Brokered CD Vanguard

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mikeyzito22
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Brokered CD Vanguard

Post by mikeyzito22 »

At Vanguard:

Today I saw Goldman Sachs Brokered CD at 2.80% maturing settles 7/6/2022 and "pays interest at maturity" on 7/6/2023. My question is if I wanted to park say $50,000 in cash or $100,000 in cash for a year, how is this not better than an Ally Savings account except for (not going to happen) break the CD? I thought this was competitive. For those that have a cash position in their portfolio, what could go wrong here?

Also, I have never bought a brokered CD at Vanguard. Does it just show up on your balances page? Also, when it comes to maturity, does it alert you if you would like to renew or cash it out? What am I missing besides paying 1099 taxes on the money made?
jebmke
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Re: Brokered CD Vanguard

Post by jebmke »

It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
mary1492
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Re: Brokered CD Vanguard

Post by mary1492 »

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Last edited by mary1492 on Thu Sep 29, 2022 2:30 pm, edited 1 time in total.
123
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Re: Brokered CD Vanguard

Post by 123 »

If you always hold a CD to maturity a brokered CD and a direct CD from the bank are equivalent. Depending on market conditions the brokered CD may pay more or less interest than a direct CD with the same bank. Sometimes the brokered CD can pay considerably more than a direct CD. The chief disadvantage of a brokered CD is that it must be sold if you need the funds early, the price is primarily impacted by interest rates available at the time you sell.

If you get a CD directly from the bank your CD begins on the day of purchase. On brokered CDs the interest doesn't start till the defined settlement date. Typically brokers block cash availability for the purchase as soon as you place your order even though it may not settle for some days.

I have purchased brokered CDs through Fidelity and Schwab, not with Vanguard. The brokered CDs are listed on our account statements the same as any other fixed-income holdings. They are priced to current value every day based on how interest rates have moved since they were purchased.

Many brokers offer automatic reinvestment services for brokered CDs but I have not used those. My understanding is that generally the replacement CD will be of similar length to the one that is maturing but that the issuer could be different.
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mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
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Kevin M
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Re: Brokered CD Vanguard

Post by Kevin M »

mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm
jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

123 wrote: Sat Jun 25, 2022 5:42 pm If you always hold a CD to maturity a brokered CD and a direct CD from the bank are equivalent. Depending on market conditions the brokered CD may pay more or less interest than a direct CD with the same bank. Sometimes the brokered CD can pay considerably more than a direct CD. The chief disadvantage of a brokered CD is that it must be sold if you need the funds early, the price is primarily impacted by interest rates available at the time you sell.

If you get a CD directly from the bank your CD begins on the day of purchase. On brokered CDs the interest doesn't start till the defined settlement date. Typically brokers block cash availability for the purchase as soon as you place your order even though it may not settle for some days.

I have purchased brokered CDs through Fidelity and Schwab, not with Vanguard. The brokered CDs are listed on our account statements the same as any other fixed-income holdings. They are priced to current value every day based on how interest rates have moved since they were purchased.

Many brokers offer automatic reinvestment services for brokered CDs but I have not used those. My understanding is that generally the replacement CD will be of similar length to the one that is maturing but that the issuer could be different.
Thank you! So, I understand they can go up and down through the year, but for example: If held to maturity, and it was $10,000 for easy math, on the day it becomes payable, and it was 2.8%. It would be $10,280 and either auto invest or be able to be pulled into the settlement fund and re-invested elsewhere? On the wiki it states that some brokered CDs are owned by many people and the interest is paid monthly into the settlement account. My understanding is if you hold it, it can be cashed or reinvested (whether or not the interest is paid monthly). Again, thanks for your help.

As a strategy for fixed income cash, and if I was able to guarantee a 2.8% return for a year (this year), in your opinion, isn't this better than a high yield savings account?

I realize the I-bonds conversation, which I've maxed. This is another interesting option.
Topic Author
mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

Kevin M wrote: Sat Jun 25, 2022 10:04 pm
mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm
jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
Good lord! That is very helpful!
sport
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Re: Brokered CD Vanguard

Post by sport »

At Vanguard, when a brokered CD matures, the principle and the final interest payment will move to your settlement fund. It will sit there until you decide what you want to do with the money. You can buy another CD if you wish, you can invest it in something else, or you can take the cash and spend it. I do not believe there is an auto-reinvest feature offered.
cubs1999
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Re: Brokered CD Vanguard

Post by cubs1999 »

mikeyzito22 wrote: Sat Jun 25, 2022 10:10 pm
123 wrote: Sat Jun 25, 2022 5:42 pm If you always hold a CD to maturity a brokered CD and a direct CD from the bank are equivalent. Depending on market conditions the brokered CD may pay more or less interest than a direct CD with the same bank. Sometimes the brokered CD can pay considerably more than a direct CD. The chief disadvantage of a brokered CD is that it must be sold if you need the funds early, the price is primarily impacted by interest rates available at the time you sell.

