature, while the fund sells the Treasuries when they reach 1-year maturity.

Liquidity is always a factor to consider, which is why one may want to hold a combination of Treasuries and CDs. If you don't need liquidity for all of your fixed income, then why not collect the liquidity premium if a CD offers one?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 02, 2018 5:07 pm

garlandwhizzer wrote:
Mon Oct 01, 2018 8:39 pm
What if rates go up as they are expected to do (about 1% over the next 12 - 15 months)? While short term bonds may not reflect that full 1% rise, money market funds being essentially zero term will likely rise accordingly. In short before the 2 or 3 year term is up, the CD may well be yielding less than MMF and short term bonds...
If Vanguard prime money market rate goes up by 1% over the next 12 months, you will earn about 2.64% over that period and then 3.14% over the subsequent 12 months, assuming no further increases. After 2 years the total return will be pretty close to that for a 2 year CD that is earning 2.95%. If money market rates do not go up that fast, then the CD comes out ahead. If money market rates go up faster or continue rising, then the money market comes out ahead.

Also, while there is likely little risk in the vanguard prime money market fund, it is not risk free as the FDIC insured CDs are. The risk-free treasury money market has a somewhat lower yield than prime.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Atgard » Mon Oct 08, 2018 5:35 pm

First, thank you Kevin and others who have contributed so much to my understanding in this (and other) threads.

Sorry for the noob question, but when buying a new issue CD at Vanguard (I'm going for the 2-year 2.95% from WF -- good choice?), if you don't have enough in your settlement fund, will Vanguard pull the necessary amount from your linked bank account? Or do you need to manually transfer it in?

Also, I found it a bit confusing that new CDs appeared to have a buy price of $100, with a minimum of 10, yet it seems when you buy, it is in multiples of $1,000 (in other words, entering 25 in the buy box buys you $25,000 worth, not $2,500). Or am I missing something?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by ScottW999 » Mon Oct 08, 2018 5:47 pm

You need to manually transfer the $ in.
You are not missing anything. Each amount represents multiples of 1,000. So 10 means 10,000.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Mon Oct 08, 2018 7:49 pm

Atgard wrote:
Mon Oct 08, 2018 5:35 pm
Sorry for the noob question, but when buying a new issue CD at Vanguard (I'm going for the 2-year 2.95% from WF -- good choice?), <snip>
Whether or not it's good depends on your views of what is good. I think it's good, since the CD yield curve is quite steep out to 2-year maturity, then tapers off significantly after that. I like to be compensated for taking any extra term risk, and a steep yield curve does that. The countervailing view is that there is more reinvestment risk by not extending maturity even with a relatively flat yield curve, so you may end up reinvesting at lower rates when the CD matures.
<snip> if you don't have enough in your settlement fund, will Vanguard pull the necessary amount from your linked bank account? Or do you need to manually transfer it in?

Also, I found it a bit confusing that new CDs appeared to have a buy price of $100, with a minimum of 10, yet it seems when you buy, it is in multiples of $1,000 (in other words, entering 25 in the buy box buys you $25,000 worth, not $2,500). Or am I missing something?
Both answered accurately by ScottW999.

Vanguard won't even sweep it from a non-settlement money market fund, nor will Schwab. Fidelity will.

To expand on ScottW999's answer about quantity, CDs and bonds are priced as a percentage of par (face value). New-issue CDs typically are sold at par, so 100% of face value, or price = 100. Bonds and CDs are sold by brokers in increments of $1,000 face value, with quantity 1 specifying one increment. So quantity 25 = $25,000 face value. This will be what you pay for a new-issue CD. On the secondary market, you are likely to buy the CD at a different price than 100, there is likely to be accrued interest, and you will pay a commission, so your net amount is likely to be something different than quantity times 1,000.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Atgard » Mon Oct 08, 2018 9:01 pm

Very helpful Scott & Kevin -- thank you!

That was an extremely helpful explanation of par value & being sold in blocks of $1,000. (I wish it was explained somewhere in the purchasing interface; if it was, I didn't see it.)

I agree with you guys that 2 years seems to be the sweet spot. And, being new to buying brokered CDs, I wanted to keep it simple with new-issue, non-callable.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by HereToLearn » Tue Oct 09, 2018 5:09 pm

Just noticed that Fidelity has the JP Morgan 2 year without call protection at 3%. I don't see it at Schwab. Am guessing others will follow?

