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Best Returns on Currently Available CDs or Treasuries Maturing 2024 to 2025 ?
I've had a hard time justifying buying more treasuries or CDs at current yields when the Schwab MM is at ~4.7%. It's a guess whether 3-12 month rates will be going up or down in the near future, so 4.7 doesn't seem like a bad holding place.
If you're interested in a CD that floats above the cash rate, Merchant Bank of Indiana has flexible rate CDs, for periods of 12, 24, and 36 months. They all pay prime minus 2.75%, but not less than zero. Currently, that's 5.39% APY (5.25% rate). https://www.merchantsbankofindiana.com/certificates-of-deposit/
@Old_Joe, if bond funds have already suffered the FEDs rate hikes, might they be a better alternative 2+ years down the road. I do understand trying to lock in a safe 5%+, but according to the yield curves that may not be feasible.
@MikeM- thanks for the suggestion, but I really don't like bond funds because I have no control over the duration or market value at any point. At our ages I just use CDs or TBills, and hold to maturity.
@MikeM- thanks for the suggestion, but I really don't like bond funds because I have no control over the duration or market value at any point. At our ages I just use CDs or TBills, and hold to maturity.
I rarely cite Bill Fleckenstein here. His daily column is by subscription. His views far from mainstream. From March 27 (in response to a reader’s question):
”Never ever ever buy a bond fund. There is no maturity date on a fund! A tradeable CD is not something I'm familiar with, but I'd say if it is tradeable then, yes, it can rally and, yes, it seems like a decent idea, assuming you stay under the FDIC limit.” *
Thought you might enjoy that OJ.
*Credit: “The Daily Rap” March 27, 2023 edition by FleckensteinCapital.com LLC
Should bonds owned within a fund like PRWCX or VWENX be viewed differently?
Likely, that’s a rhetorical question. But, to set the record straight, I’ve always held some bond funds - and always will. Is that the same as owning bonds directly? Of course not. Doubt there’s a person here who thinks that. On the other hand, bond funds are easy to buy and sell whenever it fits your portfolio’s needs. They are also professionally managed by folks having better research capabilities and knowledge base than you or I. If diversification is important to you, funds allow exposure to many different bond sectors with relatively small sums.
To @DavidF’s point, I prefer when possible to own (fund related) bonds within the context of an allocation type fund. There the fund’s manager can determine amount, type, duration and credit quality as they affect the fund’s overall risk / reward profile. That’s especially important in the case of corporate / high yield bonds.
Taking OJ’s initial point further … if one is opposed to owning bonds within a fund, how about equities within a fund? There are some serious disadvantages to the latter - too numerous and complex to summarize here. But consider that more than one fund has been devastated by panicky investors fleeing en masse, forcing the manager to sell equities at the least opportune time / into a falling or illiquid market.
VWELX / VWENX has mostly inv-grade bonds. It is a moderate-allocation fund.
PRWCX also has HY & convertibles. It is really a capital appreciation fund that ends up in moderate-allocation by its tradition/history, and may at times have aggressive-allocation.
@hank said: I rarely cite Bill Fleckenstein here. His daily column is by subscription. His views far from mainstream. From March 27 (in response to a reader’s question):
”Never ever ever buy a bond fund. There is no maturity date on a fund! A tradeable CD is not something I'm familiar with, but I'd say if it is tradeable then, yes, it can rally and, yes, it seems like a decent idea, assuming you stay under the FDIC limit.” *
I don’t follow Bill Fleckenstein for good reason.that you quoted his statement above. It appears that he don’t fully appreciate the value of holding broadly diversified bond mutual funds/ETFs as part of fixed income strategy. A basket of bonds are bought and matured has no end date that that is the mandates of many mutual funds. I think he would be expose to reinvestment risk when the FED cut rate and the yield curve returns to normal. CDs will be competing with longer maturity bonds for yields in the similar range, while bonds have the opportunity to gain price (capital appreciation).
Alternatively one can hold individual bonds as a ladder till maturity, but this will take $200K or more. Others with higher asset level may use separate managed accounts. For small investors, holding bond and asset allocation funds are viable solution for fixed income. Today the cost of buying bond and allocation funds for fixed income is quite compelling comparing to that of separate managed accounts.
Never ever ever buy a bond fund. There is no maturity date on a fund!
