CDs: 1 yr vs 3yr

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carol-brennan
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CDs: 1 yr vs 3yr

Post by carol-brennan » Sun Feb 10, 2019 11:12 am

Which to buy?

1 year 2.7%
3 year 2.85%

5 year 3.10%

I'm leaning toward 3 year in current climate (rates as likely to go down as up).

Your thoughts?

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cheese_breath
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Re: CDs: 1 yr vs 3yr

Post by cheese_breath » Sun Feb 10, 2019 11:26 am

Personally, I wouldn't tie up my money for another two years for another 0.15%. But maybe that's just me.
The surest way to know the future is when it becomes the past.

averagedude
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Re: CDs: 1 yr vs 3yr

Post by averagedude » Sun Feb 10, 2019 11:29 am

There really is no right answer unless you use a crystal ball. Tying up your money for 2 extra years for 15 basis points is a strong bet that rates will go down. Have you considered a CD ladder strategy?

zlltt
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Re: CDs: 1 yr vs 3yr

Post by zlltt » Sun Feb 10, 2019 11:47 am

depends on what's purpose of your CD

emergency fund? bond part of Asset allocation?

.15% is really small difference, $15 per 10k per year before tax.

Maybe 1 yr looks better choice to me. actually I'd rather to seek more alpha,bet on VOO/SPY/IVV.

snowox
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Re: CDs: 1 yr vs 3yr

Post by snowox » Sun Feb 10, 2019 12:01 pm

Why not just keep in Vanguards VMMXX and have access to it when you want and not worry about certain amounts. As of January 1 it was at 2.45% and has steadily been going up

radiowave
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Re: CDs: 1 yr vs 3yr

Post by radiowave » Sun Feb 10, 2019 12:10 pm

Ally Bank still has their 1 yr CD at 2.75 so only 0.10% difference to the 3 year ( https://www.ally.com/bank/cd-rates/). I will recommend the 1 yr for now.
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Sconie
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Re: CDs: 1 yr vs 3yr

Post by Sconie » Sun Feb 10, 2019 12:13 pm

IIRC, it was Larry Swedroe who has suggested, that as "a rule of thumb," that one should pick-up somewhere around an additional 20 basis points of yield for every additional year of maturity.

See: viewtopic.php?p=1762920#p1762920
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JamaicaMeCrazy
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Re: CDs: 1 yr vs 3yr

Post by JamaicaMeCrazy » Sun Feb 10, 2019 12:38 pm

I believe it comes down to your comfort factor as how to proceed. Another factor is the amount invested. FDIC and NCUA limits should also be a consideration.

Also (as someone mentioned) a CD ladder is an idea to explore as well. A quick check at www.bankrate.com shows that you can get a 3 year CD (Connexus CU) for 3.20%

An example for a ladder there would be:

1 year@ 2.80%
2 year@ 3.00%
3 year@ 3.20%

02nz
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Re: CDs: 1 yr vs 3yr

Post by 02nz » Sun Feb 10, 2019 12:44 pm

radiowave wrote:
Sun Feb 10, 2019 12:10 pm
Ally Bank still has their 1 yr CD at 2.75 so only 0.10% difference to the 3 year ( https://www.ally.com/bank/cd-rates/). I will recommend the 1 yr for now.
2.85% on a "promo" 14-month CD: https://www.ally.com/learn/selectcd-14m/

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Kevin M
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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Sun Feb 10, 2019 12:46 pm

snowox wrote:
Sun Feb 10, 2019 12:01 pm
Why not just keep in Vanguards VMMXX and have access to it when you want and not worry about certain amounts. As of January 1 it was at 2.45% and has steadily been going up
Prime Money Market (VMMXX) had been steadily rising, and hit 2.48%, but then dropped back to 2.47% on 2/5/2019, and is still at that yield. So we've at least seen a flattening of this yield.

By contrast, Treasury Money Market (VUSXX) yield has continued to increase, but a a much slower rate. It increased from 2.32% on 2/7 to 2.33% on 2/8. Given that this fund holds Treasury bills mostly in the 1-3 month range, and the yields of those Bills is 2.43%, I don't expect more than another basis point or so of increase, given the fund's expense ratio of 0.09%.

More details in this post from yesterday: viewtopic.php?f=10&t=271396&start=100#p4372835.

Note that on an APY basis, Prime MM at 2.47% is 2.50% compound.

Also, OP, consider your state tax rate. Treasuries can have higher taxable-equivalent yields (TEYs) than CDs if you pay state income tax, especially at the shorter maturities. Similarly, Treasury MM or even Federal MM can have higher TEYs than Prime MM. At my marginal state income tax rate of 8% (and Federal 27%), Treasury MM has TEY of 2.62% (2.65% compound), and Federal MM is 2.54% (2.58% compound).

I kind of go with the Larry Swedroe guideline of 20 basis points per extra year of maturity, which now I'm only finding in Treasuries with maturities of less than one year (in taxable accounts, where the state tax exemption applies). However, I am holding my intermediate-term bond funds, as well as some longer term CDs, to hedge the reinvestment risk of potentially lower future rates. I also will jump on a really good direct CD deal if one pops up, and it's not too inconvenient; I recently got a credit union CD paying 3% first year, 3.5% second year, 4.0% third year, with a penalty-free withdrawal option at each anniversary date--loaded up on that one. Compared to that, the current brokered CD rates look shabby.

Kevin
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MikeG62
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Re: CDs: 1 yr vs 3yr

Post by MikeG62 » Sun Feb 10, 2019 2:35 pm

cheese_breath wrote:
Sun Feb 10, 2019 11:26 am
Personally, I wouldn't tie up my money for another two years for another 0.15%. But maybe that's just me.
+1
Real Knowledge Comes Only From Experience

snowox
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Re: CDs: 1 yr vs 3yr

Post by snowox » Sun Feb 10, 2019 2:38 pm

Kevin M wrote:
Sun Feb 10, 2019 12:46 pm
snowox wrote:
Sun Feb 10, 2019 12:01 pm
Why not just keep in Vanguards VMMXX and have access to it when you want and not worry about certain amounts. As of January 1 it was at 2.45% and has steadily been going up
Prime Money Market (VMMXX) had been steadily rising, and hit 2.48%, but then dropped back to 2.47% on 2/5/2019, and is still at that yield. So we've at least seen a flattening of this yield.

