CD discussion thread

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evelynmanley
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Re: CD discussion thread

Post by evelynmanley »

MikeG62 wrote: Fri May 13, 2022 3:45 pm
bandoba wrote: Fri May 13, 2022 3:29 pm Ally just sent an email about 2% for 20 month CD. I assume this is not a targeted offer since I see it on Ally's website here https://www.ally.com/go/bank/20m-select ... L400002574
You can get almost 2.0% in a 12-month Treasury. You can redeploy those proceeds a year from now into what seems likely to be a higher rate environment. If you think that is unlikely, then go for a 24-month treasury now at ~2.60%. In addition Treasuries are not taxable at the state and local level.

These bank deals need to get “a lot” more attractive before I’d consider them.
+1, based on the Ken Tumin article I linked above. I just purchased Treasury bills for the first time this week.
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jeffyscott
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Re: CD discussion thread

Post by jeffyscott »

MikeG62 wrote: Fri May 13, 2022 3:45 pm
bandoba wrote: Fri May 13, 2022 3:29 pm Ally just sent an email about 2% for 20 month CD. I assume this is not a targeted offer since I see it on Ally's website here https://www.ally.com/go/bank/20m-select ... L400002574
You can get almost 2.0% in a 12-month Treasury. You can redeploy those proceeds a year from now into what seems likely to be a higher rate environment. If you think that is unlikely, then go for a 24-month treasury now at ~2.60%. In addition Treasuries are not taxable at the state and local level.

These bank deals need to get “a lot” more attractive before I’d consider them.
Brokered CDs are also better than that offer, 2.45% for 18 mo. or 2.9% for 2 year, based on Vanguard's rate overview page.
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LadyGeek
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Re: CD discussion thread

Post by LadyGeek »

The wiki has some background info: Brokered CDs

If you hold a brokered CD in an IRA and need to make an RMD, the CD must be sold to meet the RMD. (That's explained in the wiki as Note 1.)
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Kevin M
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Re: CD discussion thread

Post by Kevin M »

LadyGeek wrote: Fri May 13, 2022 5:54 pm The wiki has some background info: Brokered CDs

If you hold a brokered CD in an IRA and need to make an RMD, the CD must be sold to meet the RMD. (That's explained in the wiki as Note 1.)
This is only true if you don't have other assets in the IRA that can be used to satisfy the RMD. I've held brokered CDs in and IRA subject to RMDs, and have never had to sell one before maturity. Generally I would not buy a brokered CD in an IRA if I would need to sell it before maturity to satisfy an RMD.

Note that the Wiki article does not discuss explicitly the biggest issue with brokered CDs (compared to Treasuries), which is that the bid/ask spread can be quite large, like 1% or more (but sometimes less), so if you sell before maturity, you probably will lose much more than Treasuries to the bid/ask spread. Also, there often is no bid quote, and if there's not, you'll have to have contact the broker to solicit bid quotes. Years ago I think I did this, and had to do it by phone, but I think now with some brokers you can request bid quotes online.

Other than that, brokered CDs are subject to the same term risk as Treasuries or any other bond or bond fund. I really don't see any need for a big warning about this in the Wiki article. The warning should be about the potentially large bid/ask spread if selling before maturity.

Kevin
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LadyGeek
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Re: CD discussion thread

Post by LadyGeek »

If you or anyone else has suggested text, I'll be more than happy to revise the article. Cite sources if needed.
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Kevin M
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Re: CD discussion thread

Post by Kevin M »

LadyGeek wrote: Fri May 13, 2022 7:58 pm If you or anyone else has suggested text, I'll be more than happy to revise the article. Cite sources if needed.
No thanks. I've been down the wiki editor road before, and ended up not enjoying it very much. I've provided my input already; anyone else can feel free to take it and edit the Wiki article, or leave it.

My source is experience and personal research. I've dealt extensively with CDs of both varieties for more than 10 years (and to a lesser extent with brokered CDs for some years before that), have thousands of BH posts about them, and have previously done analysis on the bid/ask spreads. Anyone can look at the bid/ask spreads at a broker to see what I'm talking about.

Does whoever wrote that warning about have any reason to believe that CDs have any more or less term risk (aka interest-rate risk) than other bonds? I'd like to see the "sources" for that. I honestly would (not intending to be snarky).

Thanks,

Kevin
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hudson
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Re: CD discussion thread

Post by hudson »

PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
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Re: CD discussion thread

Post by MikeG62 »

hudson wrote: Wed May 18, 2022 6:23 am PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
Treasuries still seem to offer better value. For example, on Monday I bought (in the secondary market) a Treasury bill maturing in Dec 2022 at a yield of 1.50% and a Treasury bond maturing in May of 2023 at a yield of 2.12%.

I'm thinking either CD's rates will continue to creep up to become competitive with Treasuries or Treasury yields will decline. If I had to guess which one, I'd bet the former is more likely than the latter.
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hudson
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Re: CD discussion thread

Post by hudson »

MikeG62 wrote: Wed May 18, 2022 6:38 am
hudson wrote: Wed May 18, 2022 6:23 am PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
Treasuries still seem to offer better value. For example, on Monday I bought (in the secondary market) a Treasury bill maturing in Dec 2022 at a yield of 1.50% and a Treasury bond maturing in May of 2023 at a yield of 2.12%.