These absolutist views that you should never buy a bond fund or only buy bond funds seem reductive and, frankly, stupid to me. There are advantages and drawbacks to each. Bond funds provide diversification and easier liquidity in higher risk areas of the bond market. Selling an individual Treasury bond before it matures is easy. Selling an individual high yield bond or muni bond is not and you will likely take a significant haircut on that sale from your broker. There are some bonds/debt in the mortgage market individual investors can’t even buy directly without great effort. Moreover, if you get your credit analysis wrong and your bond goes bankrupt, you’ll lose a lot more than a diversified fund. On the flip side, like the author said, most but not all funds have no maturity date. There are target date bond funds though. But you can’t lock in the yield of a fund like an individual bond. Fund yields fluctuate. An individual bond is far simpler and predictable in its returns if you hold it until maturity and it doesn’t default. It also isn’t subject to liquidity runs on the bank like funds are during times of stress.
@Sven and @LouisBraham - Thanks for your knowledgeable comments. I agree with you both to the point of saying that absolutist views on financial matters can be counterproductive and destructive of wealth and that they may blind one to potential opportunities. I really shouldn’t have cited what amounted to an “off-the-cuff” remark taken out of context from another forum. In that form it sheds no real light on the subject. My bad.
My intent was to augment @Old_Joe’s stated aversion to bond funds by extending his argument to an extreme absolutist viewpoint and thereby add a touch of good humor to the discussion. Anyone who reads my posts knows that I find a role for bond funds in a diversified portfolio and that I do not conform to or endorse the position a brief snipped pulled out of context elsewhere appears to support.
While we’re on the subject of bond funds: (1) One really shouldn’t throw all bond funds into one hopper and treat them the same. These vary in duration from ultra-short all the way out to long term treasuries. Credit quality and geographic location also vary greatly. (2) I suspect that some who disparage bond funds today are viewing them through a near-term distorted lens. Had you looked at performance charts prior to 2022 the 10-15 year returns would have looked much better.
I agree with @hank, actually. I'm keeping a good chunk of unalloted cash over at Schwab's SWKXX, which is a tmoney-market fund based on tax-free California short-term paper, so depending on the packaging, bond funds can be useful.
By the way, I didn't mean to suggest that bond funds are a bad bet for everyone- just us at our late stage of life.
Treasury ladder doesn't have the issue of credit research needed for bond ladder.
BTW, mid/late-month is a good time to jump start T-Bill ladders when 13-wk (next 4/17/23), 26-wk (next 4/17/23), 52-wk (next 4/18/23) T-Bills are sold.
As posted elsewhere, ultra-short-term funds FCNVX, ICSH, etc may also serve as substitutes for rolling T-Bills.
April 15, 2023: Navy Federal: 12 months. Rate = 4.74%, yield = 4.85%. $3k maximum. Gotta have direct deposit and a checking account with them. I have those bases covered, but I won't buy-in, just because they're being niggardly about it.
Think you can do better at your brokerages where there offer many choices that pay higher rates (>5% 12 months) and no $ limit. Right now, 3 and 6 months T bills that pay a tad over 5% and the upper limit is $5M.
Think you can do better at your brokerages where there offer many choices that pay higher rates (>5% 12 months) and no $ limit. Right now, 3 and 6 months T bills that pay a tad over 5% and the upper limit is $5M.
Are such items the very same animal as a bank or CU cert. of Dep?
Lots of CDs at Schwab are now paying 5%. I suspect some of this may be due to the reducing fear of bank closures. I am expecting rates to go a bit higher before the end of April.
Brokered CD rates may be up because many banks find it easier and cheaper to raise funds via brokered CDs (although the FDIC is watching) than through the new Fed BTFP facility and the old Fed Discount Window - those seem to have stabilized (see below from Twitter LINK).
Many banks also offer unusual 11-mo, or 13-mo CDs as those one-time deals may not show up on industry wide 12-mo, 18-mo, 24-mo offering data.
Yogi: "Many banks also offer unusual 11-mo, or 13-mo CDs as those one-time deals may not show up on industry wide 12-mo, 18-mo, 24-mo offering data."
Yep, I do my banking at Capital One, and that bank offers those types of CDs. I hold enough money at Capital One for liquidity objectives, and for very small CDs, whereas I choose to hold much larger amounts of CDs at Schwab. At Schwab, I hold a large amount of money for a CD laddering systen. I also have the option of using Schwab money market funds, that pay as much or more than most CDs at private banks, as holding accounts for CD monies that mature. At Schwab I have the option of immediately reinvesting in CDs, or holding for investing in other options. I traditionally have invested in Bond OEFs, but for now I don't choose to ride the roller coaster of bond oef investing, so I use CDs in a laddering system, along with high paying Money Market options.
Comments
Hyperion Bank CDs (new money, available online, taxable accounts only):
- 19 mo CD, 5.35% rate, 5.50% APY
- 13 mo CD, 5.12% rate, 5.25% APY
https://www.hyperionbank.com/ContentDocumentHandler.ashx?documentId=76584
If you're looking for flexibility but still want to lock in a good rate, there are no penalty CDs.