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Tue Oct 09, 2018 5:34 pm

garlandwhizzer wrote:
Mon Oct 01, 2018 8:39 pm
Personally, I prefer MMF and ST bonds and am willing to accept their lower initial yields.
Vanguard short-term bond admiral index's SEC yield is 2.98%, and Vanguard short-term treasury admiral's SEC yield is only 2.72%. Both have negative return YTD with and short term bond has 40% of its holdings in 3-5 years.

This means if one has CDs vs these bond funds you have already been out-performed by 3+% this year already.

One can easily assemble a CD portfolio with 2-3 year maturity at 3+% now, with a risk lower than short-term bond while comparable to short-term treasury.

I prefer lower risk with higher return which is a CD portfolio for the next couple of years. Of course another factor is whether the money is in taxable. For 401k/IRA and if liquidity is not important, a secondary CD portfolio beats bond and MM by miles.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by RetiredTrvl » Wed Oct 10, 2018 8:34 am

Morgan Stanley is now offering 2 yr CDs at 2.95%. It will be interesting to see what Wells Fargo does when it makes more CDs available - will it stick with 2.95% or maintain its position of being the leader and increase the rate?
Last edited by RetiredTrvl on Wed Oct 10, 2018 1:53 pm, edited 1 time in total.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 10, 2018 9:27 am

likashing wrote:
Tue Oct 09, 2018 5:34 pm
Vanguard short-term bond admiral index's SEC yield is 2.98%, and Vanguard short-term treasury admiral's SEC yield is only 2.72%. Both have negative return YTD with and short term bond has 40% of its holdings in 3-5 years.

This means if one has CDs vs these bond funds you have already been out-performed by 3+% this year already.
The correct comparison is to compare the return of the funds with the 2-3 year maturity CD over the next 2-3 years.

If you sold those funds after "this year already" you would have a capital loss. And if you sold that CD that you bought January 1st you would have either a capital loss for a brokered CDs or an early withdrawal penalty for a direct CD.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Wed Oct 10, 2018 11:19 am

Doc wrote:
Wed Oct 10, 2018 9:27 am
likashing wrote:
Tue Oct 09, 2018 5:34 pm
Vanguard short-term bond admiral index's SEC yield is 2.98%, and Vanguard short-term treasury admiral's SEC yield is only 2.72%. Both have negative return YTD with and short term bond has 40% of its holdings in 3-5 years.

This means if one has CDs vs these bond funds you have already been out-performed by 3+% this year already.
The correct comparison is to compare the return of the funds with the 2-3 year maturity CD over the next 2-3 years.

If you sold those funds after "this year already" you would have a capital loss. And if you sold that CD that you bought January 1st you would have either a capital loss for a brokered CDs or an early withdrawal penalty for a direct CD.
That's why we look at SEC yields.

Also, if you look at FDIC CDs current yield vs current treasury yield, CD will still beat it for the same terms. There are reasons discussed by Kevin which I am not going to re-iterate here. So there, it is likely the next 2-3 years a CD portfolio of the same term, will still beat a treasury bond fund of the same term.
Last edited by likashing on Wed Oct 10, 2018 11:27 am, edited 1 time in total.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 10, 2018 11:25 am

I saw a small batch of CDs ($11,000) with 2-1/2 years to maturity and YTM of 3.185% and put in an order. It gave me an estimated amount and a settlement date, but then when I checked order status it was "canceled". When I now search for the CUSIP, I see someone selling the same number of CDs (11), but YTM is only 3.014% :thumbsdown .

According to my rep, unlike stocks, the seller does not have to accept the order and that is why it did not go through. Seems kinda sketchy that seller can list something and then just say "no" when offered their asking price.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 10, 2018 11:41 am

likashing wrote:
Wed Oct 10, 2018 11:19 am
That's why we look at SEC yields.

Also, if you look at FDIC CDs current yield vs current treasury yield, CD will still beat it for the same terms.
SEC yields don't tell you anything about early withdrawal penalties. I'm not very familiar with brokered CDs but I just took a fast look and didn't see any SEC yields.

likashing was using actual returns YTD as well as SEC yields.
likashing wrote:
Tue Oct 09, 2018 5:34 pm
Both have negative return YTD with and short term bond has 40% of its holdings in 3-5 years.
I don't really care about a few tens of basis points in yield difference between CD's Treasuries with the same duration. There are tax and liquidity issues which can favor the Treasuries at times.

