CD discussion thread

[jeffyscott]

...but then if the brokered CD rates are going to fluctuate, would bank CD's are better even if they are lower?

The CD interest rate will not change.

Any other suggestions for ~3 year investments for cash?

The market is closed, but Vanguard is showing Treasury rates that are the same or better than CDs of that term right now.

https://personal.vanguard.com/us/FixedIncomeHome

[Kevin M]

Iam trying to catch up with all the education (treasuries and brokered CD;s are new to me) here

we have ~75K lying the checking account for more than a year and looking to invest them in some near-short term (1-3 yrs).
On vanguard I came across this
******
10 - 12 months
Purchasing CD from:
Goldman Sachs Bank Usa 2.65% Matures 6/29/2023
Payment frequency: Interest at maturity Settles 6/29/2022
*******
and other options that pay 3% interest (not callable) fo2 2 yrs CD, but then if the brokered CD rates are going to fluctuate, would bank CD's are better even if they are lower? What am I missing? Any other suggestions for ~3 year investments for cash? Thanks so much.

Seems like you are looking at Vanguard, which shows Treasury yield at 2.66% for 10-12 months. I would go with Treasuries over brokered CDs if the yield is close, since they are much more liquid, and are not taxable at the state and local level.

Treasuries also look as good or better at 2-year and 3-year maturities.

You can look at depositaccounts.com for direct CDs.

Kevin

[logiclife]

will do. thanks @jeffyscott and Kevin.

[turtlebug]

Colorado Federal Savings Bank new CD rates:

12-month (2.41% APY)
18-month (2.40% APY)
24-month (3.00% APY)
36-month (3.20% APY)
60-month (3.35% APY)

**$5k minimum deposit

[MikeG62]

Colorado Federal Savings Bank new CD rates:

12-month (2.41% APY)
18-month (2.40% APY)
24-month (3.00% APY)
36-month (3.20% APY)
60-month (3.35% APY)

**$5k minimum deposit

Comparable term treasuries:
12-month currently at 2.80%
24-month current at 3.20%

And these treasury yields are down 20-30bps from last Tuesday.

IMHO, banks have got to do better otherwise why not just go with Treasuries with a higher yields, no state income tax and no EWP?

[mega317]

IMHO, banks have got to do better

They really don't and you can see the evidence why everywhere. People will continue to post and purchase "good" CD deals that are inferior to treasuries, brokered CDs, or direct CDs at other banks.

[MikeG62]

IMHO, banks have got to do better

They really don't and you can see the evidence why everywhere. People will continue to post and purchase "good" CD deals that are inferior to treasuries, brokered CDs, or direct CDs at other banks.

Ok, I'll edit that. Banks have got to do better if they want my business given Treasury yields are more compelling.

[FireAway]

IMHO, banks have got to do better otherwise why not just go with Treasuries with a higher yields, no state income tax and no EWP?

Well, in fairness to CDs, there's no EWP on Treasuries because there's no EW.
Part of my reason for having money in CDs is that I can get to it almost immediately if I need to, with only a small (and known-in-advance) loss.

[Kevin M]

IMHO, banks have got to do better otherwise why not just go with Treasuries with a higher yields, no state income tax and no EWP?

Well, in fairness to CDs, there's no EWP on Treasuries because there's no EW.
Part of my reason for having money in CDs is that I can get to it almost immediately if I need to, with only a small (and known-in-advance) loss.

Sure there's an early withdrawal for Treasuries; you can sell Treasuries anytime you want. You might lose or earn less than your original yield, or you could end up with a higher return.

The EW option on direct CDs is valuable if rates climb fast enough. We recently did an early withdrawal of a CD of my wife's and transferred it to Fidelity to invest in Treasuries or brokered CDs, and although the EWP was a relatively high 1 year of interest, the rate was so low that it was well worth it. I am planning on doing a couple more EWs from low-yield CDs at Ally with an EWP of only 60 days of interest, and transferring that to Fidelity. Already have the form filled out.

Kevin

[Blues]

I am planning on doing a couple more EWs from low-yield CDs at Ally with an EWP of only 60 days of interest, and transferring that to Fidelity. Already have the form filled out.