CIT Bank 11 mo CD, 4.80% APY
https://www.cit.com/cit-bank/no-penalty-cd-direct
If you're interested in a CD that floats above the cash rate, Merchant Bank of Indiana has flexible rate CDs, for periods of 12, 24, and 36 months. They all pay prime minus 2.75%, but not less than zero. Currently, that's 5.39% APY (5.25% rate).
https://www.merchantsbankofindiana.com/certificates-of-deposit/
OJ
From March 27 (in response to a reader’s question):
”Never ever ever buy a bond fund. There is no maturity date on a fund! A tradeable CD is not something I'm familiar with, but I'd say if it is tradeable then, yes, it can rally and, yes, it seems like a decent idea, assuming you stay under the FDIC limit.” *
Thought you might enjoy that OJ.
*Credit: “The Daily Rap” March 27, 2023 edition by FleckensteinCapital.com LLC
To @DavidF’s point, I prefer when possible to own (fund related) bonds within the context of an allocation type fund. There the fund’s manager can determine amount, type, duration and credit quality as they affect the fund’s overall risk / reward profile. That’s especially important in the case of corporate / high yield bonds.
Taking OJ’s initial point further … if one is opposed to owning bonds within a fund, how about equities within a fund? There are some serious disadvantages to the latter - too numerous and complex to summarize here. But consider that more than one fund has been devastated by panicky investors fleeing en masse, forcing the manager to sell equities at the least opportune time / into a falling or illiquid market.
PRWCX also has HY & convertibles. It is really a capital appreciation fund that ends up in moderate-allocation by its tradition/history, and may at times have aggressive-allocation.
Alternatively one can hold individual bonds as a ladder till maturity, but this will take $200K or more. Others with higher asset level may use separate managed accounts. For small investors, holding bond and asset allocation funds are viable solution for fixed income. Today the cost of buying bond and allocation funds for fixed income is quite compelling comparing to that of separate managed accounts.
@sma3 linked an article from Schwab that address the reinvestment risk.
https://schwab.com/learn/story/why-go-long-when-short-term-bonds-yield-more
On the flip side, like the author said, most but not all funds have no maturity date. There are target date bond funds though. But you can’t lock in the yield of a fund like an individual bond. Fund yields fluctuate. An individual bond is far simpler and predictable in its returns if you hold it until maturity and it doesn’t default. It also isn’t subject to liquidity runs on the bank like funds are during times of stress.
My intent was to augment @Old_Joe’s stated aversion to bond funds by extending his argument to an extreme absolutist viewpoint and thereby add a touch of good humor to the discussion. Anyone who reads my posts knows that I find a role for bond funds in a diversified portfolio and that I do not conform to or endorse the position a brief snipped pulled out of context elsewhere appears to support.
While we’re on the subject of bond funds: (1) One really shouldn’t throw all bond funds into one hopper and treat them the same. These vary in duration from ultra-short all the way out to long term treasuries. Credit quality and geographic location also vary greatly. (2) I suspect that some who disparage bond funds today are viewing them through a near-term distorted lens. Had you looked at performance charts prior to 2022 the 10-15 year returns would have looked much better.
By the way, I didn't mean to suggest that bond funds are a bad bet for everyone- just us at our late stage of life.
BTW, mid/late-month is a good time to jump start T-Bill ladders when 13-wk (next 4/17/23), 26-wk (next 4/17/23), 52-wk (next 4/18/23) T-Bills are sold.
As posted elsewhere, ultra-short-term funds FCNVX, ICSH, etc may also serve as substitutes for rolling T-Bills.
Bought a CD several months ago from Barclays Bank - 12 months at 5.4% with NO $ minimum.
https://originate.cfg.bank/TeaOGDZRznczU20/getting-started/landing-page
https://www.cfg.bank/personal-banking/personal-deposit-rates/
EDIT: DL upload not essential. I tried it. The process did allow me to go forward, though I did not finish. Not ready.
Many banks also offer unusual 11-mo, or 13-mo CDs as those one-time deals may not show up on industry wide 12-mo, 18-mo, 24-mo offering data.
Yep, I do my banking at Capital One, and that bank offers those types of CDs. I hold enough money at Capital One for liquidity objectives, and for very small CDs, whereas I choose to hold much larger amounts of CDs at Schwab. At Schwab, I hold a large amount of money for a CD laddering systen. I also have the option of using Schwab money market funds, that pay as much or more than most CDs at private banks, as holding accounts for CD monies that mature. At Schwab I have the option of immediately reinvesting in CDs, or holding for investing in other options. I traditionally have invested in Bond OEFs, but for now I don't choose to ride the roller coaster of bond oef investing, so I use CDs in a laddering system, along with high paying Money Market options.