By contrast, Treasury Money Market (VUSXX) yield has continued to increase, but a a much slower rate. It increased from 2.32% on 2/7 to 2.33% on 2/8. Given that this fund holds Treasury bills mostly in the 1-3 month range, and the yields of those Bills is 2.43%, I don't expect more than another basis point or so of increase, given the fund's expense ratio of 0.09%.

More details in this post from yesterday: viewtopic.php?f=10&t=271396&start=100#p4372835.

Note that on an APY basis, Prime MM at 2.47% is 2.50% compound.

Also, OP, consider your state tax rate. Treasuries can have higher taxable-equivalent yields (TEYs) than CDs if you pay state income tax, especially at the shorter maturities. Similarly, Treasury MM or even Federal MM can have higher TEYs than Prime MM. At my marginal state income tax rate of 8% (and Federal 27%), Treasury MM has TEY of 2.62% (2.65% compound), and Federal MM is 2.54% (2.58% compound).

I kind of go with the Larry Swedroe guideline of 20 basis points per extra year of maturity, which now I'm only finding in Treasuries with maturities of less than one year (in taxable accounts, where the state tax exemption applies). However, I am holding my intermediate-term bond funds, as well as some longer term CDs, to hedge the reinvestment risk of potentially lower future rates. I also will jump on a really good direct CD deal if one pops up, and it's not too inconvenient; I recently got a credit union CD paying 3% first year, 3.5% second year, 4.0% third year, with a penalty-free withdrawal option at each anniversary date--loaded up on that one. Compared to that, the current brokered CD rates look shabby.

Kevin


Kevin, if you dont want to be specific thats fine and understandable BUT for the CD ladder you recently found/Spoke of can you tell me or give me some direction to search out? Also if I come across different what specific language do you look for to make sure that the CD doesnt have all sorts of fees etc..I am new to the CD thought process as away to do something different.

Thanks

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Kevin M
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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Sun Feb 10, 2019 4:06 pm

snowox wrote:
Sun Feb 10, 2019 2:38 pm
Kevin, if you dont want to be specific thats fine and understandable BUT for the CD ladder you recently found/Spoke of can you tell me or give me some direction to search out? Also if I come across different what specific language do you look for to make sure that the CD doesnt have all sorts of fees etc..I am new to the CD thought process as away to do something different.

Thanks
The CD deal I mentioned was at Patelco Credit Union, but it is no longer available. I was already a member (had joined for another good CD deal a few years ago), so it was easy to do. It was so good that my wife joined and bought a bunch too, as did my mom, who also was already a member.

So I've already got quite a bit at 3% in the 1-year timeframe, with the option to have 3.5% for the 2-year timeframe (3.25% blended), and 4% for the 3-year timeframe (3.5% blended), but also the option to get out after one year or two years if there are better rates at that time. This is why I'm not jumping at anything that can't at least beat these rates for the 1-3 year timeframes, and instead will be sticking with short-term Treasuries and Treasury MM with new cash in taxable, and probably mostly Prime MM in IRAs until brokered CDs offer at least 20 bps per extra year of maturity (or roll 4-week Treasuries in a Fidelity IRA, which has lower yields on MM funds, and the auto-roll feature makes this easy to do).

In terms of how I become aware of the good direct CD deals, typically it's seeing them mentioned in the DepositAccounts Bank Deals Blog, especially the CD Rates Summary one, but I also follow DA on twitter, so may be alerted that way. Sometimes I see them here on the forum first, or someone may even send me a private message (PM) about a deal they've seen.

Another interesting CD deal I heard about one of these ways is the Term Plus CD at Mountain America CU (MACU), which I also happen to already be a member of (I joined a bunch of credit unions in past years when the CD deals were really great compared to Treasuries of same maturity -- like 1% or more higher yields). The yield on the 5-year is 3.51% APY, which is not bad in the current environment, but the real kicker is that you can open the CD with only $5, and can add to it any time, up to a maximum of $100K; you also have to deposit at least $10 per month into the CD.

Given that I'll earn a blended rate of 3.5% APY on the Patelco CD if I hold for the full 3-year term, I wouldn't put much into the MACU CD now, but it will be nice to have at some point in the future if rates stay low or fall. For example, If I can't get 3.5% on a 2-year CD in three years when the Patelco CDs mature, I can put almost $100K into the MACU CD, which would then have two years left to maturity. Or, I might put more into it sooner if rates fall. The nice thing is that it provides an almost cost-free hedge against future low rates for up to $100K, and it was super simple to open the CD.

Regarding fees, etc., when I was buying mostly 5-year direct CDs with yields much higher than 5-year Treasuries, I also considered the early withdrawal penalty (EWP). If it was only six months of interest (or less), then this was a big plus, since it limited the loss to about one half of the yield if rates were to increase a lot, in which case I'd come out ahead doing an early withdrawal and reinvesting at the higher rate; I actually did this a few times. You can't do that with Treasuries or bond funds, which would lose a lot more if yields increased much in a short enough time period. However, those deals are rare these days, and I don't pay much attention to the EWP for terms out to three years.

I really haven't experienced any other issues with fees or anything like that.

There is no early withdrawal option with brokered CDs, and the cost to sell before maturity can be significant (relatively high bid/ask spreads --could be 1% or more), so I only buy brokered CDs if I plan to hold to maturity. Before rates started dropping recently, I had been buying brokered CDs with 1-3 year maturities in IRAs--not too much term risk, and the yields were enough higher than Treasuries of the same maturities that I was OK with the reduced liquidity (Treasuries have low bid/ask spreads, so selling before maturity may not be costly--unless yields increase a lot).