Many people take "bonds are for safety" as meaning that they don't lose money if held to maturity rather than to maintain the safety of your overall portfolio. In some cases that's fine but not in all cases.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Wed Oct 10, 2018 11:48 am

Doc wrote:
Wed Oct 10, 2018 11:41 am
I'm not very familiar with brokered CDs
Maybe you can read this thread and understand before commenting whether brokered CDs are better or worse than bond funds?

It is obvious you like keeping your bond funds which is totally fine.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Wed Oct 10, 2018 12:03 pm

likashing wrote:
Wed Oct 10, 2018 11:48 am
Maybe you can read this thread and understand before commenting whether brokered CDs are better or worse than bond funds?
I never said that CDs are better or worse than bond funds. I only said that comparing YTD performance of a bond fund with the future returns of a CD held to maturity is not the appropriate metric.

Jeffyscott's looking at SEC yield is better but not the only factor involved.

Many people are unconcerned with the other factors and that's OK too if they are aware of them and have decided that those factors are of no consequence for their own plan and objectives.
likashing wrote:It is obvious you like keeping your bond funds which is totally fine.
It's not obvious at all because for high quality FI I don't use funds at all but actual notes.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by mervinj7 » Wed Oct 10, 2018 12:56 pm

likashing wrote:
Wed Oct 10, 2018 11:19 am
That's why we look at SEC yields.

Also, if you look at FDIC CDs current yield vs current treasury yield, CD will still beat it for the same terms. There are reasons discussed by Kevin which I am not going to re-iterate here. So there, it is likely the next 2-3 years a CD portfolio of the same term, will still beat a treasury bond fund of the same term.
For maturities up to 1 year, Treasuries currently have a slightly higher yield than current brokered CD rates. For two years, the treasury yield once you factor in state taxes is higher for me. For example, a 2 year brokered CD is 2.95% (though some folks have reported 3%) while a 2 year treasury bill has a current yield of 2.89%. Assuming 22% Fed rate and 9.3% CA State Tax, the TEY is 2.89%*(1-.22)/(1-0.093-0.22)=3.28%.

viewtopic.php?t=248539#p3909329
https://fixedincome.fidelity.com/ftgw/fi/FILanding

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Wed Oct 10, 2018 1:21 pm

mervinj7 wrote:
Wed Oct 10, 2018 12:56 pm
likashing wrote:
Wed Oct 10, 2018 11:19 am
That's why we look at SEC yields.

Also, if you look at FDIC CDs current yield vs current treasury yield, CD will still beat it for the same terms. There are reasons discussed by Kevin which I am not going to re-iterate here. So there, it is likely the next 2-3 years a CD portfolio of the same term, will still beat a treasury bond fund of the same term.
For maturities up to 1 year, Treasuries currently have a slightly higher yield than current brokered CD rates. For two years, the treasury yield once you factor in state taxes is higher for me. For example, a 2 year brokered CD is 2.95% (though some folks have reported 3%) while a 2 year treasury bill has a current yield of 2.89%. Assuming 22% Fed rate and 9.3% CA State Tax, the TEY is 2.89%*(1-.22)/(1-0.093-0.22)=3.28%.

viewtopic.php?t=248539#p3909329
https://fixedincome.fidelity.com/ftgw/fi/FILanding
For taxable it is true. I don't hold brokered CDs in taxable either. I just got some Wellsfargo CD in secondary market for ~3.13% which is maturing in ~2.6 years, in tax-advantaged accounts, of course.

As a Boglehead, ~20 basis points are quite a bit to me.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 10, 2018 3:39 pm

likashing wrote:
Wed Oct 10, 2018 1:21 pm
For taxable it is true. I don't hold brokered CDs in taxable either. I just got some Wellsfargo CD in secondary market for ~3.13% which is maturing in ~2.6 years, in tax-advantaged accounts, of course.

As a Boglehead, ~20 basis points are quite a bit to me.
Was it CUSIP 949763GQ3, by chance? That's the one that didn't fill for me at 3.185%.

I decided to take another look for 3.1% or better, and there were a few at that YTM maturing Feb 2019 that I took. Surprising rate for 4 months, not that it amounts to a whole lot, it's just ~$100.