Kevin

Kevin,

Are you referring to a "form" at Ally? Please let me know. The only CDs I've been able to do an early withdrawal from online without requiring a phone call to their customer service are the "No-Penalty" CDs. Have I missed something? It'd have saved me a lot of time to know this recently while I closed out a bunch of CDs.

Thanks.

[FireAway]

Sure there's an early withdrawal for Treasuries; you can sell Treasuries anytime you want.

I invested in some 5yr CDs a couple years ago at ~1.5%. I'm thinking now about EW and reinvesting at a couple points higher. I will lose 6 months interest, or about 0.75% of my investment to do so. That is the most I could ever lose on this investment for EWP.
Had I invested in a 5yr bond and wanted to make the same switch (reinvest for 2% better yield), or need to get at that money for any reason now, I would probably see about a 20% loss (just going by rule-of-thumb). That penalty could go higher.
So to state "sure there's early withdrawal" but "there's no EWP" is a bit misguided, IMO.
(And yes, sometimes bonds go up but people shopping for CD's generally aren't looking for capital appreciation out of the deal)
Anyway, I'm happy to see relatively good yields on treasuries but will stick with CDs for my short term cash bucket.

[Kevin M]

I am planning on doing a couple more EWs from low-yield CDs at Ally with an EWP of only 60 days of interest, and transferring that to Fidelity. Already have the form filled out.

Kevin

Kevin,

Are you referring to a "form" at Ally? Please let me know. The only CDs I've been able to do an early withdrawal from online without requiring a phone call to their customer service are the "No-Penalty" CDs. Have I missed something? It'd have saved me a lot of time to know this recently while I closed out a bunch of CDs.

Thanks.

Sorry, I meant the Fidelity IRA transfer form. You can do an early withdrawal from a non-IRA CD online, but for IRA you must call. Don't know why.

Once I mail the form, I'll do the early withdrawals (two CDs -- one is maturing in August, and I'll probably lose a small amount on this in reinvesting it, but it's a small CD, and I want to get all IRA CDs out of Ally.

You can also fill out the transfer form and have them do the early withdrawal directly from the CD, but I will earn more in Ally savings than by letting them stay in the CDs (yes, the yields are that pitiful). We did the direct early withdrawal for my wife's IRA transfer, and the credit union called to confirm it.

Kevin

[Kevin M]

Sure there's an early withdrawal for Treasuries; you can sell Treasuries anytime you want.

I invested in some 5yr CDs a couple years ago at ~1.5%. I'm thinking now about EW and reinvesting at a couple points higher. I will lose 6 months interest, or about 0.75% of my investment to do so. That is the most I could ever lose on this investment for EWP.
Had I invested in a 5yr bond and wanted to make the same switch (reinvest for 2% better yield), or need to get at that money for any reason now, I would probably see about a 20% loss (just going by rule-of-thumb). That penalty could go higher.
So to state "sure there's early withdrawal" but "there's no EWP" is a bit misguided, IMO.
(And yes, sometimes bonds go up but people shopping for CD's generally aren't looking for capital appreciation out of the deal)
Anyway, I'm happy to see relatively good yields on treasuries but will stick with CDs for my short term cash bucket.

As I said, the EW option of a direct CD is valuable, and I'm taking advantage of it.

I say there is no EWP for Treasuries, because you could actually come out ahead, so it could be a penalty or it could be a reward. I think I've mentioned that in 2019 I sold all of my Treasuries to buy a great CD, and I earned about my original yield on those, so no penalty at all.

The yield of the direct CD must provide enough of a premium over a Treasury or brokered CD of the same maturity for it to be worth it to me to transfer money and possibly open a new account. Between 2010 and 2019, I used direct CDs almost exclusively for new fixed income investments. My average yield premium over Treasuries was about 115 basis points. We're not seeing anything like that now.

Kevin

[Blues]

I am planning on doing a couple more EWs from low-yield CDs at Ally with an EWP of only 60 days of interest, and transferring that to Fidelity. Already have the form filled out.

Kevin

Kevin,

Are you referring to a "form" at Ally? Please let me know. The only CDs I've been able to do an early withdrawal from online without requiring a phone call to their customer service are the "No-Penalty" CDs. Have I missed something? It'd have saved me a lot of time to know this recently while I closed out a bunch of CDs.

Thanks.