Kevin
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eldinerocheapo
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Re: CDs: 1 yr vs 3yr

Post by eldinerocheapo » Sun Feb 10, 2019 6:02 pm

If your horizon extends out beyond these years, there's nothing wrong with laddering cd's to reinvest at higher yields on renewal. Most of my cd's are for 1yr, but I also have them staggered 2-5 years as well. I'm older, and am already heavily invested in the market. This is what I call, my self funded pension. :moneybag :moneybag

fsrph
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Re: CDs: 1 yr vs 3yr

Post by fsrph » Sun Feb 10, 2019 11:54 pm

carol-brennan wrote:
Sun Feb 10, 2019 11:12 am
Which to buy?

1 year 2.7%
3 year 2.85%

5 year 3.10%

I'm leaning toward 3 year in current climate (rates as likely to go down as up).

Your thoughts?
There's other options. If your willing to join NASA FCU they have great CD deals. 15 month, 3.2% 25 month, 3.25%. I opened a few 15 month CDs last week. Don't know when this special rate ends. If you do open an account with NASA they give you 10 days to fund the CD.

https://www.nasafcu.com

Francis
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

snowox
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Re: CDs: 1 yr vs 3yr

Post by snowox » Tue Feb 12, 2019 7:10 am

eldinerocheapo wrote:
Sun Feb 10, 2019 6:02 pm
If your horizon extends out beyond these years, there's nothing wrong with laddering cd's to reinvest at higher yields on renewal. Most of my cd's are for 1yr, but I also have them staggered 2-5 years as well. I'm older, and am already heavily invested in the market. This is what I call, my self funded pension. :moneybag :moneybag
Kevin M wrote:
Sun Feb 10, 2019 4:06 pm
snowox wrote:
Sun Feb 10, 2019 2:38 pm
Kevin, if you dont want to be specific thats fine and understandable BUT for the CD ladder you recently found/Spoke of can you tell me or give me some direction to search out? Also if I come across different what specific language do you look for to make sure that the CD doesnt have all sorts of fees etc..I am new to the CD thought process as away to do something different.

Thanks
The CD deal I mentioned was at Patelco Credit Union, but it is no longer available. I was already a member (had joined for another good CD deal a few years ago), so it was easy to do. It was so good that my wife joined and bought a bunch too, as did my mom, who also was already a member.

So I've already got quite a bit at 3% in the 1-year timeframe, with the option to have 3.5% for the 2-year timeframe (3.25% blended), and 4% for the 3-year timeframe (3.5% blended), but also the option to get out after one year or two years if there are better rates at that time. This is why I'm not jumping at anything that can't at least beat these rates for the 1-3 year timeframes, and instead will be sticking with short-term Treasuries and Treasury MM with new cash in taxable, and probably mostly Prime MM in IRAs until brokered CDs offer at least 20 bps per extra year of maturity (or roll 4-week Treasuries in a Fidelity IRA, which has lower yields on MM funds, and the auto-roll feature makes this easy to do).

In terms of how I become aware of the good direct CD deals, typically it's seeing them mentioned in the DepositAccounts Bank Deals Blog, especially the CD Rates Summary one, but I also follow DA on twitter, so may be alerted that way. Sometimes I see them here on the forum first, or someone may even send me a private message (PM) about a deal they've seen.

Another interesting CD deal I heard about one of these ways is the Term Plus CD at Mountain America CU (MACU), which I also happen to already be a member of (I joined a bunch of credit unions in past years when the CD deals were really great compared to Treasuries of same maturity -- like 1% or more higher yields). The yield on the 5-year is 3.51% APY, which is not bad in the current environment, but the real kicker is that you can open the CD with only $5, and can add to it any time, up to a maximum of $100K; you also have to deposit at least $10 per month into the CD.

Given that I'll earn a blended rate of 3.5% APY on the Patelco CD if I hold for the full 3-year term, I wouldn't put much into the MACU CD now, but it will be nice to have at some point in the future if rates stay low or fall. For example, If I can't get 3.5% on a 2-year CD in three years when the Patelco CDs mature, I can put almost $100K into the MACU CD, which would then have two years left to maturity. Or, I might put more into it sooner if rates fall. The nice thing is that it provides an almost cost-free hedge against future low rates for up to $100K, and it was super simple to open the CD.

Regarding fees, etc., when I was buying mostly 5-year direct CDs with yields much higher than 5-year Treasuries, I also considered the early withdrawal penalty (EWP). If it was only six months of interest (or less), then this was a big plus, since it limited the loss to about one half of the yield if rates were to increase a lot, in which case I'd come out ahead doing an early withdrawal and reinvesting at the higher rate; I actually did this a few times. You can't do that with Treasuries or bond funds, which would lose a lot more if yields increased much in a short enough time period. However, those deals are rare these days, and I don't pay much attention to the EWP for terms out to three years.

I really haven't experienced any other issues with fees or anything like that.

There is no early withdrawal option with brokered CDs, and the cost to sell before maturity can be significant (relatively high bid/ask spreads --could be 1% or more), so I only buy brokered CDs if I plan to hold to maturity. Before rates started dropping recently, I had been buying brokered CDs with 1-3 year maturities in IRAs--not too much term risk, and the yields were enough higher than Treasuries of the same maturities that I was OK with the reduced liquidity (Treasuries have low bid/ask spreads, so selling before maturity may not be costly--unless yields increase a lot).

Kevin
fsrph wrote:
Sun Feb 10, 2019 11:54 pm
carol-brennan wrote:
Sun Feb 10, 2019 11:12 am
Which to buy?

1 year 2.7%
3 year 2.85%

5 year 3.10%

I'm leaning toward 3 year in current climate (rates as likely to go down as up).

Your thoughts?
There's other options. If your willing to join NASA FCU they have great CD deals. 15 month, 3.2% 25 month, 3.25%. I opened a few 15 month CDs last week. Don't know when this special rate ends. If you do open an account with NASA they give you 10 days to fund the CD.

https://www.nasafcu.com

Francis



I'd like to come up with a strategy for about 100-150k with a ladder with the furthest part of it being out 5 Years. I will look at some of the links you have all provided. Wanted to be diversified a bit away from all my Index funds and everything I have is in Vanguard as well in VMMXX which is why with it not being protected by FDIC as well like to move some cash out of there. I'm comfortable with my invested amount at this time and would still be left with enough cash to be ready for a huge dip to add or live off if need be. So thats kinda my thoughts on it all

fsrph
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Location: Pa.