The other thing, after ordering noticed it was after stock market closing time. Does the bond/CD market have different hours?
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Wed Oct 10, 2018 5:17 pm

jeffyscott wrote:
Wed Oct 10, 2018 3:39 pm
likashing wrote:
Wed Oct 10, 2018 1:21 pm
For taxable it is true. I don't hold brokered CDs in taxable either. I just got some Wellsfargo CD in secondary market for ~3.13% which is maturing in ~2.6 years, in tax-advantaged accounts, of course.

As a Boglehead, ~20 basis points are quite a bit to me.
Was it CUSIP 949763GQ3, by chance? That's the one that didn't fill for me at 3.185%.

I decided to take another look for 3.1% or better, and there were a few at that YTM maturing Feb 2019 that I took. Surprising rate for 4 months, not that it amounts to a whole lot, it's just ~$100.

The other thing, after ordering noticed it was after stock market closing time. Does the bond/CD market have different hours?
It closes at 5pm EST.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Wed Oct 10, 2018 5:48 pm

likashing wrote:
Wed Oct 10, 2018 5:17 pm
It closes at 5pm EST.
Thanks, did not know I had an extra hour available. All I could find on Schwab site is:

"Quotes and order placement are available 22 hours/day, 7 days/week (not available 2:00 a.m. – 4:00 a.m. EST). Orders placed outside market hours will be executed the next market day, if the offering is still available."

Which doesn't help a lot, because pickings are pretty slim when market is closed.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bpg1234 » Wed Oct 10, 2018 5:56 pm

RetiredTrvl wrote:
Wed Oct 10, 2018 8:34 am
Morgan Stanley is now offering 2 yr CDs at 2.95%. It will be interesting to see what Wells Fargo does when it makes more CDs available - will it stick with 2.95% or maintain its position of being the leader and increase the rate?
So Wells Fargo apparently likes being the leader and went with the new 2 year CD issue at 3.0% with First Settlement date of 10/26/2018.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by bayview » Wed Oct 10, 2018 5:59 pm

bpg1234 wrote:
Wed Oct 10, 2018 5:56 pm
RetiredTrvl wrote:
Wed Oct 10, 2018 8:34 am
Morgan Stanley is now offering 2 yr CDs at 2.95%. It will be interesting to see what Wells Fargo does when it makes more CDs available - will it stick with 2.95% or maintain its position of being the leader and increase the rate?
So Wells Fargo apparently likes being the leader and went with the new 2 year CD issue at 3.0% with First Settlement date of 10/26/2018.
Very nice. We have some Treasuries maturing tomorrow. :sharebeer
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by RetiredTrvl » Fri Oct 12, 2018 6:47 am

bpg1234 wrote:
Wed Oct 10, 2018 5:56 pm
So Wells Fargo apparently likes being the leader and went with the new 2 year CD issue at 3.0% with First Settlement date of 10/26/2018.
Fidelity website is showing JP Morgan & BMW Bank matching Wells Fargo's 3.0% 2 yr CD rate

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Fri Oct 12, 2018 2:36 pm

RetiredTrvl wrote:
Fri Oct 12, 2018 6:47 am
bpg1234 wrote:
Wed Oct 10, 2018 5:56 pm
So Wells Fargo apparently likes being the leader and went with the new 2 year CD issue at 3.0% with First Settlement date of 10/26/2018.
Fidelity website is showing JP Morgan & BMW Bank matching Wells Fargo's 3.0% 2 yr CD rate
The JPM 2-year at 3% is callable, and I don't see one from BMW Bank now. Same at Schwab. Also, available quantities of WF are much larger than for JPM as of now.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 16, 2018 9:30 am

Seems like current rule for best of the new issues in the 2-5 year range is 0.15% extra yield per year. There 3.0% for 2 year, 3.15% for 3 year, and 3.45% for 5 year.

I took a few secondaries in between 2-3 year at about 3.2% today. I figured since that is nearly equal to SEC yield of Vg short term investment grade (VFSUX), it was a reasonable yield with no credit risk.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Tue Oct 16, 2018 10:59 am

jeffyscott wrote:
Tue Oct 16, 2018 9:30 am
I took a few secondaries in between 2-3 year at about 3.2% today. I figured since that is nearly equal to SEC yield of Vg short term investment grade (VFSUX), it was a reasonable yield with no credit risk.
You are comparing a CD held to maturity with a fund that normally sells it's holding with one year remaining. That comparison could be misleading.