I'm thinking either CD's rates will continue to creep up to become competitive with Treasuries or Treasury yields will decline. If I had to guess which one, I'd bet the former is more likely than the latter.
I agree; it pays to shop around!
I see a non-callable brokered CD at Fidelity for 3.2% for 5 years.
Also a 5 year treasury at 2.99%
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Re: CD discussion thread

Post by MikeG62 »

hudson wrote: Wed May 18, 2022 6:45 am
MikeG62 wrote: Wed May 18, 2022 6:38 am
hudson wrote: Wed May 18, 2022 6:23 am PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
Treasuries still seem to offer better value. For example, on Monday I bought (in the secondary market) a Treasury bill maturing in Dec 2022 at a yield of 1.50% and a Treasury bond maturing in May of 2023 at a yield of 2.12%.

I'm thinking either CD's rates will continue to creep up to become competitive with Treasuries or Treasury yields will decline. If I had to guess which one, I'd bet the former is more likely than the latter.
I agree; it pays to shop around!
I see a non-callable brokered CD at Fidelity for 3.2% for 5 years.
Also a 5 year treasury at 2.99%
True.
That one is better than the comparable term Treasury on the headline, but closer to inline with the 5-year Treasury once the state tax break is factored in.

It might be a good deal (as good as it gets), but I tend to think not. Of course, I could be wrong. Having said that, I am building a Treasury ladder with bonds maturing in 6 to as long as 12 months to present me with maturing bond proceeds to reinvest at what I think may well be better rates as we move forward. Maybe I'll regret having done that and wish I had just went all in at these rates.
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hudson
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Re: CD discussion thread

Post by hudson »

MikeG62 wrote: Wed May 18, 2022 7:05 am
hudson wrote: Wed May 18, 2022 6:45 am
MikeG62 wrote: Wed May 18, 2022 6:38 am
hudson wrote: Wed May 18, 2022 6:23 am PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
Treasuries still seem to offer better value. For example, on Monday I bought (in the secondary market) a Treasury bill maturing in Dec 2022 at a yield of 1.50% and a Treasury bond maturing in May of 2023 at a yield of 2.12%.

I'm thinking either CD's rates will continue to creep up to become competitive with Treasuries or Treasury yields will decline. If I had to guess which one, I'd bet the former is more likely than the latter.
I agree; it pays to shop around!
I see a non-callable brokered CD at Fidelity for 3.2% for 5 years.
Also a 5 year treasury at 2.99%
True.
That one is better than the comparable term Treasury on the headline, but closer to inline with the 5-year Treasury once the state tax break is factored in.

It might be a good deal (as good as it gets), but I tend to think not. Of course, I could be wrong. Having said that, I am building a Treasury ladder with bonds maturing in 6 to as long as 12 months to present me with maturing bond proceeds to reinvest at what I think may well be better rates as we move forward. Maybe I'll regret having done that and wish I had just went all in at these rates.
That's probably a good bet.
I get greedy looking at over-3%-interest over five or more years.
If I had a large pile to invest today, I'd go with five or more year maturities and maybe 70% individual TIPS and 30% nominal.
But I don't have a nickel to invest, so talk's cheap. :)
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jeffyscott
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Re: CD discussion thread

Post by jeffyscott »

hudson wrote: Wed May 18, 2022 6:45 am
MikeG62 wrote: Wed May 18, 2022 6:38 am
hudson wrote: Wed May 18, 2022 6:23 am PENFED https://www.penfed.org/
2.75% APY* for 5 Years
2.25% APY* for 3 Years
1.75% APY* for 18 Months
Treasuries still seem to offer better value. For example, on Monday I bought (in the secondary market) a Treasury bill maturing in Dec 2022 at a yield of 1.50% and a Treasury bond maturing in May of 2023 at a yield of 2.12%.

I'm thinking either CD's rates will continue to creep up to become competitive with Treasuries or Treasury yields will decline. If I had to guess which one, I'd bet the former is more likely than the latter.
I agree; it pays to shop around!
I see a non-callable brokered CD at Fidelity for 3.2% for 5 years.
Also a 5 year treasury at 2.99%
It currently only seems to be worth shopping around between brokered CDs and Treasuries, though. Which is fine by me, direct CDs are a hassle since all our money for them is in IRAs. I had resisted moving money to direct CDs, but finally could not resist doing some of that in the summer of 2020.

Treasury rates seem to be more volatile than brokered CD rates, the brokered CDs had kind of moved ahead at least at 2 years+ (this was at least in part due to some treasury yields declining), but then that gap closed quite a bit again yesterday (treasury yields went up a bit). I have been paying too much attention over the last month (in anticipation of money from a matured direct CD moving back to brokerage account) and for a while it was: I'll probably just buy treasuries, then it was certain to be CDs (at least for 2 years+). Then yesterday, when the money finally arrived, it was kind of a toss-up (CDs may be a bit higher but that's offset by less liquidity and state income tax).

I ended up buying a couple <1 year treasuries to potentially cover some known expenses and a 7 year TIPS with a portion of the money. I will deploy some more to either 2-4 year CDs or a short term bond index (if the CD treasury spread is too small I am just going to use the fund, which is about 70% treasuries) and another TIPS today.
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hudson
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Re: CD discussion thread

Post by hudson »

jeffyscott wrote: Wed May 18, 2022 7:25 am I have been paying too much attention over the last month (in anticipation of money from a matured direct CD moving back to brokerage account)
It pays to pay attention to maturity dates.
It pays to pay too much attention to rates.
It pays not to forget taxes.
Bottom line: With the above, when that day comes, you're ready!

He or she who hesitates....
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