CD Rates Going Forward

dtconroe

I have been watching CD rates closely, and since the FEDs raised rates in July, CD rates are about the same, maybe a little less. Shortly before the FEDs rate hikes in July, I purchased 3 CDs (6 and 9 month) for 5.3%, but at Schwab Brokerage, you can only get 5.3% in the one year category. It appeas CD rates have fallen slightly in all other shorter and longer categories. Money Market rates have gone up significantly at Schwab, since the last FED rate hike, and are now paying over 5%. I now have more CDs maturing, and my inclination is to just put the proceeds into 5+% MMs, and wait a little longer to make investing decisions with some growing cash.

If you have been using CDs extensively for the past year, I would be curious what your plans are with your available cash.

MikeM

I'm in a similar boat @dtconroe. I had a couple CDs mature and I moved the $ to the Schwab MM, for now. ~5.1%, with flexibility, is a pretty darn good return. But if CD's are flat or dropping the MM account can't be far behind. This morning I see 1 to 2 year rates ~ 5.6 to 5.5%. 5 year is also 5.5%. I think it wouldn't be a bad choice to start extending the maturity date if the intent is to keep that money in cash anyway - I'm thinking out loud here.

Sven

Make sure the CD rates quoted are non- callable. For now I don’t see 5.5% non-callable CDs at Fidelity.

MikeM

Personally, I wouldn't care to much if callable. You still get the interest rate stated until called, and that rate is likely better than the MM. The only downside, to me, is that you would again have to find something to do with the money. But, I would think when CD rates are going down enough for a bank to call the CD, that would likely mean bond funds are again giving a good total return.

Anyway, not a big concern - to me.

Derf

@MikeM Would a T-bill work instead of CD ? Purchased in taxable account , except retirement accounts, NO state tax in most states.

bee

Regarding CD early redemption penalties - Is each unique (make sure you read the fine print)?

Regarding 5 year CDs - Seems like a long time to wait and if you need access to that CD (cash), I would be sure I understood the early redemption penalty?

MikeM

Not talking about early redemption @bee. If the bank "calls" the CD, I doubt their is a fee to the holder.

Old_Joe

@MikeM- You mentioned "I moved the $ to the Schwab MM"... Could you advise which particular MM? I know this sounds stupid, but I've never been sure about their moneymarket accounts. When interest on a CD is paid, or a CD matures, they automatically transfer that money to what my statement just shows as "Brokerage", which I suspect pays very little interest.

Do you manually transfer such money to another specific MM account?

Thanks- OJ

MikeM

Dan, yes, you are right. When the CD or treasury matures, the money 1st goes to whatever that sweep account is that pays virtually nothing. I move it myself to the SWVXX MM account. I don't have nearly enough to be in the $1,000,000 MM club

Honestly, paying little to no interest on the sweep account is THE biggest drawback to Schwab versus Fidelity in my opinion.

dtconroe

Old_Joe said:

@MikeM- You mentioned "I moved the $ to the Schwab MM"... Could you advise which particular MM? I know this sounds stupid, but I've never been sure about their moneymarket accounts. When interest on a CD is paid, or a CD matures, they automatically transfer that money to what my statement just shows as "Brokerage", which I suspect pays very little interest.

Do you manually transfer such money to another specific MM account?

Thanks- OJ

I wasquoting the Schwab "Prime" Money Market Funds--SWVXX and SNAXX. They are the same funds, but different classes and minimums. SWVXX is currently paying 5.12% and SNAXX pays 5.27%. SNAXX does require $1Mil to open an account, which I did in March of 2022 in my IRA, but I lowered that amount significantly later, when I started investing in CDs MM withdrawals, but still can deposit and withdraw money from SNAXX even though the balance is now just 5 figures.

msf

When interest on a CD is paid, or a CD matures, they automatically transfer that money to what my statement just shows as "Brokerage", which I suspect pays very little interest.

Brokerages typically offer to hold your "free credit balance" (cash) as a general obligation of the brokerage (SIPC insured up to $250K).

For example, at Fidelity this account is called Fidelity Cash (FCASH), currently paying 2.69%. At Schwab, this is called the Schwab One® Interest Feature, currently paying 0.45%.

Such cash balances may appear on brokerage statements as "Brokerage".

Schwab pays the same meager 0.45% whether you hold your cash this way or elect to sweep the money into Schwab Bank. At Fidelity, you can elect to sweep cash into a MMF currently yielding 4.94% instead of FCASH's 2.69%.
https://www.fidelity.com/mutual-funds/fidelity-funds/money-market-funds-fcash

larryB

@dt. Does Swvxx have more than one share class? My position seems to be yielding 5.09%.

Old_Joe

"Schwab pays the same meager 0.45% whether you hold your cash this way or elect to sweep the money into Schwab Bank."

@msf, MikeM, and others- Thanks to all for your info. This is what I suspected- that if you want decent interest on your cash at Schwab you have to manually transfer the money to a mmkt fund. I do have a fund there (SWKXX) that I use to hold cash, but it's a Municipal mmkt fund.

