CD Renewals

dtconroe

I have invested heavily in CDs since March of 2022. Many of those CDs are now maturing, and I have decisions to make about investing in new CDs. Rates seem to be flattening recently, and rates for CDs longer than 2 years seem to be dropping. The best rates are shorter term, 3 months to 1 year, paying a little over 5%. CDs from 18 months to 2 year are around 5%, and anything longer is less than 5%. When I look at the future, there does not seem to be a strong appetite for any major rate increases, with most projections thinking we may get 2 more .25% rate increases in the second half of 2023. I am now thinking about going out to about 18 months to 2 years for a CD paying 5% or more, but continuing to renew CDs for 6 months to a year, when they are at 5.25% or more. I currently am hesitant to invest in longer term CDs that are paying below 5%.

For those continuing to have a desire to invest in CDs, I would be curious as to what you consider as attractive rates to maintain your investing interest.

stillers

From somebody who follows CD rates very closely and has a sizeable CD ladder:

Correction to what you stated in the OP:
2- and 3-yr CD rates have recently been inching UP, NOT DOWN.

I've replied to you a few times over the years about this topic and once in the past few months. You don't seem to appreciate my input on this topic, but I'll try it one more time, especially for those who might.

It's all pretty simple if you paint by numbers, so to speak. Translation, create a very basic EXCEL spreadsheet and drop in the variable numbers.

Here are the BEST current CD rates for Fido, non-callable CDs.
1-yr: 5.25%
2-yr: 4.95%
3-yr: 4.80%

Example:
You want to invest in non-callable, interest bearing instruments for 3 years.

You BUY a $10,000, 1-yr, non-callable CD at 5.25%
At maturity in ONE year in July 2024, you earned $525.

You could have instead BOUGHT a 3-yr, non-callable CD at 4.80%
At maturity in THREE years in July 2026, you would have earned ($480 x 3 or) $1,440.

In order to break even with the currently available 3-yr CD rate, at maturity of the 1-yr CD in July 2024, you will need to BUY a 2-yr CD paying 4.58%.
($525+$458+$458 = $1,441)

(NOTE: You could also BUY a 1-yr in July 2024, and another 1-yr in July 2025, but I'll leave that scenario and math up to you.)

So, in this example,

(1) If you THINK a 2-yr, non-callable 4.58% or greater CD will be available in July 2024, BUY the 1-yr now.
(2) If you DON'T THINK a 2-yr, non-callable 4.58% or greater CD will be available in July 2024, BUY the 3-yr now.

For my money, the decision is easy. BUY the 3-yr NOW as IMO it is unlikely a 2-yr, 4.58% non-callable CD will be available in July 2024. And even if it is, IMO it won't be sufficiently greater than 4.58% to cause me to let the current 3-yr rate of 4.80% get away from me.

Disclaimer: This ain't idle chat. It's what I'm actually doing, and have been doing, for the past six months.

Old_Joe

Pretty straightforward. Seems right to me.

larryB

@dt. I have been been overweight CD’s since early 22 as well. I have become very comfortable with a risk free 5% and find that it suits me well. I am torn between going out as far as I can and still be real close to 5% or slowly returning to a more diverse mixture of dividend stocks and income producers that might do well when the pivot arrives. It’s on my mind but meanwhile life is good at 5%.

yogibearbull

BTW, applying a similar roll yield calculation for Treasuries doesn't yield a clear cut answer.

As of 6/30/23 EOD:
1-yr 5.40%
2-yr 4.87%
3-yr 4.49%

Breakeven yield 4.035%

So, if 2-yr 1 yr from now will be > 4.035% (it is 4.87% now), then buy 1-yr now and roll into 2-yr on maturity (likely). Else, buy 3-yr now (less likely). Or, it could be just a toss-up.

The picture may become more clear as the Fed raises rate twice (?).

dtconroe

larryB said:

@dt. I have been been overweight CD’s since early 22 as well. I have become very comfortable with a risk free 5% and find that it suits me well. I am torn between going out as far as I can and still be real close to 5% or slowly returning to a more diverse mixture of dividend stocks and income producers that might do well when the pivot arrives. It’s on my mind but meanwhile life is good at 5%.