Sorry, I meant the Fidelity IRA transfer form. You can do an early withdrawal from a non-IRA CD online, but for IRA you must call. Don't know why.

Once I mail the form, I'll do the early withdrawals (two CDs -- one is maturing in August, and I'll probably lose a small amount on this in reinvesting it, but it's a small CD, and I want to get all IRA CDs out of Ally.

You can also fill out the transfer form and have them do the early withdrawal directly from the CD, but I will earn more in Ally savings than by letting them stay in the CDs (yes, the yields are that pitiful). We did the direct early withdrawal for my wife's IRA transfer, and the credit union called to confirm it.

Kevin

Thanks, Kevin.

I'm down to one remaining CD at Ally which at 2.55% is not worth closing early since I only have 8 or nine months remaining...and one money market...with a low balance.

[MikeG62]

Sure there's an early withdrawal for Treasuries; you can sell Treasuries anytime you want.

I invested in some 5yr CDs a couple years ago at ~1.5%. I'm thinking now about EW and reinvesting at a couple points higher. I will lose 6 months interest, or about 0.75% of my investment to do so. That is the most I could ever lose on this investment for EWP.

Had I invested in a 5yr bond and wanted to make the same switch (reinvest for 2% better yield), or need to get at that money for any reason now, I would probably see about a 20% loss (just going by rule-of-thumb). That penalty could go higher.

That is true and why I have not purchased a Treasury since early 2019.

Instead I was an active buyer of CD's (direct issue and not brokered). Opened accounts at a number of different Credit Unions and Banks to take advantage of what were unique opportunities at the time (a few roughly 3-year CD's with yields of ~3.25%, several 24-month CD's at 3.0%, a few 18 month CD's at roughly 2.0% and two five year ladders with a weighted yield of around 2.0%). Many of those have matured and the funds are being strategically redeployed now into Treasuries.

Like Kevin, I targeted two 5-year ladders (two-years into them now) for early termination last week. Redeployed the proceeds into a mix of 12 and 24 month Treasuries. Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I am now buying a mix of Treasuries (began in May and accelerated last week) - mostly a split between 12 and 24 month (and some roughly 6-months in duration). Since I think yields are more likely to go higher than lower, I am holding my fire on intermediate (what I'd consider ~5-year) and longer-term (what I would consider ~10-year) Treasuries. If rates spike up from here I will be a very active buyer of Treasuries with those maturities.

Bottom line is there is a place for both CD's and Treasuries. However, in my experience, they don't present as opportunities at the same time. Some times CD's are more appealing and some times Treasuries are. Now, Treasuries are.

[bpg1234]

Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I was on vaca last week. Were treasuries really this high as I see the 1 and 2 year seem be about ~20 to 25 basis points lower today?

[Kevin M]

Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I was on vaca last week. Were treasuries really this high as I see the 1 and 2 year seem be about ~20 to 25 basis points lower today?

Recent high yield for 2-year was 3.45% on 6/14, today 3.21%.

Kevin

[Chip Munk]

Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I was on vaca last week. Were treasuries really this high as I see the 1 and 2 year seem be about ~20 to 25 basis points lower today?

You can see the rates for June 2022 here: Daily Treasury Par Yield Curve Rates

[MikeG62]

Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I was on vaca last week. Were treasuries really this high as I see the 1 and 2 year seem be about ~20 to 25 basis points lower today?

Yes they were. Purchases were completed on Tuesday the 14th. Exact yields were 3.132% on the ~12-month and 3.426% on the ~24-month. These were purchased in the secondary market through Fidelity.

[othermike27]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

[prettybogle]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

[another]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

I was able to buy a 2 year 3.30% earlier today through Fidelity.

[prettybogle]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

I was able to buy a 2 year 3.30% earlier today through Fidelity.

Is it with fidelity bank? Is there a link you can share ?

[prettybogle]

If it is callable CD, then I much prefer traditional cd

[Kevin M]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

I was able to buy a 2 year 3.30% earlier today through Fidelity.

Is it with fidelity bank? Is there a link you can share ?

You can see the overview here: https://fixedincome.fidelity.com/ftgw/f ... hest-yield.

To view the issues, you must log on to Fidelity. The 3.30% is not callable. I see three banks offering that rate at Fidelity, all no callable.

Kevin

[bpg1234]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

I was able to buy a 2 year 3.30% earlier today through Fidelity.