If you get a CD directly from the bank your CD begins on the day of purchase. On brokered CDs the interest doesn't start till the defined settlement date. Typically brokers block cash availability for the purchase as soon as you place your order even though it may not settle for some days.

I have purchased brokered CDs through Fidelity and Schwab, not with Vanguard. The brokered CDs are listed on our account statements the same as any other fixed-income holdings. They are priced to current value every day based on how interest rates have moved since they were purchased.

Many brokers offer automatic reinvestment services for brokered CDs but I have not used those. My understanding is that generally the replacement CD will be of similar length to the one that is maturing but that the issuer could be different.
As a strategy for fixed income cash, and if I was able to guarantee a 2.8% return for a year (this year), in your opinion, isn't this better than a high yield savings account?
Right now it's better than a HYSA bc highest rate there is First Foundation at 1.65%.

If you buy a tbill instead of the brokered CD, you might have a higher effective yield if you have state taxes as tbills are state tax exempt (so in my case, CD costs me extra 4.95% in state taxes.

You are, of course, locked in for a year which could be good or bad. If rates go up, you might have been better getting a 13 week or 6 month and then buying again when rates go up. Rates could go down and then you locked in the higher rate for the whole year.
123
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Re: Brokered CD Vanguard

Post by 123 »

mikeyzito22 wrote: Sat Jun 25, 2022 10:10 pm ... if I was able to guarantee a 2.8% return for a year (this year), in your opinion, isn't this better than a high yield savings account?..
It depends on how high the rate on the HYSA goes during that one year term.
The closest helping hand is at the end of your own arm.
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mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

Kevin M wrote: Sat Jun 25, 2022 10:04 pm
mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm
jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
Topic Author
mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

123 wrote: Tue Jun 28, 2022 8:45 pm
mikeyzito22 wrote: Sat Jun 25, 2022 10:10 pm ... if I was able to guarantee a 2.8% return for a year (this year), in your opinion, isn't this better than a high yield savings account?..
It depends on how high the rate on the HYSA goes during that one year term.
Sure, but even Ally is still at 1% and rising slowly. Thank you for all your help in this forum though. I have enjoyed reading your posts.
bog007
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Re: Brokered CD Vanguard

Post by bog007 »

Brokerage cd has simple interest. Bank cd has compound. Correct if I'm wrong but you get a smaller amount $ at completion of term.
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Kevin M
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Re: Brokered CD Vanguard

Post by Kevin M »

mikeyzito22 wrote: Tue Jun 28, 2022 10:16 pm
Kevin M wrote: Sat Jun 25, 2022 10:04 pm
mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm
jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
At maturity the proceeds from the matured Treasury are deposited into your settlement fund.
If I make a calculation error, #Cruncher probably will let me know.
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Kevin M
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Re: Brokered CD Vanguard

Post by Kevin M »

bog007 wrote: Wed Jun 29, 2022 9:29 am Brokerage cd has simple interest. Bank cd has compound. Correct if I'm wrong but you get a smaller amount $ at completion of term.
Assuming the yields are the same, it depends on whether or not you reinvest the interest payments, and at what rates.
If I make a calculation error, #Cruncher probably will let me know.
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mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

Kevin M wrote: Wed Jun 29, 2022 10:54 am
mikeyzito22 wrote: Tue Jun 28, 2022 10:16 pm
Kevin M wrote: Sat Jun 25, 2022 10:04 pm
mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm
jebmke wrote: Sat Jun 25, 2022 5:31 pm It will show up like any security in a brokerage account. 1-year Treasury yields are about the same. They are more liquid if you do need to sell and the interest is exempt from state income taxes, if that matters to you.
Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
At maturity the proceeds from the matured Treasury are deposited into your settlement fund.
Thank you! I think I will just try it out and buy 10K of an upcoming auction. I think I read that it doesn't really matter if you puchase it on the actual auction date, correct? Is there any advantage to doing so?
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Kevin M
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Treasury at Vanguard

