Fidelity CDs

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justsomeguy2018
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Fidelity CDs

Post by justsomeguy2018 »

I see CDs on Fidelity fixed income offering for 1 year and over 4% yield.

Is there a catch?

Knowing rates may keep going up is it a bad idea to invest in these?

My savings account only pays 2.2% interest so I could get an extra $3k/yr in interest potentially.
mongstradamus
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Re: Fidelity CDs

Post by mongstradamus »

justsomeguy2018 wrote: Tue Oct 04, 2022 4:54 pm I see CDs on Fidelity fixed income offering for 1 year and over 4% yield.

Is there a catch?

Knowing rates may keep going up is it a bad idea to invest in these?

My savings account only pays 2.2% interest so I could get an extra $3k/yr in interest potentially.
You can probably get 1 year treasuries at 4% with no state tax something else to consider. There are some on secondary market maturing 9/30/23 you can get 4.2% on. If you want to do auction you just missed the auction that was today, so you would have to wait another month for 52 week tbill auction.
Pawk
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Re: Fidelity CDs

Post by Pawk »

The main thing I saw to watch out for when researching them a few weeks ago was Call Protection. You can get a higher rate without call protection, but then, if rates drop, the issuing bank can call the CD back and return your principal to you early. On Fidelity, you'll see CP in the list of acronyms to the right if it has call protection.
Last edited by Pawk on Tue Oct 04, 2022 6:08 pm, edited 1 time in total.
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justsomeguy2018
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Re: Fidelity CDs

Post by justsomeguy2018 »

Pawk wrote: Tue Oct 04, 2022 5:18 pm The main thing I saw to watch out for when researching them a few weeks ago was Call Protection. You can get a higher rate without call protection, but then, if rates drop, the issuing bank can call the CD back and return your principle to you early. On Fidelity, you'll see CP in the list of acronyms to the right if it has call protection.
Interesting. Do they give you the interest you should've earned at that point or do you get no interest?
Pawk
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Re: Fidelity CDs

Post by Pawk »

My understanding is you'd get the accrued interest up to the call date, plus principal back. I found this video useful when I was starting my research.

I didn't find callable CD's compelling because my time horizon was about 20 months, and I'm not confident in my ability to predict what inflation or the FED will do in that time.

One thing to note about brokered CD's, which you'd be getting if you went through Fidelity: You can't redeem them early with the issuing bank. You have to sell them on the secondary market, very similar to the way you'd sell a bond. This adds an element of interest rate risk vs a CD through a bank that you can redeem early for a penalty. The penalty is outlined in the terms of the CD, usually a few months interest.
cjg
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Re: Fidelity CDs

Post by cjg »

justsomeguy2018 wrote: Tue Oct 04, 2022 5:49 pm
Pawk wrote: Tue Oct 04, 2022 5:18 pm The main thing I saw to watch out for when researching them a few weeks ago was Call Protection. You can get a higher rate without call protection, but then, if rates drop, the issuing bank can call the CD back and return your principle to you early. On Fidelity, you'll see CP in the list of acronyms to the right if it has call protection.
Interesting. Do they give you the interest you should've earned at that point or do you get no interest?
Unlike retail bank CDs which compound within the CD, brokered CDs pay out interest as cash on a schedule. So if a 5 year CD pays interest every 6 months and is called after 2 years, you'll have your four interest payments from the first two years (potential already reinvested elsewhere since you were paid them already) plus principal but will need to reinvest - almost certainly at lower interest rates.
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William4u
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Re: Fidelity CDs

Post by William4u »

As of today SPRXX Money Market fund pays 2.82%

https://institutional.fidelity.com/app/ ... s/454.html
mongstradamus
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Re: Fidelity CDs

Post by mongstradamus »

William4u wrote: Tue Oct 04, 2022 7:18 pm As of today SPRXX Money Market fund pays 2.82%

https://institutional.fidelity.com/app/ ... s/454.html
My take on prime money market funds are they are no where near as safe as fdic insured cd or even mostly repo and treasury money market fund.
aquinas
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Re: Fidelity CDs

Post by aquinas »

Vanguard is also offering brokered CDs with rates comparable to the rates offered by Fidelity.
MikeG62
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Re: Fidelity CDs

Post by MikeG62 »

mongstradamus wrote: Tue Oct 04, 2022 5:00 pm
justsomeguy2018 wrote: Tue Oct 04, 2022 4:54 pm I see CDs on Fidelity fixed income offering for 1 year and over 4% yield.

Is there a catch?

Knowing rates may keep going up is it a bad idea to invest in these?

My savings account only pays 2.2% interest so I could get an extra $3k/yr in interest potentially.
You can probably get 1 year treasuries at 4% with no state tax something else to consider. There are some on secondary market maturing 9/30/23 you can get 4.2% on. If you want to do auction you just missed the auction that was today, so you would have to wait another month for 52 week tbill auction.
Yesterday, I purchased a Treasury maturing in Oct of 2023 in the secondary market at Fidelity at a yield of 4.25%. One should consider the secondary market as a very acceptable supplement new issues market. FWIW, I have bought "a lot" of Treasuries this year (in about 18 different transactions) and all but one purchase has been in the secondary market.
Last edited by MikeG62 on Wed Oct 05, 2022 11:40 am, edited 1 time in total.
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homebuyer6426
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Re: Fidelity CDs

Post by homebuyer6426 »

I bought 4 different CDs at Fidelity recently. I look for the highest rate which is called protected. That usually takes off about 0.10%. The catch is - your money is semi-locked-up until maturity, and you are still losing to inflation. You probably knew that.