Re: CDs: 1 yr vs 3yr

Post by fsrph » Tue Feb 12, 2019 12:00 pm

snowox wrote:
Tue Feb 12, 2019 7:10 am
eldinerocheapo wrote:
Sun Feb 10, 2019 6:02 pm
If your horizon extends out beyond these years, there's nothing wrong with laddering cd's to reinvest at higher yields on renewal. Most of my cd's are for 1yr, but I also have them staggered 2-5 years as well. I'm older, and am already heavily invested in the market. This is what I call, my self funded pension. :moneybag :moneybag
Kevin M wrote:
Sun Feb 10, 2019 4:06 pm
snowox wrote:
Sun Feb 10, 2019 2:38 pm
Kevin, if you dont want to be specific thats fine and understandable BUT for the CD ladder you recently found/Spoke of can you tell me or give me some direction to search out? Also if I come across different what specific language do you look for to make sure that the CD doesnt have all sorts of fees etc..I am new to the CD thought process as away to do something different.

Thanks
The CD deal I mentioned was at Patelco Credit Union, but it is no longer available. I was already a member (had joined for another good CD deal a few years ago), so it was easy to do. It was so good that my wife joined and bought a bunch too, as did my mom, who also was already a member.

So I've already got quite a bit at 3% in the 1-year timeframe, with the option to have 3.5% for the 2-year timeframe (3.25% blended), and 4% for the 3-year timeframe (3.5% blended), but also the option to get out after one year or two years if there are better rates at that time. This is why I'm not jumping at anything that can't at least beat these rates for the 1-3 year timeframes, and instead will be sticking with short-term Treasuries and Treasury MM with new cash in taxable, and probably mostly Prime MM in IRAs until brokered CDs offer at least 20 bps per extra year of maturity (or roll 4-week Treasuries in a Fidelity IRA, which has lower yields on MM funds, and the auto-roll feature makes this easy to do).

In terms of how I become aware of the good direct CD deals, typically it's seeing them mentioned in the DepositAccounts Bank Deals Blog, especially the CD Rates Summary one, but I also follow DA on twitter, so may be alerted that way. Sometimes I see them here on the forum first, or someone may even send me a private message (PM) about a deal they've seen.

Another interesting CD deal I heard about one of these ways is the Term Plus CD at Mountain America CU (MACU), which I also happen to already be a member of (I joined a bunch of credit unions in past years when the CD deals were really great compared to Treasuries of same maturity -- like 1% or more higher yields). The yield on the 5-year is 3.51% APY, which is not bad in the current environment, but the real kicker is that you can open the CD with only $5, and can add to it any time, up to a maximum of $100K; you also have to deposit at least $10 per month into the CD.

Given that I'll earn a blended rate of 3.5% APY on the Patelco CD if I hold for the full 3-year term, I wouldn't put much into the MACU CD now, but it will be nice to have at some point in the future if rates stay low or fall. For example, If I can't get 3.5% on a 2-year CD in three years when the Patelco CDs mature, I can put almost $100K into the MACU CD, which would then have two years left to maturity. Or, I might put more into it sooner if rates fall. The nice thing is that it provides an almost cost-free hedge against future low rates for up to $100K, and it was super simple to open the CD.

Regarding fees, etc., when I was buying mostly 5-year direct CDs with yields much higher than 5-year Treasuries, I also considered the early withdrawal penalty (EWP). If it was only six months of interest (or less), then this was a big plus, since it limited the loss to about one half of the yield if rates were to increase a lot, in which case I'd come out ahead doing an early withdrawal and reinvesting at the higher rate; I actually did this a few times. You can't do that with Treasuries or bond funds, which would lose a lot more if yields increased much in a short enough time period. However, those deals are rare these days, and I don't pay much attention to the EWP for terms out to three years.

I really haven't experienced any other issues with fees or anything like that.

There is no early withdrawal option with brokered CDs, and the cost to sell before maturity can be significant (relatively high bid/ask spreads --could be 1% or more), so I only buy brokered CDs if I plan to hold to maturity. Before rates started dropping recently, I had been buying brokered CDs with 1-3 year maturities in IRAs--not too much term risk, and the yields were enough higher than Treasuries of the same maturities that I was OK with the reduced liquidity (Treasuries have low bid/ask spreads, so selling before maturity may not be costly--unless yields increase a lot).

Kevin
fsrph wrote:
Sun Feb 10, 2019 11:54 pm
carol-brennan wrote:
Sun Feb 10, 2019 11:12 am
Which to buy?

1 year 2.7%
3 year 2.85%

5 year 3.10%

I'm leaning toward 3 year in current climate (rates as likely to go down as up).

Your thoughts?
There's other options. If your willing to join NASA FCU they have great CD deals. 15 month, 3.2% 25 month, 3.25%. I opened a few 15 month CDs last week. Don't know when this special rate ends. If you do open an account with NASA they give you 10 days to fund the CD.

https://www.nasafcu.com

Francis



I'd like to come up with a strategy for about 100-150k with a ladder with the furthest part of it being out 5 Years. I will look at some of the links you have all provided. Wanted to be diversified a bit away from all my Index funds and everything I have is in Vanguard as well in VMMXX which is why with it not being protected by FDIC as well like to move some cash out of there. I'm comfortable with my invested amount at this time and would still be left with enough cash to be ready for a huge dip to add or live off if need be. So thats kinda my thoughts on it all
You should take a look at INOVA FCU also. Their 20 and 30 month CDs are over 3% and include a one time step up option if rates rise. I'd definitely use NASA's 15 month/3% CD in your ladder,
https://www.inovafederal.org/services-t ... rates.html

Francis

Paradise
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Re: CDs: 1 yr vs 3yr

Post by Paradise » Tue Feb 12, 2019 1:04 pm

MikeG62 wrote:
Sun Feb 10, 2019 2:35 pm
cheese_breath wrote:
Sun Feb 10, 2019 11:26 am
Personally, I wouldn't tie up my money for another two years for another 0.15%. But maybe that's just me.
+1
Agreed. I don't think that 3 year yield is anything that you should be interested in with rate hikes coming frequently.