Is it with fidelity bank? Is there a link you can share ?

You can see the overview here: https://fixedincome.fidelity.com/ftgw/f ... hest-yield.

To view the issues, you must log on to Fidelity. The 3.30% is not callable. I see three banks offering that rate at Fidelity, all no callable.

Kevin

So worth locking up for 2 years @3.3%, non-callable?

[prettybogle]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

I was able to buy a 2 year 3.30% earlier today through Fidelity.

Is it with fidelity bank? Is there a link you can share ?

You can see the overview here: https://fixedincome.fidelity.com/ftgw/f ... hest-yield.

To view the issues, you must log on to Fidelity. The 3.30% is not callable. I see three banks offering that rate at Fidelity, all no callable.

Kevin

I logged into vanguard- i see bunch of banks showing 3.3%
Some say callable - others dont show that. How do I re-confirm they are not callable ?

[MikeG62]

Pentagon FCU is offering "Fourth of July special promotion" CD rates: 2.75% for 24 months, 3.5% for 60 months.

Per the site, these rates are good through July 7. Prior to this offer, their rates were 2.3% and 2.85% respectively.

Penfed 5 year 3.5% cd appears to be a reasonable rate to lock some money for 5 years.

Reasonable compared to the past yes, but will it be reasonable in 6-12 months time?

Inflation is at 40-year high's and the Fed's only tool to address it is interest rates, which they have said they will ramp until they bring inflation down to their 2.0% long-term target. We are much closer to the beginning of those rate rises than the end too and the risk is they may end up raising rates more (and not less) than the market is assuming. Overlay on top that the Fed just began QT. They have never pulled off the feat they are embarking on and their track record (remember transitory inflation comments and their flooding the system with money until just a few months ago ) is terrible. I think the the risks are for higher and not lower rates in the future. That's how I am playing it. Buying 12 and 24 month treasuries until longer term (5 to 10 year) get a lot more attractive. I could be wrong, but I feel like the risk/reward is in my direction.

[prettybogle]

I see bunch of brokered CDs at vanguard that are NOT callable. They have pretty good interest rate compared to CDs at traditional banks. Whats the catch ??

[prettybogle]

I see bunch of brokered CDs at vanguard that are NOT callable. They have pretty good interest rate compared to CDs at traditional banks. Whats the catch ??

One catch I found is - interest does not compound

[prettybogle]

I see bunch of brokered CDs at vanguard that are NOT callable. They have pretty good interest rate compared to CDs at traditional banks. Whats the catch ??

One catch I found is - interest does not compound

Bumping up for attention. Is non-callable cd exactly same as traditional bank cd?

[mega317]

A direct CD with a bank can typically be broken any time with a known penalty (cue nisiprius). A brokered CD cannot be "broken". You might be able to sell it but typically at a large spread.

[jeffyscott]

I see bunch of brokered CDs at vanguard that are NOT callable. They have pretty good interest rate compared to CDs at traditional banks. Whats the catch ??

One catch I found is - interest does not compound

Bumping up for attention. Is non-callable cd exactly same as traditional bank cd?

If you search this discussion for "brokered", you will find many posts about brokered CDs.

You might also try a search of the entire site for "brokered CDs".

[prettybogle]

Posting my findings here to help others who may have the same questions.
1. Non-callable brokered cd that is held through maturity is almost same as traditional bank cd. Only difference is brokered cd pays simple interest while bank cd pays compound interest.
2. If you are thinking to get non-callable brokered cd with a chance of premature withdrawal, you may lose some of principal amount along with some interest.
3. Callable brokered cd - bank can call back cd and you may lose some principal and some interest.
Bottomline is - non callable brokered cd held through maturity is the most safest and closest to bank cd.

[Kevin M]

Posting my findings here to help others who may have the same questions.
1. Non-callable brokered cd that is held through maturity is almost same as traditional bank cd. Only difference is brokered cd pays simple interest while bank cd pays compound interest.
2. If you are thinking to get non-callable brokered cd with a chance of premature withdrawal, you may lose some of principal amount along with some interest.
3. Callable brokered cd - bank can call back cd and you may lose some principal and some interest.
Bottomline is - non callable brokered cd held through maturity is the most safest and closest to bank cd.