Post by Kevin M »

mikeyzito22 wrote: Wed Jun 29, 2022 12:33 pm
Kevin M wrote: Wed Jun 29, 2022 10:54 am
mikeyzito22 wrote: Tue Jun 28, 2022 10:16 pm
Kevin M wrote: Sat Jun 25, 2022 10:04 pm
mikeyzito22 wrote: Sat Jun 25, 2022 9:58 pm Thank you. What are the mechanics of buying a 1 year treasury at Vanguard. When I look, they are all in indexed treasury funds. Also, it looks as though the fund itself (short term treasury fund) is down 3.30%. Is buying a one year treasury note something I would need to do at treasury direct?
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
At maturity the proceeds from the matured Treasury are deposited into your settlement fund.
Thank you! I think I will just try it out and buy 10K of an upcoming auction. I think I read that it doesn't really matter if you puchase it on the actual auction date, correct? Is there any advantage to doing so?
You just need to enter your order before the auction closes early on the auction day. I would get it in the day before. It doesn't matter when you enter the order--everyone gets the same price/yield at auction.

Also, there's no need to wait for an auction. You can buy on the secondary market, typically at a price that is a little higher than for really large orders, but often less than a basis point less in yield. I do most of my Treasury buying on the secondary market.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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mikeyzito22
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Re: Treasury at Vanguard

Post by mikeyzito22 »

Kevin M wrote: Wed Jun 29, 2022 12:38 pm
mikeyzito22 wrote: Wed Jun 29, 2022 12:33 pm
Kevin M wrote: Wed Jun 29, 2022 10:54 am
mikeyzito22 wrote: Tue Jun 28, 2022 10:16 pm
Kevin M wrote: Sat Jun 25, 2022 10:04 pm
See this thread: Trading Treasuries (nominal and TIPS)

Kevin
After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
At maturity the proceeds from the matured Treasury are deposited into your settlement fund.
Thank you! I think I will just try it out and buy 10K of an upcoming auction. I think I read that it doesn't really matter if you puchase it on the actual auction date, correct? Is there any advantage to doing so?
You just need to enter your order before the auction closes early on the auction day. I would get it in the day before. It doesn't matter when you enter the order--everyone gets the same price/yield at auction.

Also, there's no need to wait for an auction. You can buy on the secondary market, typically at a price that is a little higher than for really large orders, but often less than a basis point less in yield. I do most of my Treasury buying on the secondary market.

Kevin
Nice! I think I saw something in your thread wherein you can see the daily interest acruing. Do I click on the Treasury once its bought to see that? For example, if I bought it and want to check on it three days later, what is that process?
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Kevin M
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Accrued interest for Treasury at Vanguard

Post by Kevin M »

mikeyzito22 wrote: Wed Jun 29, 2022 12:56 pm
Kevin M wrote: Wed Jun 29, 2022 12:38 pm
mikeyzito22 wrote: Wed Jun 29, 2022 12:33 pm
Kevin M wrote: Wed Jun 29, 2022 10:54 am
mikeyzito22 wrote: Tue Jun 28, 2022 10:16 pm After looking at the thread: What happens to the treasuries that you buy on the mature date? Does it just go back to your settlement fund? You used an example recently of a two month purchase that was executed. So, when that day comes, what is the status iof that treasury? Where does the principal and profit go?
At maturity the proceeds from the matured Treasury are deposited into your settlement fund.
Thank you! I think I will just try it out and buy 10K of an upcoming auction. I think I read that it doesn't really matter if you puchase it on the actual auction date, correct? Is there any advantage to doing so?
You just need to enter your order before the auction closes early on the auction day. I would get it in the day before. It doesn't matter when you enter the order--everyone gets the same price/yield at auction.

Also, there's no need to wait for an auction. You can buy on the secondary market, typically at a price that is a little higher than for really large orders, but often less than a basis point less in yield. I do most of my Treasury buying on the secondary market.

Kevin
Nice! I think I saw something in your thread wherein you can see the daily interest acruing. Do I click on the Treasury once its bought to see that? For example, if I bought it and want to check on it three days later, what is that process?
Right, you can search that thread to see quite a discussion about it. We even launched a new thread to discuss some issues with the related Excel and Google Sheets functions.

But why do you care? T bills don't even pay interest, so there would be nothing to see except the accrued discount.

There is an ACCRINT spreadsheet function that works pretty well if you know how to use it, which is discussed in the other thread. You can also calculate it with some basic math. Or, you can just go through the first few screens of a purchase, and you will see the accrued interest as of the settlement date on the preview screen.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
Topic Author
mikeyzito22
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Re: Brokered CD Vanguard

Post by mikeyzito22 »

Thank you Kevin. I appreciate your help.
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