High yield savings accounts are getting up to 2.5% and moving really fast.

https://www.bankrate.com/banking/saving ... accounts/

These have a bit of hoops to jump in, but I know that Goldman Sachs' Marcus Savings is 2.25 no hoops. Less return more flexibility.

Topic Author
carol-brennan
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Re: CDs: 1 yr vs 3yr

Post by carol-brennan » Tue Feb 12, 2019 3:33 pm

I really hate opening new accounts w/ institutions to get better CD rates. Doesn't anyone like to keep their lives simple w/ assets in as few places as possible?

MichCPA
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Re: CDs: 1 yr vs 3yr

Post by MichCPA » Tue Feb 12, 2019 3:48 pm

carol-brennan wrote:
Sun Feb 10, 2019 11:12 am

I'm leaning toward 3 year in current climate (rates as likely to go down as up).
If you think that the economy is likely to slow down, why not keep a short maturity so you can rebalance into stocks? If you think it will keep growing, why not keep it short to take advantage of higher rates? If you don't believe in market timing, why tie up money for two years at $1 per $1,000 of principal?

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Re: CDs: 1 yr vs 3yr

Post by willthrill81 » Tue Feb 12, 2019 4:26 pm

cheese_breath wrote:
Sun Feb 10, 2019 11:26 am
Personally, I wouldn't tie up my money for another two years for another 0.15%. But maybe that's just me.
+1

I'll take reinvestment risk over interest rate risk nearly every time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: CDs: 1 yr vs 3yr

Post by jeffyscott » Tue Feb 12, 2019 4:27 pm

carol-brennan wrote:
Sun Feb 10, 2019 11:12 am
Which to buy?

1 year 2.7%
3 year 2.85%

5 year 3.10%

I'm leaning toward 3 year in current climate (rates as likely to go down as up).

Your thoughts?
I had a CD that matured today and didn't like any of the available options. I bought some short-term TIPS, instead.

My guess was the 1-3 TIPS were effectively at maybe about 0.8% real, based kind of averaging the listed yields as I don't know how to do the seasonal adjustments. The TIPS seemed like a better deal to me even though it's in an IRA, so no benefit from the state tax exemption. Break even inflation vs. CDs for those should be around 2%, I was willing to take that "bet".
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: CDs: 1 yr vs 3yr

Post by Paradise » Tue Feb 12, 2019 7:24 pm

carol-brennan wrote:
Tue Feb 12, 2019 3:33 pm
I really hate opening new accounts w/ institutions to get better CD rates. Doesn't anyone like to keep their lives simple w/ assets in as few places as possible?
For me, sure, if there isnt any financial impact in reduction. I have managed to reduce my taxable ETF positions to 10 without incuring a large tax event and it still drives me crazy, but at the end of the day for me the bottom line is more important than anything else. I've opened an Ally high yield savings account to move money from my discover one over .05% interest. I'd have done it for .01% too. I've churned bank accounts, credit cards and gone through a lot of hassle over a couple hundred bucks.

Nothing wrong with your way at all, but I'm guessing if you ask this forum, you're going to find a lot more people like me so your answer will be "unideal" for your taste.

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Re: CDs: 1 yr vs 3yr

Post by chw » Tue Feb 12, 2019 7:32 pm

Citizens Access (part of Citizens Bank) offering 1 year CD at 2.85% in the event you didn't want to lock up for 3 years.

I would be looking for a rate about 100 bps higher than this rate to lock up for 3 years.

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Re: CDs: 1 yr vs 3yr

Post by snowox » Wed Feb 13, 2019 6:37 am

Are CD's Insured by the FDIC?

The whole purpose of me even considering moving money from VMMXX is because i feel like I have everything under one roof and lately with some comments made that concerns me. Otherwise I would just leave it there. Having said that too if something were to happen with Vanguard feel would be in a bigger crap storm anyhow so much wouldn't matter.


My current bank that I use locally has a 18 month 3% CD would that be maybe a good option? Like I said this whole CD thing is new to me. But if Insure and its more than the .20 basis points people are talking about over the VMMXX than maybe a good move? At least a start for me

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Re: CDs: 1 yr vs 3yr

Post by MathIsMyWayr » Wed Feb 13, 2019 10:28 am

My total income will experience a big jump this year due to an exercise of soon expiring stock options. I am not sure what to do with the excess cash in the short term, 1-2 years. It is a little over 10% of my NW without counting the home equity. I already used about 1/5 on Patelco 3/3.5/4% CD. I am thinking of a few options: investing according to my AA, T-bills, short/IT muni funds. I live in California. CD at ~3% is equivalent to T-bill of ~2.5% after all fed and state taxes. Either way, I may not be able to keep up with inflation.

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Re: CDs: 1 yr vs 3yr

Post by snowox » Wed Feb 13, 2019 2:15 pm

Decided I am going to put 100k in my local bank at 3% for 18 months. Yes its FIDC insured. No extra fee's Whatsover and .53 basis points over VMMXX currently right now which is 2.47. I'd like to do something with another 100k if I could get more than 3% and also protected. That still leaves me enough cash to buy in if we have a significant dip. Just looking to be a little more diversified and not all under one roof even though I love Vanguard. At my age I really need to try not to make the old man errors either.

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Re: CDs: 1 yr vs 3yr

Post by 3funder » Wed Feb 13, 2019 2:40 pm

snowox wrote:
Sun Feb 10, 2019 12:01 pm
Why not just keep in Vanguards VMMXX and have access to it when you want and not worry about certain amounts. As of January 1 it was at 2.45% and has steadily been going up
+1. This is what I do.

