Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
The maturity date, 5/15/23 indicates it is a 3 months CD when it was issued on 2/13/23. As of today, 4/24/23, it is approaching the maturity date.
No you are looking at the secondary market prices and you will not get the stated rate.
Best is to look at new issues at your brokerage and pay the par value and collect the full interest at maturity. I am seeing 12 months CDs at 5.0% from Schwab and Goldman Sach from Fidelity brokerage.
At my Vanguard IRA account I was able to pick up a 9 month CD that pays 5.05. Shorter terms are paying 4.95. I "purchased" them on Sunday, but they don't settle til 4-28. So I presume I am looking at the full term.
The taxable brokerage is a little harder to sort through. I'ld buy T-Bills there if I wasn't concerned about the debt ceiling rodeo.
Your CD is fine with the settlement date. I stay with large banks and make sure they are not callable. VG would state that clearly. JP Morgan always offer callable CDs and I avoid them. Hard to find 2 yr + CDs that pay over 5%.
Like you I am buying T bill in our taxable account. The sweet spot is 3 months.
By the way, debt ceiling voting is on Wednesday and McCarthy does not have enough votes to pass.
Thanks @sven. The 5.05 JP Morgan is callable. The others are not. I don't mind the size of the bank if I can get 4.95 by the end of May, and it's FDIC insured. Doesn't seem real somehow.
I'll admit that I've been getting my daily dose of schadenfreude following the news about China's ambassador to France.
I'd place a small wager that the remarks made by China's ambassador to France actually reflect the "not for public release" position of the Chinese government.
Getting 5% is pretty good. When I take into account of inflation (6%), I am behind by 1%. Right now I am adding to intermediate term bonds before the FED will pause after May ‘s rate hike. It is counterintuitive, but I think the longer duration bonds move independent from the short term bonds. If US enter a recession later this year or 2024, bonds will do better than stocks.
China’s visit to France is embarrassing to himself and to the world. They are just to justify if and when they invade Taiwan. That is the reason Warren Buffet exited his entire position of TSM quickly.
I don't trade CDs either, but that sounds about right. If they work like secondary market bonds the buyer will pay the seller for 60+ days of accrued interest up front, rather than owing the seller that interest at maturity. That's the only detail I might tweak.
I'm not really interested in trading CD's. Vanguard makes it easy to sort out new issues from the rest. Whether this exercise generates a few more kopeks than their money market sweep?
The taxable brokerage is at Wells Fargo (boo, hiss, grrr). Nothing about brokered CD's or T-Bills is easy there at first glance. Things available at Vanguard do not seem to be available at Wells. Might be just as easy to go with TFLO if I'm still antsy about this a week or two from now. ¯\_(ツ)_/¯
I inquired at TRP. At the mention of POSSIBLE fees, I decided against it. The guy told me he was not the one to execute the thing for me. So, he was just a phone-answerer, in this circumstance. And maybe I could do it myself, if I knew how; but I cannot see a way to accomplish the trade and buy CDs on the TRP website, manually, on my own. Whenever I manage to collect a large-enough pile of cash and want a CD, I might go with the bank I'm invested with, or the banks/CUs where I do business and have accounts. Have to compare rates, yields...
Hi @WABAC Mr. Peabody would express to be careful with TFLO, floating Treasuries at this point in time. Way hot as far as tech. indicators. 14 day RSI is about 97, which is way over bought; although this could travel further. I'm only expressing technical here.
TFLO chart That TEAL color at the top of the chart since Putin wanted to play war.
@catch22. Thanks for the info. I don't follow the charts. But I do read contrarian.
I'm just looking for ways to goose the cash we hold. Not looking at total return. I don't expect to keep ahead of consumer inflation. But cash is always nice to have when asset prices fall.
Your CD is fine with the settlement date. I stay with large banks and make sure they are not callable. VG would state that clearly. JP Morgan always offer callable CDs and I avoid them. Hard to find 2 yr + CDs that pay over 5%.
Like you I am buying T bill in our taxable account. The sweet spot is 3 months.
By the way, debt ceiling voting is on Wednesday and McCarthy does not have enough votes to pass.
So far I have purchased some new-issue CD's from Vanguard. They are easy to understand. And they seem to pay fractionally more than the T Bills for the same time commitment. I did put a little money into a T Bill for a test run.
But going back to my first example . . . Let's say the coupon on that three month CD is paid at maturity only. So I have not lost out on two previous months of interest payments. It seems to me that the seller is so desperate to raise cash that he is willing to sell me his single coupon payment at a discount.
Moving on . . .
Wells is selling one nine month CD with a 5% coupon, and 5% yield to maturity, for 100.00, which I understand to be what is called par. It pays interest monthly for all you fans of compounding.