Thanks larryb, your comments are very similar to what I am now evaluating. I am not committed to CDs for a long period of time, and am now questioning how much longer I actually want to continue investing in CDs, compared to other types of investments. I was quite content with bond oef investing, until the FEDs started raising rates, which was very negative for my bond oef portfolio. I chose to use CDs as a transitional choice, so I could re-evaluate, what I wanted to do with my retirement portfolio. I do not like the illiquid aspect of brokerage CDs, because selling them before they mature, is very costly. Now I am facing shorter term CDs maturing, and I am uncertain if I really want to lock in more longer term CDs for the future. I am content with 5% CDs, and there are still an ample supply for me to choose from 6 months to 2 years, but some categories of bond oefs are starting to look attractive again. Hence, I am now evaluating whether I want to continue a "laddering" approacch to renewing CDs, or whether I want to start developing a more diversified portfolio that reduces my CD holdings. I have not made a final decision, but continuing portfolio of longer term CD holdings was not part of plans in 2022.

I thought that possibly a few other posters might be experiencing the same investing decision, but was not sure. If so, I was interested in what others thought was attractive/acceptable to renew CDs, vs replacing them with other investing options. Hence my question in my initial post on the thread:

"For those continuing to have a desire to invest in CDs, I would be curious as to what you consider as attractive rates to maintain your investing interest."

TheShadow

Keeping up with DepositAccount.com for going rates and timetables for CDs. Trying to keep parent's cds to 1 year to 2 year timetables with rates between 4%-5% at our credit unions. Will evaluate the CD market as the CDs' approach maturity.

larryB

@dt. Taking a longer term view of our portfolio composition I can see a time when reducing the moving parts becomes job #1. Managing a group of higher yielding income producers and then updating a group of CD’s and Treasury stuff may be interesting to me but to my DW not at all. I can see the future and it will be Vanguard Wellsley and a checking account. The circle of life.

AndyJ

@dt, @larryB, et al.: I'm in Treasury bills and not CDs, but the decision-making structure is about the same. For now I've passed on the fairly tempting 2y T and haven't replaced bills with bills, but instead have been stuffing maturing T's into a 4.94% money market and building a still-small bond etf sub-portfolio. Port yield is a shade over 5%, with most of that coming from hold-to-maturity T bills.

I'm encouraged so far by how well the bond etf sub-port is holding up.

Baseball_Fan

@dtconroe...your question reminds me of a convo I had with my comptroller several years ago...he asked me "what are you going to do when your CDs roll off and the interest rates are lower". I answered I'll make a decision then with the facts and my interpretation of them as I see fit.

You've done well the past year without the ups/downs that the folks in the market have, likely a little better than SPY without the drawdown, not too shabby.

It all depends though...most dangerous times in the market are when overvalued, lot of debt floating around everywhere, and investing in the market is very risky several years right before/after you retire, especially if you do not have a govt pension.

FWIW, I've been 90%+ in laddered Tbills/CDs the past year(s), no regrets, so what if NVDA had a moonshot return the past several weeks, I tip my hat to the folks who invested there, I still earned several years of my annual spend/expenses with the interest from the Tbills....I still dabble with some funds (PVCMX, MRFOX & BLNDX lately) to satisfy my itch to "do something".

Me, what I am doing, going to buy 6 month, 1 yr and 2 yr Tbills/Notes when they auction over the next couple weeks. I'll step into the market with more "real" monies if we see a -15, -20%+ schmeissing over the next several months.

Good Health and Good Luck to you, no matter what you decide to do,

Baseball Fan

dtconroe

I bought a 6 month CD today from Wells Fargo, that pays 5.3%. I do still have some money remaining from the recent CDs that matured, and have 2 additional CDs maturing in a few weeks, but I have not made a decision what I will do with those monies. For now, I prefer to stay shorter term with my investments, and see what happens when/if the FEDs hike rates a couple more times, as is widely expected.

Tarwheel

Fortunately, money market rates are high enough now (at least at Fidelity) that there’s not a big downside to holding cash. I’ve got three CD ladders right now in my taxable account and two IRAs. I am not doing automatic rollovers when CDs mature because I want to evaluate the market conditions at that time.