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Re: CDs: 1 yr vs 3yr

Post by Wiggums » Wed Feb 13, 2019 3:39 pm

3funder wrote:
Wed Feb 13, 2019 2:40 pm
snowox wrote:
Sun Feb 10, 2019 12:01 pm
Why not just keep in Vanguards VMMXX and have access to it when you want and not worry about certain amounts. As of January 1 it was at 2.45% and has steadily been going up
+1. This is what I do.
+1

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Re: CDs: 1 yr vs 3yr

Post by MathWizard » Wed Feb 13, 2019 3:48 pm

0.15% is not worth tying up the money longer.

Also, you don't mention minimum purchase.

I'd buy three one year $1K CDs over one $3K CD. (multiply by 10 if these are $10K min purchase.)

If I need $1K, I only need to pay the early withdrawal penalty on one third of the money.

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Re: CDs: 1 yr vs 3yr

Post by fsrph » Wed Feb 13, 2019 5:10 pm

snowox wrote:
Wed Feb 13, 2019 2:15 pm
Decided I am going to put 100k in my local bank at 3% for 18 months. Yes its FIDC insured. No extra fee's Whatsover and .53 basis points over VMMXX currently right now which is 2.47. I'd like to do something with another 100k if I could get more than 3% and also protected. That still leaves me enough cash to buy in if we have a significant dip. Just looking to be a little more diversified and not all under one roof even though I love Vanguard. At my age I really need to try not to make the old man errors either.
As I posted previously, NASA FCU is still offering a 15, 25 and 49 month CD at 3.2%, 3.25% and 3.35% respectively. I think the 15 month is best for my needs, you may like one of the other terms better. Federally insured by the NCUA for $250,000. One nice thing about NASA is once the cd is opened you have 10 days to fund it.
https://www.nasafcu.com/rates/share-certificate-rates/

Francis
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Re: CDs: 1 yr vs 3yr

Post by Riley15 » Wed Feb 13, 2019 5:23 pm

fsrph wrote:
Wed Feb 13, 2019 5:10 pm
snowox wrote:
Wed Feb 13, 2019 2:15 pm
Decided I am going to put 100k in my local bank at 3% for 18 months. Yes its FIDC insured. No extra fee's Whatsover and .53 basis points over VMMXX currently right now which is 2.47. I'd like to do something with another 100k if I could get more than 3% and also protected. That still leaves me enough cash to buy in if we have a significant dip. Just looking to be a little more diversified and not all under one roof even though I love Vanguard. At my age I really need to try not to make the old man errors either.
As I posted previously, NASA FCU is still offering a 15, 25 and 49 month CD at 3.2%, 3.25% and 3.35% respectively. I think the 15 month is best for my needs, you may like one of the other terms better. Federally insured by the NCUA for $250,000. One nice thing about NASA is once the cd is opened you have 10 days to fund it.
https://www.nasafcu.com/rates/share-certificate-rates/

Francis

I believe NASA FCU does a Hard Credit-Pull on your credit report, can anyone who has opened an account confirm if this is the case?

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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Wed Feb 13, 2019 7:08 pm

MathIsMyWayr wrote:
Wed Feb 13, 2019 10:28 am
My total income will experience a big jump this year due to an exercise of soon expiring stock options. I am not sure what to do with the excess cash in the short term, 1-2 years. It is a little over 10% of my NW without counting the home equity. I already used about 1/5 on Patelco 3/3.5/4% CD. I am thinking of a few options: investing according to my AA, T-bills, short/IT muni funds. I live in California. CD at ~3% is equivalent to T-bill of ~2.5% after all fed and state taxes. Either way, I may not be able to keep up with inflation.
I would have put a lot more into the Patelco CDs (actually, I did--sold a good chunk of my T Bills, most of my Treasury MM fund, and most of my short-term Treasury Index fund to buy them). Too late now though.

Sounds like you know how to figure your taxable-equivalent yields (TEYs). Be sure to check TEYs of Treasuries or Treasury funds whenever considering muni funds, and be sure to consider duration (term risk) when doing so, as Treasuries are pretty competitive with munis these days.

I don't think an AA necessarily must have a fixed allocation to any particular type of fixed income. You might want a fixed portion in Treasuries, for potential negative correlation with and rebalancing into stocks in a flight-to-safety scenario, but for the rest, the risk/expected-return tradeoffs change over time, so whatever was great a year ago might not be great today.

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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Wed Feb 13, 2019 7:16 pm

snowox wrote:
Wed Feb 13, 2019 2:15 pm
Decided I am going to put 100k in my local bank at 3% for 18 months. Yes its FIDC insured. No extra fee's Whatsover and .53 basis points over VMMXX currently right now which is 2.47. I'd like to do something with another 100k if I could get more than 3% and also protected. That still leaves me enough cash to buy in if we have a significant dip. Just looking to be a little more diversified and not all under one roof even though I love Vanguard. At my age I really need to try not to make the old man errors either.
That's a good rate if you don't want to mess around joining another credit union, and assuming your state tax rate isn't pretty high. With a high enough state tax rate, a 1-year Treasury TEY could come close to 3%, and the liquidity is better with a Treasury.

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

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Re: CDs: 1 yr vs 3yr

Post by Earl Lemongrab » Wed Feb 13, 2019 8:05 pm

I don't chase interest rates around. Right now my stable value fund, which holds about 50% of my fixed income, is around 2.8% or so. Unfortunately, the plan went to a daily rate that they don't publish on the web site. I have to take the one-month actual return and annualize it.

The remainder of the fixed is in an aggregate bond index fund.