And then I do see CD's selling higher than par. It is a mystery to me why anyone would pay $101.254 for a 2.95% coupon maturing June 5, 2023. All of the other CD's above par are higher for longer.
I never used to think about this stuff when rates were repressed and equities were robust.
Secondary market for CDs is illiquid. So, premature sellers get good haircuts, but that is great if you are the buyer. Of course, these opportunities may be quire irregular.
Brokered CDs have significant differences with Bank CDs. Bank CDs have very little drama, maintaining their "principal" value, with minimal change, but Brokered CDs will see their "principal" value change significantly during the holding period, often much lower, until the CD reaches the maturity date. During that period, termination fees for early sell, will usually just mean loss of interest payments with Bank CDs, but with Brokered CDs, it is more likely that you will lose both interest and principal value. If you just ignore the CDs, both Bank and Brokered, you will get the advertised interest and principal, at the maturity date. Liquidity issues are the main concern for me, since you could end up losing principal in brokered CDs, and currently I choose to hold significant amounts in high paying Money Markets, instead of Brokered CDs, because of liquidity reasons.
But going back to my first example . . . Let's say the coupon on that three month CD is paid at maturity only. So I have not lost out on two previous months of interest payments. It seems to me that the seller is so desperate to raise cash that he is willing to sell me his single coupon payment at a discount.
I wrote: " If they work like secondary market bonds the buyer will pay the seller for 60+ days of accrued interest up front,"
You're ignoring this. I don't see the TIAA CD you mentioned listed, so I'll use another one on Vanguard's site as an example. CUSIP 48714LCU1, KEARNY BK NEW JERSEY
Interest at maturity: $1000 x 4.8% x 91/365 = $11.97 Accrued interest (to settlement date): $11.97 x 10days/91days = $1.32
Total cost (w/o commission) = $999.33 + $1.32 = $1,000.65 Pct interest = (payout at maturity / total cost) - 1 = $1011.97/$1,000.65 - 1 = 1.131% Annualized rate (simple) = 1.131 x 365 days / 81 days = 5.10%
Total cost (w/commission of $1) = $1,001.65 Pct interest = $1011.97/$1001.65 - 1 = 1.031% Annualized rate = 1.031% x 465/81 = 4.643657% (per Fidelity's quote)
Unless the CD price is quoted flat (unusual), one pays the seller the accrued interest at settlement. The quoted rate is before commission (aka markup). The commission will further reduce the net yield.
@msf I wasn't ignoring your point, which began with "if." General comments about secondary bond markets mean nothing to me. Might as well tell me to hum it in the key of E.
I haven't looked at existing CD's on Vanguards site. I am going by what I see displayed on the Wells site. And I see nothing there to suggest the sort of math that you and @ravitz have been describing. Maybe all that would appear if I started the buying process.
I'll take a look at Vanguard. And if I have more questions, I'll ask them.
Buying a CD or a bond with accrued interest is like buying a dividend.
If you look at the value of a mutual fund share, ex-div, it is less than what you paid for it on the record date. That's because you're paying for the money that you're about to get in the form of a div. First time investors sometimes think that they'll get the dividend for "free".
Likewise, when one buys a CD or a bond near its coupon payment or maturity date, it may seem that one is getting this interest for "free". In reality, just as with the fund share, one is going to pay for that upcoming interest payment.
Sometimes, I suspect rarely when it comes to CDs, that payment is made in the form of a higher cost - just as one pays more for a fund share on its record date than on its ex-div date. Most of the time though, one adds the (accrued) interest to the price of the CD when buying it.
It's that distinction - between explicitly paying the interest or having the interest embedded in the purchase price (as with a fund share) - that I was trying to point out.
No matter how you slice it, an investor is going to pay for divs and interest.
Note that Vanguard and Fidelity are upfront on what they charge to trade CDs on the secondary market: $1 per $1000 CD.
All I've been able to find about WellsTrade is that it adds an unspecified markup to the price of a secondary market CD. So you may need to work through a test purchase to see how much that is.
@msf, a gallant effort, easier for me to read, and I appreciate the effort you are putting in. Other people will benefit; but I don't think I'll really understand it until these things mature, or at least settle on Friday.
One of the CD's is with First Republic. That ought to be an E Ticket's worth of excitement til October 26.
One thing I do know, there has been no charge for the transactions. I have spent dearer money on harder lessons.
As for Wells, I think I'll default to my usual position of avoiding bonds (and now brokered CD's) because I don't understand them, even when I think I begin to I understand them. There are theses in equities that I would rather be following.
I had a 4% "brokered" CD mature yesterday, and I chose to reinvest the principal into a new 5% "brokered" CD. As long as I can get a guaranteed 5% interest on CDs, they will continue to be a very viable investment option for this retired investor. I have chosen to set up a laddering system, focusing on short term CDs of 6 monts to 1 year, so I am having CDs mature frequently, giving me the options of how to invest my cash.