In some cases, I’ve reinvested the money in new CDs. In other cases, I’m holding the cash in money markets. In other cases, I’m investing in bond funds that have been holding up better than most. I presume that eventually most of my maturing CDs will be reinvested in bond funds —unless interest rates keep rising and CDs/ money markets keep paying high yields.

dryflower

On one hand, I'm an enthusiastic proponent of CDs at 5%+. It's fun (for weirdos like us) to get that guaranteed money. No risk, no losses, no stress.

OTOH, being realistic, real returns even before, but especially after taxes are not going to be much over zero. I'm assuming inflation rates in the 3-4% range.

Yes, one is keeping up with, even "beating" inflation -- no small feat -- and doing this effortlessly and for free, but there's not going to be any compound growth, one isn't going to be making any money.

Accordingly, about 10% in CDs seems about right (no bonds).

Baseball_Fan

@dryflower...so what is the alternative...buying a SPY -like index with the top holding of AAPL...with a PE of 33, YOY top line down -2.5%, Profit$ down a little more than that, cash on hand now under 2% of total capital unlike recently when it was 25%+...but damn the torpedos or for you youngsters out there YOLO...keep plowing your life savings into the casino?

Not sure what the class thinks about this comment...but...while we are all sailing in the same ocean, we all experience inflation differently in the water craft we are on....you could argue that your portfolio as a whole gets whacked by inflation but I would also state for example if my annual spend is $150k before taxes annually and that inflation has gone up by +10, +15% (can we talk, be real, who really believes that bullshit that inflation was/is only 5,6,7% the past year) but that $150k is only very tiny % of my overall portfolio, inflation doesn't really impact my lifestyle, spending habits....I can always cut back somewhere. But say if one puts 35-50% of their portfolio in the markets and it gets whacked which is not out of the realm of reasonable possiblities and you add the "real world" inflation...you could get in trouble quickly as a near or in retiree.

Rule #1 is capital preservation. Live to fight another day. don't get greedy...nothing wrong with ther 5% annual return...so many co workers the past 15 years in their early 50's were saying....all I "need" is 5% a year....until then they kept grinding....

FD1000

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stillers

FD, the purpose/intent of this thread is VERY clear. It has NOTHING to do with bond OEF trading.
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So, a serious question:
What purpose is your post about bond OEF trading on THIS thread other than feeding your incessant self-aggrandizing?

Puhlease don't say you are just offering up an alternative to CDs.

You KNOW that DT knows all about bond OEFs and he has told you countless times over the past 10-15 years that he does not trade bond OEFs. When he invests in them he does it LT.
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Too bad you "never in your life owned CD(s)." In the 1980s they averaged 12%.

Oh, and good for you that you (allegedly, as always) made a few pennies on some secret sauce bond OEFS while the smart money this year was played on big tech, AI and semis. You're only trailing the S&P this year by ~10+%!

Atta boy!

stillers

Baseball_Fan said:

...
You've done well the past year without the ups/downs that the folks in the market have, likely a little better than SPY without the drawdown, not too shabby.
...
Baseball Fan

Just curious: How has someone who has invested (pretty much exclusively, it appears) in ~5% ST CDs all year (therefore mid-year, UP about 2.5% on an annual basis) done "likely a little better than SPY" when SPY is UP ~15% YTD?

stillers

Old_Joe said:

Pretty straightforward. Seems right to me.

Well, straightforward and "seems right" to one at least one poster.

WABAC

Looking forward to getting money out of short-term CD's. I tried it. Didn't like it. Will stick to money markets and floating rate T-Bills.

stillers

Um, yeah, that's the "given." Only invest money in CDs that you fully plan to hold there until maturity.

If there's any doubt about your intended holding period, MMkts and T-bills are clearly the way to go. The inventory of CD Secondary Issues grows every day because many investors just don't get the (very simple) basics.

FD1000

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Old_Joe

I'm uncertain as to how to read WABAC's post. Stillers, if I interpret him correctly, seems to have understood it as WABAC having sold, or tried to sell, short term CDs before maturity.

I read WABAC as saying that he has tried holding short-term CDs, but didn't like that. No indication that he tried to sell them prior to maturity.

Left undefined in all of this is what exactly is the definition of "short term CD" as being used here.