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Re: CDs: 1 yr vs 3yr

Post by snowox » Thu Feb 14, 2019 4:26 am

Kevin M wrote:
Wed Feb 13, 2019 7:16 pm
snowox wrote:
Wed Feb 13, 2019 2:15 pm
Decided I am going to put 100k in my local bank at 3% for 18 months. Yes its FIDC insured. No extra fee's Whatsover and .53 basis points over VMMXX currently right now which is 2.47. I'd like to do something with another 100k if I could get more than 3% and also protected. That still leaves me enough cash to buy in if we have a significant dip. Just looking to be a little more diversified and not all under one roof even though I love Vanguard. At my age I really need to try not to make the old man errors either.
That's a good rate if you don't want to mess around joining another credit union, and assuming your state tax rate isn't pretty high. With a high enough state tax rate, a 1-year Treasury TEY could come close to 3%, and the liquidity is better with a Treasury.

Kevin

I have another 50-100k I'd like to put somewhere insured and no nothing about the 1 Year Treasury TEY you make mention of. Are those insured? and if so how do they work and is there a sight? thanks. I'm In WI

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Re: CDs: 1 yr vs 3yr

Post by jeffyscott » Thu Feb 14, 2019 8:22 am

snowox wrote:
Thu Feb 14, 2019 4:26 am
I have another 50-100k I'd like to put somewhere insured and no nothing about the 1 Year Treasury TEY you make mention of. Are those insured? and if so how do they work and is there a sight? thanks. I'm In WI
Treasuries are backed by the full faith and credit of the Federal government, so marginally safer than FDIC insurance. You can buy in a brokerage account or at Treasury Direct. Short term ones, such as 1 year, are called bills, you can start learning about them here: https://www.treasurydirect.gov/indiv/pr ... glance.htm

After that, this discussion may be helpful: viewtopic.php?t=250059

On the secondary market there can also be notes and bonds which were originally longer term but now have only 1 year left to maturity.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: CDs: 1 yr vs 3yr

Post by Earl Lemongrab » Thu Feb 14, 2019 11:36 am

jeffyscott wrote:
Thu Feb 14, 2019 8:22 am
Treasuries are backed by the full faith and credit of the Federal government, so marginally safer than FDIC insurance.
That's not accurate.
Full Faith and Credit of U.S. Government
FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors.
https://www.fdic.gov/consumers/assistan ... ymbol.html

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Re: CDs: 1 yr vs 3yr

Post by jeffyscott » Thu Feb 14, 2019 12:02 pm

Earl Lemongrab wrote:
Thu Feb 14, 2019 11:36 am
jeffyscott wrote:
Thu Feb 14, 2019 8:22 am
Treasuries are backed by the full faith and credit of the Federal government, so marginally safer than FDIC insurance.
That's not accurate.
Full Faith and Credit of U.S. Government
FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors.
https://www.fdic.gov/consumers/assistan ... ymbol.html
Thanks, I guess the difference I was remembering is that the FDIC backing is not by law or constitutional as it is for treasuries.

viewtopic.php?t=111743

I don't actually think that the difference matters. In any case, treasuries are as safe or safer than an FDIC insured account.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: CDs: 1 yr vs 3yr

Post by snowox » Thu Feb 14, 2019 12:58 pm

jeffyscott wrote:
Thu Feb 14, 2019 12:02 pm
Earl Lemongrab wrote:
Thu Feb 14, 2019 11:36 am
jeffyscott wrote:
Thu Feb 14, 2019 8:22 am
Treasuries are backed by the full faith and credit of the Federal government, so marginally safer than FDIC insurance.
That's not accurate.
Full Faith and Credit of U.S. Government
FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors.
https://www.fdic.gov/consumers/assistan ... ymbol.html
Thanks, I guess the difference I was remembering is that the FDIC backing is not by law or constitutional as it is for treasuries.

viewtopic.php?t=111743

I don't actually think that the difference matters. In any case, treasuries are as safe or safer than an FDIC insured account.
Earl Lemongrab wrote:
Thu Feb 14, 2019 11:36 am
jeffyscott wrote:
Thu Feb 14, 2019 8:22 am
Treasuries are backed by the full faith and credit of the Federal government, so marginally safer than FDIC insurance.
That's not accurate.
Full Faith and Credit of U.S. Government
FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors.
https://www.fdic.gov/consumers/assistan ... ymbol.html


I guess the one simple question I would have is what is the reason or its place in a portfolio?

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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Thu Feb 14, 2019 8:34 pm

snowox wrote:
Thu Feb 14, 2019 4:26 am
I have another 50-100k I'd like to put somewhere insured and no nothing about the 1 Year Treasury TEY you make mention of. Are those insured? and if so how do they work and is there a sight? thanks. I'm In WI
Since Treasuries are exempt from state income tax, the after-tax yield is higher than a CD with the same yield, since the CD is taxed by both the federal and state governments. A common way to compare apples to apples is to convert yields to taxable-equivalent yields (TEYs); you could also compare after-tax yields, but using TEY seems to be more standard.

So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.

The TEY calculation for a Treasury is:

TEY = Yt * (1-f) / (1-f-s)

where Yt is the treasury yield, and f and s are the marginal federal and state tax rates. So using 22% and 6.27% as the marginal rates:

TEY = 2.53% * (1-22%) / (1-22%-6.27%) = 2.75%

As noted, Treasuries are just as safe as FDIC-insured CDs. Additional benefits are that they are inexpensive to buy and sell (e.g., no early withdrawal penalty to sell, as with a direct CD), and they may increase in value when stocks drop in value (negative correlation in flight-to-safety scenarios).

So some people prefer them in a portfolio even if the yield is lower than a CD, since they may have a portfolio benefit other than just yield. Of course one can hold some of each to get some of the benefits of each.

Kevin
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Re: CDs: 1 yr vs 3yr

Post by snowox » Fri Feb 15, 2019 4:19 am

Kevin M wrote:
Thu Feb 14, 2019 8:34 pm
snowox wrote:
Thu Feb 14, 2019 4:26 am
I have another 50-100k I'd like to put somewhere insured and no nothing about the 1 Year Treasury TEY you make mention of. Are those insured? and if so how do they work and is there a sight? thanks. I'm In WI
Since Treasuries are exempt from state income tax, the after-tax yield is higher than a CD with the same yield, since the CD is taxed by both the federal and state governments. A common way to compare apples to apples is to convert yields to taxable-equivalent yields (TEYs); you could also compare after-tax yields, but using TEY seems to be more standard.