Just saw 12-month CD (non-callable) with 5.20% yield from JP Morgan at Vanguard brokerage. JP Morgan CDs are generally callable. Keep watching as these CDs should make their way to other brokerages.
I didn't find a 12 month 5.2% non-callable JP Morgan CD at Vanguard. There was a callable JP Morgan CD with the same coupon.
CUSIP: 46656MBT7 Security type: Certificate of deposit Issuer: JP Morgan Chase Bank NA Maturity: 05/08/2024 Coupon: 5.200 Callable: Yes Call timing: 11/09/2023 at 100 on 5 days notice
@Observant1, I apologized for the mistake. Should have taken a screen shot and the CUSIP #. Again, my mistake. Schwab offers a non-callable 12 months CD at 5.1%.
"WILL I RECEIVE INTEREST ON MY CERTIFICATES OF DEPOSIT (CDs)? Yes! Interest on deposits accrued through April 30, 2023, will be paid at your same rate. First Republic Bank’s rates will be reviewed by JPMorgan Chase Bank, N.A., and you will be notified in writing of any changes. You may withdraw funds from any transferred account without early withdrawal penalty until you enter into a new deposit agreement with JPMorgan Chase Bank, N.A.
WHAT HAPPENS WITH MY BROKERED DEPOSITS? All brokered deposits, excluding the Cede & Co deposits, have been assumed by JPMorgan Chase Bank, N.A. If you are a customer who has a First Republic Bank deposit through a broker, you must contact your broker with any questions.
WHAT IF I HAVE A DEPOSIT ACCOUNT AT JPMORGAN CHASE BANK, N.A.? If you have accounts in both First Republic Bank and JPMorgan Chase Bank, N.A., they will be insured separately for at least six months following the merger of the banks. This will allow you time to restructure your accounts if necessary."
@Observant1, I apologized for the mistake. Should have taken a screen shot and the CUSIP #. Again, my mistake. Schwab offers a non-callable 12 months CD at 5.1%.
Comments
No you are looking at the secondary market prices and you will not get the stated rate.
Best is to look at new issues at your brokerage and pay the par value and collect the full interest at maturity. I am seeing 12 months CDs at 5.0% from Schwab and Goldman Sach from Fidelity brokerage.
At my Vanguard IRA account I was able to pick up a 9 month CD that pays 5.05. Shorter terms are paying 4.95. I "purchased" them on Sunday, but they don't settle til 4-28. So I presume I am looking at the full term.
The taxable brokerage is a little harder to sort through. I'ld buy T-Bills there if I wasn't concerned about the debt ceiling rodeo.
Like you I am buying T bill in our taxable account. The sweet spot is 3 months.
By the way, debt ceiling voting is on Wednesday and McCarthy does not have enough votes to pass.
I'll admit that I've been getting my daily dose of schadenfreude following the news about China's ambassador to France.
China’s visit to France is embarrassing to himself and to the world. They are just to justify if and when they invade Taiwan. That is the reason Warren Buffet exited his entire position of TSM quickly.
The % rates are yearly so you've got to divide by 4. And I assume that the original CD was $100.
The coupon tells you what you get back. The original owner would get back 4.5%/4 or $101.125 at maturity.
The new owner pays $99.96 and gets back the same as the original owner - $101.125.
If you count the term as three months, the new rate is (101.125-99.96)*4/99.96*100 = 4.66%.
If you count the term as one month, the new rate is (101.125-99.96)*12/99.96*100 = 15.67%, but you are only getting one month of interest.
Side note: TIAA bank has agreed to be sold.
https://www.jaxdailyrecord.com/news/2022/dec/29/the-top-deals-of-2022-tiaa-bank-sold/
The taxable brokerage is at Wells Fargo (boo, hiss, grrr). Nothing about brokered CD's or T-Bills is easy there at first glance. Things available at Vanguard do not seem to be available at Wells. Might be just as easy to go with TFLO if I'm still antsy about this a week or two from now. ¯\_(ツ)_/¯
TFLO chart That TEAL color at the top of the chart since Putin wanted to play war.
YTD return = 1.4%
I'm just looking for ways to goose the cash we hold. Not looking at total return. I don't expect to keep ahead of consumer inflation. But cash is always nice to have when asset prices fall.
But going back to my first example . . . Let's say the coupon on that three month CD is paid at maturity only. So I have not lost out on two previous months of interest payments. It seems to me that the seller is so desperate to raise cash that he is willing to sell me his single coupon payment at a discount.
Moving on . . .
Wells is selling one nine month CD with a 5% coupon, and 5% yield to maturity, for 100.00, which I understand to be what is called par. It pays interest monthly for all you fans of compounding.
