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A milestone of sorts....the first time I've seen a 5% CD in a few decades. Fido offers a new 13 year CD from Jonesboro State Bank with a 5% coupon, but it's callable (not protected). Pays interest MONTHLY.
They are yielding a bit higher to compensate for the higher risk (being callable). JPMorgan’s CDs are often callable too. The risk is the interest rates suddenly drop which is unlikely in the next 12 months.
Good points. That is one reason we favor shorter duration CDs and treasuries. Going beyond a year is a bit too long for us. Money is locked in CD until maturity. A ladder of shorter term CDs will ensure fund will be available periodically.
There is a healthy secondary market on treasuries as @yogibb mentioned above. Money market funds now yield a bit over 2%, so it is not a bad place to have several months living expense there just in case of emergency.
If you can gather together $100K for FZDXX, you can immediately pull $90K back out. It requires only $10K to maintain. And in an IRA, its min is $10K to open.
The next 3 month T-bill has an anticipated yield of 3.221%. The next 6 month T-bill has an anticipated yield of 3.839%
The questions are: how high/fast do you expect MMF rates to rise vs. the fixed rate T-bills, and how valuable is the state tax exemption to you. Also of possible concern is how safe you want your cash to be. T-bills, backed directly by the Treasury, government MMFs through which you hold federally backed paper, or prime MMFs. I consider these all safe, but for some investors the fine shadings are important.
Earlier this year I replaced a portion of core bonds with 6 month treasury since they are in the sweet spot for the yield. I built a ladder using the weekly auction ( on Monday) so to capture new treasury as the yields increase; also hold them to maturity. Another bucket is consisted of a CD ladder but they are locked in the 6 month period.
@msf Agree about some folks being a little twitchy about MMF. I've expressed to a few folks that if mostly government holdings in MMF's become impaired, there are likely other worse events in place. I've not looked at a bank account contract (savings/checking) in decades, but I believe they still have the right to withhold access to or limit funds paid to the account holder.
Sudden gates and/or redemption fees at prime m-mkt funds are more probable than outright failures.
With government m-mkt funds, that risk is minimal (but not 0).
If you think about it, mutual funds have no guarantees. The whole system is based on trust on divided responsibilities - portfolio managers, fund administration and custody are by different firms or distinct subsidiaries of the same firms. There are formal audits and periodic SEC reviews. Assumption is that everybody won't be crook working in cohoots. I am surprised how well this system has worked. But still, I am wary of small boutiques, ma-and-pa-and-sons operations where people wear multiple hats and board meetings could be at family breakfasts or dinners.
Keep in mind that there has been only one hugely spectacular failure in m-mkt funds - Reserve Primary Fund. And that too settled for 99c on $1 (but the money may have been frozen for a while). There were other minor failures but the funds were absorbed or merged away. https://en.wikipedia.org/wiki/Reserve_Primary_Fund
Comments
So, best to hold brokered CDs to maturity. If there is any doubt about that, stick with liquid T-Bills/Notes.
There is a healthy secondary market on treasuries as @yogibb mentioned above. Money market funds now yield a bit over 2%, so it is not a bad place to have several months living expense there just in case of emergency.
Available money market funds used by many at Fidelity, to park money, are:
SPAXX = 2.51% yield (no minimum)
FDRXX = 2.59% yield (no minimum)
FDZXX = 2.96% yield ($100,000 minimum)
If you can gather together $100K for FZDXX, you can immediately pull $90K back out. It requires only $10K to maintain. And in an IRA, its min is $10K to open.
The next 3 month T-bill has an anticipated yield of 3.221%.
The next 6 month T-bill has an anticipated yield of 3.839%
The questions are: how high/fast do you expect MMF rates to rise vs. the fixed rate T-bills, and how valuable is the state tax exemption to you. Also of possible concern is how safe you want your cash to be. T-bills, backed directly by the Treasury, government MMFs through which you hold federally backed paper, or prime MMFs. I consider these all safe, but for some investors the fine shadings are important.
Agree about some folks being a little twitchy about MMF. I've expressed to a few folks that if mostly government holdings in MMF's become impaired, there are likely other worse events in place.
I've not looked at a bank account contract (savings/checking) in decades, but I believe they still have the right to withhold access to or limit funds paid to the account holder.
For FZDXX (2.96% yield), the $100K min is for Taxable accounts only. For IRA's the min = $10K.
Looking couple vehicles park mama funds there while waiting storm to pass
Kind regards
With government m-mkt funds, that risk is minimal (but not 0).
If you think about it, mutual funds have no guarantees. The whole system is based on trust on divided responsibilities - portfolio managers, fund administration and custody are by different firms or distinct subsidiaries of the same firms. There are formal audits and periodic SEC reviews. Assumption is that everybody won't be crook working in cohoots. I am surprised how well this system has worked. But still, I am wary of small boutiques, ma-and-pa-and-sons operations where people wear multiple hats and board meetings could be at family breakfasts or dinners.
Keep in mind that there has been only one hugely spectacular failure in m-mkt funds - Reserve Primary Fund. And that too settled for 99c on $1 (but the money may have been frozen for a while). There were other minor failures but the funds were absorbed or merged away.
https://en.wikipedia.org/wiki/Reserve_Primary_Fund