While I agree with Stillers regarding the correct way to use CDs, I really don't appreciate his condescending style- apparently he's attempting to emulate a certain FD person.

dtconroe

WABAC said:

Looking forward to getting money out of short-term CD's. I tried it. Didn't like it. Will stick to money markets and floating rate T-Bills.

I fully understand. Brokerage CDs are pretty illiquid options, that will often lose significant amounts of money, if you sell them before they mature. When MMs are paying close to 5%, that is a much more liquid option, and not that far below short duration CDs. I personally have enjoyed brokerage CDs since I started investing in them in March of 2022. I tend to focus on short term CDs, so it has not been difficult for me to hold them to maturity. If CDs start falling below 5%, I will likely not be as enamored with them. I am an older retired investor, am more interested in preservation of principal, with modest total return. At my age, maximizing my total return, for accumulation objectives, is just not that relevant to me any longer, so I am greatly enjoying this CD investment period.

Old_Joe

Again, where exactly does WABAC say that he sold them before they matured?

@WABAC- perhaps you could clarify this?

Thanks- OJ

larryB

@dt. Me as well. Nicely written.

dtconroe

Old_Joe said:

Again, where exactly does WABAC say that he sold them before they matured?

@WABAC- perhaps you could clarify this?

Thanks- OJ

Old Joe, my interpretation of the post by WABAC, was that he still owns his CDs, doesn't like the experience, and he is "looking forward" to when they mature, so he can have access to that money for other types of investments. I responded to his post, based on my interpretation, which of course may be inaccurate.

Old_Joe

@dtconroe- Thanks- that's the way that I read it also.

stillers

Old_Joe said:

I'm uncertain as to how to read WABAC's post. Stillers, if I interpret him correctly, seems to have understood it as WABAC having sold, or tried to sell, short term CDs before maturity.

I read WABAC as saying that he has tried holding short-term CDs, but didn't like that. No indication that he tried to sell them prior to maturity.

Left undefined in all of this is what exactly is the definition of "short term CD" as being used here.

While I agree with Stillers regarding the correct way to use CDs, I really don't appreciate his condescending style- apparently he's attempting to emulate a certain FD person.

"Stillers, if I interpret him correctly, seems to have understood it as WABAC having sold, or tried to sell, short term CDs before maturity."

Did I say that? No, I did not. I made general comments about holding CDs to maturity that YOU misinterpreted. Go back and re-read my post and show me EXACTLY where I said what you THINK I said.
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"While I agree with Stillers regarding the correct way to use CDs, I really don't appreciate his condescending style- apparently he's attempting to emulate a certain FD person."

C'mom man! Are you serious?

TRY to take my post to FD at face value. His self-aggrandizing post about trading bond OEFs has NOTHING to do with this topic, and any poster worth his salt tries to STOP the BS that he daily spews. Well, not daily on BB as FD's been banned there for about two more months.

I (as do many poster who have borne witness to FD for 10-15 years) know that FD can't be stopped. I simply do my part to TRY to control him.
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On the latter, FWIW, AFTER I made my post to FD I received a PM from a very reputable poster who appreciated my on-going containment efforts. So please STOP with BS accusations. Saying that I am "attempting to to emulate...FD" sounds a wee bit, well, nuts.

Old_Joe

WABAC: "Looking forward to getting money out of short-term CD's. I tried it. Didn't like it. Will stick to money markets and floating rate T-Bills."

Stillers: "Um, yeah, that's the "given."

• Um, yeah, what's "the given?"

Stillers: Only invest money in CDs that you fully plan to hold there until maturity."

• This, your response to WABAC, obviously suggests that his comment somehow involves holding to maturity.

Your response to WABAC focuses on holding to maturity. Nowhere does he mention that.

Q.E.D.

WABAC

Jeepers guys . . .

No tax loss harvesting in an IRA.

I'm holding the two CD's and single TBill to maturity. And it looks like that will be happening just in time for some shopping.

Glad I tried it. Had the room to do it. Just not my cup of tea.

Old_Joe

Absolutely. Lots of stuff to choose from- whatever works best for you. At 84, with wife not into financial stuff, I'm keeping it simple. Just trying to maintain a little income to offset inflation (at least partially). About half in CDs/Treasuries, half in MMKT. Income (from SS & pensions) exceeds expenses. Works for us.

Take care.