And then I do see CD's selling higher than par. It is a mystery to me why anyone would pay $101.254 for a 2.95% coupon maturing June 5, 2023. All of the other CD's above par are higher for longer.
I never used to think about this stuff when rates were repressed and equities were robust.
I wrote: " If they work like secondary market bonds the buyer will pay the seller for 60+ days of accrued interest up front,"
You're ignoring this. I don't see the TIAA CD you mentioned listed, so I'll use another one on Vanguard's site as an example. CUSIP 48714LCU1, KEARNY BK NEW JERSEY
Issue Date: 4/17/23
Maturity: 7/17/23 (91 days)
Coupon: 4.8% (annual rate)
Ask: $99.933
Ask yield (excluding commission): 5.10%
Interest calc: 365/365
Settlement date (T+2): 4/27/23
Interest at maturity: $1000 x 4.8% x 91/365 = $11.97
Accrued interest (to settlement date): $11.97 x 10days/91days = $1.32
Total cost (w/o commission) = $999.33 + $1.32 = $1,000.65
Pct interest = (payout at maturity / total cost) - 1 = $1011.97/$1,000.65 - 1 = 1.131%
Annualized rate (simple) = 1.131 x 365 days / 81 days = 5.10%
Total cost (w/commission of $1) = $1,001.65
Pct interest = $1011.97/$1001.65 - 1 = 1.031%
Annualized rate = 1.031% x 465/81 = 4.643657% (per Fidelity's quote)
Unless the CD price is quoted flat (unusual), one pays the seller the accrued interest at settlement.
The quoted rate is before commission (aka markup). The commission will further reduce the net yield.
I haven't looked at existing CD's on Vanguards site. I am going by what I see displayed on the Wells site. And I see nothing there to suggest the sort of math that you and @ravitz have been describing. Maybe all that would appear if I started the buying process.
I'll take a look at Vanguard. And if I have more questions, I'll ask them.
If you look at the value of a mutual fund share, ex-div, it is less than what you paid for it on the record date. That's because you're paying for the money that you're about to get in the form of a div. First time investors sometimes think that they'll get the dividend for "free".
Likewise, when one buys a CD or a bond near its coupon payment or maturity date, it may seem that one is getting this interest for "free". In reality, just as with the fund share, one is going to pay for that upcoming interest payment.
Sometimes, I suspect rarely when it comes to CDs, that payment is made in the form of a higher cost - just as one pays more for a fund share on its record date than on its ex-div date. Most of the time though, one adds the (accrued) interest to the price of the CD when buying it.
It's that distinction - between explicitly paying the interest or having the interest embedded in the purchase price (as with a fund share) - that I was trying to point out.
No matter how you slice it, an investor is going to pay for divs and interest.
Note that Vanguard and Fidelity are upfront on what they charge to trade CDs on the secondary market: $1 per $1000 CD.
All I've been able to find about WellsTrade is that it adds an unspecified markup to the price of a secondary market CD. So you may need to work through a test purchase to see how much that is.
One of the CD's is with First Republic. That ought to be an E Ticket's worth of excitement til October 26.
One thing I do know, there has been no charge for the transactions. I have spent dearer money on harder lessons.
As for Wells, I think I'll default to my usual position of avoiding bonds (and now brokered CD's) because I don't understand them, even when I think I begin to I understand them. There are theses in equities that I would rather be following.
Just checked- not yet at Schwab. Best noncall-1 yr rates at Schwab = 5.1%
There was a callable JP Morgan CD with the same coupon.
CUSIP: 46656MBT7
Security type: Certificate of deposit
Issuer: JP Morgan Chase Bank NA
Maturity: 05/08/2024
Coupon: 5.200
Callable: Yes
Call timing: 11/09/2023 at 100 on 5 days notice
https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/first-republic-faq.html
"WILL I RECEIVE INTEREST ON MY CERTIFICATES OF DEPOSIT (CDs)?
Yes! Interest on deposits accrued through April 30, 2023, will be paid at your same rate. First Republic Bank’s rates will be reviewed by JPMorgan Chase Bank, N.A., and you will be notified in writing of any changes. You may withdraw funds from any transferred account without early withdrawal penalty until you enter into a new deposit agreement with JPMorgan Chase Bank, N.A.
WHAT HAPPENS WITH MY BROKERED DEPOSITS?
All brokered deposits, excluding the Cede & Co deposits, have been assumed by JPMorgan Chase Bank, N.A. If you are a customer who has a First Republic Bank deposit through a broker, you must contact your broker with any questions.
WHAT IF I HAVE A DEPOSIT ACCOUNT AT JPMORGAN CHASE BANK, N.A.?
If you have accounts in both First Republic Bank and JPMorgan Chase Bank, N.A., they will be insured separately for at least six months following the merger of the banks. This will allow you time to restructure your accounts if necessary."