The one other big difference is that most direct CDs (they're all bank or credit union CDs) have an early withdrawal option. If rates increase enough and the early withdrawal penalty (EWP) is low enough, the direct CD has the advantage, because your downside is limited to the EWP, while for a brokered CD it could lose much more than that, and the bid/ask spread for brokered CDs can be quite high, so you could lose an additional 1% or more to the spread.

Oh, and brokered CDs are more convenient, because you can buy from many different banks in one account. For the best direct CD rates, you need to have or open an account at whatever bank or credit union is offering the best rate. I opened a bunch of credit union accounts in past years to get the best rate, and I'd rather not open any more.

Kevin

[MikeG62]

For the best direct CD rates, you need to have or open an account at whatever bank or credit union is offering the best rate. I opened a bunch of credit union accounts in past years to get the best rate, and I'd rather not open any more.

Kevin

+1.

I am not unhappy I opened the accounts I did as it was the best option available at the time. It’s just that I’d rather not and buying Treasuries given their compelling current rates avoids all that hassle.

I suspect sometime in the future I’ll be faced with that choice again. Hopefully it’s in the very distant future.

[marcopolo]

For the best direct CD rates, you need to have or open an account at whatever bank or credit union is offering the best rate. I opened a bunch of credit union accounts in past years to get the best rate, and I'd rather not open any more.

Kevin

+1.

I am not unhappy I opened the accounts I did as it was the best option available at the time. It’s just that I’d rather not and buying Treasuries given their compelling current rates avoids all that hassle.

I suspect sometime in the future I’ll be faced with that choice again. Hopefully it’s in the very distant future.

+2
I many of the Ally, PenFed, Andrews Credit Union, and various other banks to get higher CD rates a while back.
They did provide some added yield, and they were the best options at the time.
I am happy to be rid of most of that hassle now. I do still have a 7-year CD i bought back in 2017 paying 3% at Andrews FCU. WIll be happy to consolidate that and have one less account to track when that matures.

[jeffyscott]

For the best direct CD rates, you need to have or open an account at whatever bank or credit union is offering the best rate. I opened a bunch of credit union accounts in past years to get the best rate, and I'd rather not open any more.

Kevin

+1.

I am not unhappy I opened the accounts I did as it was the best option available at the time. It’s just that I’d rather not and buying Treasuries given their compelling current rates avoids all that hassle.

I suspect sometime in the future I’ll be faced with that choice again. Hopefully it’s in the very distant future.

+2
I many of the Ally, PenFed, Andrews Credit Union, and various other banks to get higher CD rates a while back.
They did provide some added yield, and they were the best options at the time.
I am happy to be rid of most of that hassle now. I do still have a 7-year CD i bought back in 2017 paying 3% at Andrews FCU. WIll be happy to consolidate that and have one less account to track when that matures.

+3
I only opened accounts at one bank and one credit union for the specific purpose of getting better CD rates. It's a bother and a hassle and then another one to move the money back. Particularly for IRA accounts, which are all that I have with CDs.

I've moved proceeds of one of 3 CDs back, the other two will likely come back next year.

I do have one that I will keep renewing with some minimal balance, as it's variable with a 2% floor and no longer available to new customers. My account will continue to be renewed with the 2% floor. So as long as they keep that policy, I will keep it as a way to escape should extremely low yields ever come back.

[logiclife]

Yields on those Treasuries were ~3.10% for 12-months and 3.40% for 24-months (a 50% to 70% yield pickup over the CD's).

I was on vaca last week. Were treasuries really this high as I see the 1 and 2 year seem be about ~20 to 25 basis points lower today?

You can see the rates for June 2022 here: Daily Treasury Par Yield Curve Rates

how does these rates trend, what are they influenced by? it looks like once they start going on they appear to trend down!?

[logiclife]

Posting my findings here to help others who may have the same questions.
1. Non-callable brokered cd that is held through maturity is almost same as traditional bank cd. Only difference is brokered cd pays simple interest while bank cd pays compound interest.
2. If you are thinking to get non-callable brokered cd with a chance of premature withdrawal, you may lose some of principal amount along with some interest.
3. Callable brokered cd - bank can call back cd and you may lose some principal and some interest.
Bottomline is - non callable brokered cd held through maturity is the most safest and closest to bank cd.

TY for this.