As could annualizing the last 30 days total return (SEC yield) and comparing it to a future fixed income multi-year promise.

(I am not saying that one asset is better or worse than the other.)

In my opinion the SEC 30 day yield is best used to compare similar type investments that have different distribution schedules not the return for 30 days vs. the return for 2-3 year.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 16, 2018 12:51 pm

Doc wrote:
Tue Oct 16, 2018 10:59 am
You are comparing a CD held to maturity with a fund that normally sells it's holding with one year remaining. That comparison could be misleading.

As could annualizing the last 30 days total return (SEC yield) and comparing it to a future fixed income multi-year promise.
Okay, how about this one? :)

Based on a quick look here: https://personal.vanguard.com/us/FixedIncomeHome
that CD yield is about half way between that for "Corporates - high grade" and treasuries with 3 year maturities. Since CD is actually shorter than 3 years, the CD gets more than half the high grade corporate credit risk premium, while taking no credit risk. (Note this is in an IRA, so ignoring state income tax exemption for treasuries)
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Tue Oct 16, 2018 2:37 pm

jeffyscott wrote:
Tue Oct 16, 2018 12:51 pm
Doc wrote:
Tue Oct 16, 2018 10:59 am
You are comparing a CD held to maturity with a fund that normally sells it's holding with one year remaining. That comparison could be misleading.

As could annualizing the last 30 days total return (SEC yield) and comparing it to a future fixed income multi-year promise.
Okay, how about this one? :)

Based on a quick look here: https://personal.vanguard.com/us/FixedIncomeHome
that CD yield is about half way between that for "Corporates - high grade" and treasuries with 3 year maturities. Since CD is actually shorter than 3 years, the CD gets more than half the high grade corporate credit risk premium, while taking no credit risk. (Note this is in an IRA, so ignoring state income tax exemption for treasuries)
Good, I agree with the calculation method now. You are now comparing 3 yr CD yields with actual 3 yr note yields not with the funds SEC "thingy".

My issue is not with the yield difference but with the Treasury price increase (think capital gain) in a "flight to quality" situation like the fall of '08.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Kevin M » Tue Oct 16, 2018 3:21 pm

The non-callable new-issue 2-year CDs at 3.00% settle on 10/26/2018 and mature 10/26/2020. I saw yield of 2.879% for a Treasury maturing 10/31/2020 at Schwab for min quantity 10 (yields are lower at Vanguard and Fidelity for this quantity). So even in an IRA, or where there is no state tax in a taxable account, the yield premium for the CD is only about 12 basis points at Schwab (somewhat higher at Vanguard or Fidelity). That's getting pretty slim, especially if there's any chance you might want to sell before maturity.

However, the coupon on the Treasury is 1.75%, compared to 3.00% coupon on the CD, so the duration of the Treasury is somewhat higher. Duration of the Treasury settling tomorrow is 1.99 years, while duration of the CD that settles 10/26/2018 is 1.96 years (slightly less for the WF CD with monthly coupons). If the Treasury could be obtained at the same yield with settlement 10/26/2018 (same as CD), duration would be 1.97 years, so not that much difference.

Of course in a taxable account with state income tax the Treasury is likely to have a higher TEY than the CD; for me it would be 3.233% for the Treasury noted above.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 16, 2018 3:26 pm

Doc wrote:
Tue Oct 16, 2018 2:37 pm
My issue is not with the yield difference but with the Treasury price increase (think capital gain) in a "flight to quality" situation like the fall of '08.
Right, and I understand that way of looking at it.

While I would assume CDs would not decline in that scenario since interest rates would fall, they are expensive to trade, in any case. So, I certainly have no intention to ever sell CDs in order to rebalance into stocks (or for any purpose). Maturing CDs and interest payments are all that could be sensibly reinvested in stocks in a decline.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 16, 2018 3:38 pm