So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.

The TEY calculation for a Treasury is:

TEY = Yt * (1-f) / (1-f-s)

where Yt is the treasury yield, and f and s are the marginal federal and state tax rates. So using 22% and 6.27% as the marginal rates:

TEY = 2.53% * (1-22%) / (1-22%-6.27%) = 2.75%

As noted, Treasuries are just as safe as FDIC-insured CDs. Additional benefits are that they are inexpensive to buy and sell (e.g., no early withdrawal penalty to sell, as with a direct CD), and they may increase in value when stocks drop in value (negative correlation in flight-to-safety scenarios).

So some people prefer them in a portfolio even if the yield is lower than a CD, since they may have a portfolio benefit other than just yield. Of course one can hold some of each to get some of the benefits of each.

Kevin

Kevin! Thank you very much for that and explanation I actually understood! :sharebeer

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Re: CDs: 1 yr vs 3yr

Post by jeffyscott » Fri Feb 15, 2019 8:31 am

snowox wrote:
Fri Feb 15, 2019 4:19 am
Kevin M wrote:
Thu Feb 14, 2019 8:34 pm
So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.

Kevin! Thank you very much for that and explanation I actually understood! :sharebeer
It doesn't change the conclusion, but note that up to about $120K or so (for joint return) the effective marginal state income tax rate is about 7.5%. This is because WI reduces the standard deduction with increasing income, the reduction starts at about $22K (joint) with a std deduction of $19,580 until it reaches $0 at about $121K.

I guess the point at which the effective marginal rate drops to 6.27% would actually vary depending on itemized deductions. But then as an added complication, itemized deductions in excess of standard get only a 5% tax credit, so in the 6.27% bracket they are effectively about 80% deductible.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: CDs: 1 yr vs 3yr

Post by MikeG62 » Fri Feb 15, 2019 8:44 am

carol-brennan wrote:
Tue Feb 12, 2019 3:33 pm
I really hate opening new accounts w/ institutions to get better CD rates. Doesn't anyone like to keep their lives simple w/ assets in as few places as possible?
It used to not bother me at all. However, as I have gotten older (I'm 56 now) I am less inclined to yield chase. I have been going more for simplification over the last couple of years in part because should something happen to me (yes I've have friends and relatives die in their 50's) I don't want things to be more complicated for my DW than they already will be.
Real Knowledge Comes Only From Experience

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Re: CDs: 1 yr vs 3yr

Post by Kevin M » Fri Feb 15, 2019 11:41 am

jeffyscott wrote:
Fri Feb 15, 2019 8:31 am
snowox wrote:
Fri Feb 15, 2019 4:19 am
Kevin M wrote:
Thu Feb 14, 2019 8:34 pm
So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.
Kevin! Thank you very much for that and explanation I actually understood! :sharebeer
It doesn't change the conclusion, but note that up to about $120K or so (for joint return) the effective marginal state income tax rate is about 7.5%. This is because WI reduces the standard deduction with increasing income, the reduction starts at about $22K (joint) with a std deduction of $19,580 until it reaches $0 at about $121K.
This is a good example of why it's important to use marginal tax rates and not tax brackets in computing TEY or ATY (after-tax yield). There are many things that can cause them to be different. I may have already shared my example in this thread already: my federal tax bracket is 12%, but my marginal federal tax rate is 27% due to the way qualified dividends are taxed at 0% or 15%.

Kevin
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Re: CDs: 1 yr vs 3yr

Post by snowox » Fri Feb 15, 2019 11:48 am

jeffyscott wrote:
Fri Feb 15, 2019 8:31 am
snowox wrote:
Fri Feb 15, 2019 4:19 am
Kevin M wrote:
Thu Feb 14, 2019 8:34 pm
So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.

Kevin! Thank you very much for that and explanation I actually understood! :sharebeer
It doesn't change the conclusion, but note that up to about $120K or so (for joint return) the effective marginal state income tax rate is about 7.5%. This is because WI reduces the standard deduction with increasing income, the reduction starts at about $22K (joint) with a std deduction of $19,580 until it reaches $0 at about $121K.

I guess the point at which the effective marginal rate drops to 6.27% would actually vary depending on itemized deductions. But then as an added complication, itemized deductions in excess of standard get only a 5% tax credit, so in the 6.27% bracket they are effectively about 80% deductible.

With me being fire'd the amount I have to pay on in tax is minimal and by the time we reduce my DW's paycheck to basically 0 contributing it all to 401k, HSA et... I wont get near that #. Thanks for that info

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Re: CDs: 1 yr vs 3yr

Post by snowox » Fri Feb 15, 2019 11:49 am

Kevin M wrote:
Fri Feb 15, 2019 11:41 am
jeffyscott wrote:
Fri Feb 15, 2019 8:31 am
snowox wrote:
Fri Feb 15, 2019 4:19 am
Kevin M wrote:
Thu Feb 14, 2019 8:34 pm
So a 1-year Treasury with a yield of 2.53% has a TEY of 2.75% if your marginal fed tax rate is 22% and your WI state tax rate is 6.27% (the rate that applies to the broadest range of incomes). So your state income tax rate probably is not high enough to make a 1-year Treasury competitive with the 18-month CD at 3%, if yield is all you're looking for.
Kevin! Thank you very much for that and explanation I actually understood! :sharebeer
It doesn't change the conclusion, but note that up to about $120K or so (for joint return) the effective marginal state income tax rate is about 7.5%. This is because WI reduces the standard deduction with increasing income, the reduction starts at about $22K (joint) with a std deduction of $19,580 until it reaches $0 at about $121K.
This is a good example of why it's important to use marginal tax rates and not tax brackets in computing TEY or ATY (after-tax yield). There are many things that can cause them to be different. I may have already shared my example in this thread already: my federal tax bracket is 12%, but my marginal federal tax rate is 27% due to the way qualified dividends are taxed at 0% or 15%.

Kevin

Yea thats a huge difference! makes total sense.

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