CDs are good for when you know you'll need the cash after x-amount of time. Then you can match that with their duration.
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mongstradamus
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Re: Fidelity CDs

Post by mongstradamus »

MikeG62 wrote: Wed Oct 05, 2022 8:13 am
mongstradamus wrote: Tue Oct 04, 2022 5:00 pm
justsomeguy2018 wrote: Tue Oct 04, 2022 4:54 pm I see CDs on Fidelity fixed income offering for 1 year and over 4% yield.

Is there a catch?

Knowing rates may keep going up is it a bad idea to invest in these?

My savings account only pays 2.2% interest so I could get an extra $3k/yr in interest potentially.
You can probably get 1 year treasuries at 4% with no state tax something else to consider. There are some on secondary market maturing 9/30/23 you can get 4.2% on. If you want to do auction you just missed the auction that was today, so you would have to wait another month for 52 week tbill auction.
Yesterday, I purchased a Treasury maturing in Oct of 2023 in the secondary market at Fidelity at a yield of 4.25%. One should consider the consider the secondary market instead as a very acceptable supplement new issues market. FWIW, I have bought "a lot" of Treasuries this year (in about 18 different transactions) and all but one purchase has been in the secondary market.
From my experience looking at secondary market they have pretty good rates for longer durations and if you are buying decent amount of treasuries like 10 or more but for smaller amounts not as good. It’s definitely a good option but for me am buying shorter durations on auto re roll so kind of set and forget for me.
MikeG62
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Re: Fidelity CDs

Post by MikeG62 »

mongstradamus wrote: Wed Oct 05, 2022 11:16 am
MikeG62 wrote: Wed Oct 05, 2022 8:13 am
Yesterday, I purchased a Treasury maturing in Oct of 2023 in the secondary market at Fidelity at a yield of 4.25%. One should consider the consider the secondary market instead as a very acceptable supplement new issues market. FWIW, I have bought "a lot" of Treasuries this year (in about 18 different transactions) and all but one purchase has been in the secondary market.
From my experience looking at secondary market they have pretty good rates for longer durations and if you are buying decent amount of treasuries like 10 or more but for smaller amounts not as good. It’s definitely a good option but for me am buying shorter durations on auto re roll so kind of set and forget for me.
The difference between rates for larger and small quantities is more often than not quite small (1 or 2 basis points). You need to check the depth of book for each Treasury available for purchase.

Agree that auto roll can be a good feature for those inclined to set it and forget it and this is only available for new issues.
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William4u
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Re: Fidelity CDs

Post by William4u »

mongstradamus wrote: Tue Oct 04, 2022 8:08 pm
William4u wrote: Tue Oct 04, 2022 7:18 pm As of today SPRXX Money Market fund pays 2.82%

https://institutional.fidelity.com/app/ ... s/454.html
My take on prime money market funds are they are no where near as safe as fdic insured cd or even mostly repo and treasury money market fund.
Yes, but the prime MM funds are the "third safest." Pretty darn safe, but not FDIC/Treasury safe (nothing else is).
mongstradamus
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Re: Fidelity CDs

Post by mongstradamus »

William4u wrote: Thu Oct 06, 2022 2:55 pm
mongstradamus wrote: Tue Oct 04, 2022 8:08 pm
William4u wrote: Tue Oct 04, 2022 7:18 pm As of today SPRXX Money Market fund pays 2.82%

https://institutional.fidelity.com/app/ ... s/454.html
My take on prime money market funds are they are no where near as safe as fdic insured cd or even mostly repo and treasury money market fund.
Yes, but the prime MM funds are the "third safest." Pretty darn safe, but not FDIC/Treasury safe (nothing else is).
Probably safe enough but I still am not comfortable with that rather get .2 percent less with Fzfxx,but it’s personal choice on if it’s safe enough or not.
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William4u
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Re: Fidelity CDs

Post by William4u »

mongstradamus wrote: Thu Oct 06, 2022 5:40 pm
William4u wrote: Thu Oct 06, 2022 2:55 pm
mongstradamus wrote: Tue Oct 04, 2022 8:08 pm
William4u wrote: Tue Oct 04, 2022 7:18 pm As of today SPRXX Money Market fund pays 2.82%

https://institutional.fidelity.com/app/ ... s/454.html
My take on prime money market funds are they are no where near as safe as fdic insured cd or even mostly repo and treasury money market fund.
Yes, but the prime MM funds are the "third safest." Pretty darn safe, but not FDIC/Treasury safe (nothing else is).
Probably safe enough but I still am not comfortable with that rather get .2 percent less with Fzfxx,but it’s personal choice on if it’s safe enough or not.
Yes. You do get a bit more safety. Right now the difference is 0.32%.
ssn
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Re: Fidelity CDs

Post by ssn »

Hi,
I have few follow-up questions on this topic.

1. Do the Fidelity CDs give simple interest & if I go directly to retail bank, do they give compound interest?
2. Someone mentioned treasuries with no state tax. What is the specific type (sorry, newbie here)?

Thanks,
ssn
increment
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Re: Fidelity CDs

Post by increment »

ssn wrote: Sun Mar 05, 2023 7:03 pm 1. Do the Fidelity CDs give simple interest & if I go directly to retail bank, do they give compound interest?
Fidelity's and all "brokered" CDs pay simple interest. Probably the ones sold directly by banks pay compound interest, but that is not required.

(The regular Interest payments from brokered CDs go into your Fidelity cash balance. You should expect them to pay some interest on that balance.)
2. Someone mentioned treasuries with no state tax. What is the specific type (sorry, newbie here)?
All of the bonds issued by the US Treasury.
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