Kevin M wrote:
Tue Oct 16, 2018 3:21 pm
The non-callable new-issue 2-year CDs at 3.00% settle on 10/26/2018 and mature 10/26/2020. I saw yield of 2.879% for a Treasury maturing 10/31/2020 at Schwab for min quantity 10 (yields are lower at Vanguard and Fidelity for this quantity). So even in an IRA, or where there is no state tax in a taxable account, the yield premium for the CD is only about 12 basis points at Schwab (somewhat higher at Vanguard or Fidelity). That's getting pretty slim, especially if there's any chance you might want to sell before maturity.
Just looking at the Vanguard quick search the spread is bigger at 3 year, 3.15% vs 2.95%, so 20 bp. By interpolation, I guess I got about a 30 bp yield premium over comparable treasury, 3.221% for 2yr/8mo. But nearly all of the other secondaries I saw looked like worse buys than the new issues.
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by Doc » Tue Oct 16, 2018 3:41 pm

jeffyscott wrote:
Tue Oct 16, 2018 3:26 pm
... in any case. So, I certainly have no intention to ever sell CDs in order to rebalance into stocks (or for any purpose).
Any purpose?

Don't disagree with the CD price aspects, but would you sell Treasuries that were up 10% to buy corporates that were down 10%. That's a 20% freebee. If it happens once every ten years that's 200 bps a year. And at a capital gains rate at that.

That's certainly enough to put into the CD vs. Treasury calculus.

(The rebalancing of the Treasury/corporate pair can likely be reversed within 6 to 12 month with little gain/loss consequences.)
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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Tue Oct 16, 2018 3:48 pm

jeffyscott wrote:
Tue Oct 16, 2018 3:26 pm
Doc wrote:
Tue Oct 16, 2018 2:37 pm
My issue is not with the yield difference but with the Treasury price increase (think capital gain) in a "flight to quality" situation like the fall of '08.
Right, and I understand that way of looking at it.

While I would assume CDs would not decline in that scenario since interest rates would fall, they are expensive to trade, in any case. So, I certainly have no intention to ever sell CDs in order to rebalance into stocks (or for any purpose). Maturing CDs and interest payments are all that could be sensibly reinvested in stocks in a decline.
That table only compares new-issue CDs though. One can easily pick up another 5 basis points for secondary CDs maturing in ~1.5-~3.5 years, if one doesn't mind collecting smallish secondary CDs. That makes a difference of ~20-25 basis points extra compared to treasuries maturing in about the same time. In addition, the difference was higher than that when I started deploying my fixed income to secondary CDs about 6 months ago.

In here, we sweat about 0.10% or even 0.05% difference in expense ratios. So ~20-25 basis points are well worth it to me. I have no plan to sell the CDs before they mature in 2-3 years. In the mean time, I will get 20-25 basis points extra vs treasuries (in tax advantaged accounts of course) until the 2008-level meltdown happens again. :D
Last edited by likashing on Tue Oct 16, 2018 4:00 pm, edited 2 times in total.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by likashing » Tue Oct 16, 2018 3:49 pm

Doc wrote:
Tue Oct 16, 2018 3:41 pm
jeffyscott wrote:
Tue Oct 16, 2018 3:26 pm
... in any case. So, I certainly have no intention to ever sell CDs in order to rebalance into stocks (or for any purpose).
Any purpose?

Don't disagree with the CD price aspects, but would you sell Treasuries that were up 10% to buy corporates that were down 10%. That's a 20% freebee. If it happens once every ten years that's 200 bps a year. And at a capital gains rate at that.

That's certainly enough to put into the CD vs. Treasury calculus.

(The rebalancing of the Treasury/corporate pair can likely be reversed within 6 to 12 month with little gain/loss consequences.)
Did you make a killing doing that in 2008? Just curious.

And I wouldn't sell treasuries to buy coporates during a 2008-style meltdown. I know I wouldn't be genius enough to execute this when Lehman Brothers were shut down while I was not sure whether BoA would be around in 2 weeks.

I am also not sure if 2008 meltdown can happen often enough like every 10 years. I will just take my 20-25 basis points extra per year.

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Re: 2-year CDs at Vanguard and Fidelity Today

Post by jeffyscott » Tue Oct 16, 2018 3:59 pm

Doc wrote:
Tue Oct 16, 2018 3:41 pm
Don't disagree with the CD price aspects, but would you sell Treasuries that were up 10% to buy corporates that were down 10%. That's a 20% freebee. If it happens once every ten years that's 200 bps a year. And at a capital gains rate at that.
I guess I'd leave decision to the bond fund managers that I have hired. While I try to own funds with minimal treasuries, they all have some.

No taxable account to speak of, so the cap gain aspect does not matter.
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