The problem with Schwab's mmkt funds is that you can't instantly transfer money from them to buy some other security- you have to sell the mmkt fund, then wait for that to show up in the "brokerage account" before you can redeploy it.

Old_Joe

@MikeM said- "Honestly, paying little to no interest on the sweep account is THE biggest drawback to Schwab versus Fidelity in my opinion."

Thanks, Mike- I certainly agree with you on that. I just wanted to check and see if there was a decent automatic sweep-account feature that I was unaware of.

sma3

@old_Joe

I agree the lack of a sweep account is a very big negative for Schwab. I just forgot to move a large T bill redemption to a MMF for a month and figure it really cost me

Vanguard is a disaster, Schwab is cheap and costing me money, but I hate to put all my accounts at Fido.

I worry about a company that is privately help and does not have to report financial results regularly.

There are problems with them all

Anybody else satisfied with other alternatives?

dtconroe

larryB said:

@dt. Does Swvxx have more than one share class? My position seems to be yielding 5.09%.

SWVXX is one of the share classes for their Prime Money Market Fund--I checked again a few minutes ago and SWVXX is now paying 5.12%. I corrected an earlier post which should have stated 5.09%, but is now up to 5.12%. The other share class of the Prime Money Market fund is SNAXX--now paying 5.27%

larryB

@dt. Thanks. Based on knowing nothing it seems as though we may be reaching peak CD rates soon. Going longer ?

MikeM

@larryB, that was my suggestion or, at least I threw out the idea. There is nothing wrong with 5.5% on a CD for the next 5 years. If it's called, oh well. Those conditions, falling rates, that make a bank call on that CD should open up other opportunities, like bond funds.

hondo

dt: I bought a 12 month 5% CD yesterday. I know that I could have gotten a higher rate with a brokered CD, but wanted to stay with my credit union. As you know, I have always tried to keep it simple for my wife's sake. Now, I have come to the point that I need to keep it real simple for myself. I realize my thinking is slowing. There may be a whole new strategy sometime in the near future.

Old_Joe

"I realize my thinking is slowing"

@hondo- I've passed through that phase and am now in the "my thinking is evaporating" phase. I can hardly wait to see what comes next. Maybe a weekend pass from "the home".

larryB

@hondo. Same boat here. My wife has no interest in this stuff and I think more and more about a vastly simplified portfolio going forward. As my CD’s and treasuries mature it might be time to build a position in Wellesley or some such thing. At least in the IRA accounts. That and sell the boat

dtconroe

hondo said:

dt: I bought a 12 month 5% CD yesterday. I know that I could have gotten a higher rate with a brokered CD, but wanted to stay with my credit union. As you know, I have always tried to keep it simple for my wife's sake. Now, I have come to the point that I need to keep it real simple for myself. I realize my thinking is slowing. There may be a whole new strategy sometime in the near future.</
>

hondo, sounds good to me. I can get Money Markets over 5% for now, but I can live with 5+% CDs as long as they are available. I am willing to go longer term than 1 year in my IRA account, but in my taxable account I prefer to stay more liquid with shorter term offerings. I think I could go back to investing in bond oefs, but it feels good to be able to talk to my wife about CDs, and she shows interest and actually offers opinions on terms and rates. Right now, I am just happy to have CDs to make some money, and it certainly is a lot less stress and worry for me.

Tarwheel

I’ve been loading up on CDs and treasuries, with ladders extending out five years in my IRAs and three years in taxable savings. I don’t care if interest rates rise further as I’m happy to be earning better than 5% on all these cash investments. I’ve got plenty of CDs, money markets and Treasuries on the short end, in case I need cash. If rates rise further, I’ll simply buy more CDs or Treasuries as individual issues mature. I’m holding more cash than ever in my accounts because we haven’t had interest rates this high in many, many years and I don’t know how long it will last.

dtconroe

larryB said:

@hondo. Same boat here. My wife has no interest in this stuff and I think more and more about a vastly simplified portfolio going forward. As my CD’s and treasuries mature it might be time to build a position in Wellesley or some such thing. At least in the IRA accounts. That and sell the boat

My house is about 50 years old, and I am having to spend more and more each year on ACs, Hot Water heaters, plumbing, and a number of "surprises" outside of my house. I am starting to question whether we need to "sell the house" and buy smaller and newer house that requires less maintenance. My wife wants to stay in the house, and so I do have to manage our investments to keep up with the demands of owning an old home--liquidity has to be taken into account with my taxable account for these surprises.

dryflower

How long will it last, and where will it peak? Those are the questions. The consensus seems to be that it will only last for about a year, not more than 2, and that it will peak around 6%, maybe a little less and not more than 6.25%. That's a very strong consensus, and it seems that many take it as a forgone conclusion. That's not to say that it's wrong.

If I really believed in it strongly, I would try to go out as long as I could within the next year at anything over 5.5% -- but really I'm not so sure. I'm afraid inflation might get out of control. If we go out one year now, I think rates will still be this good or better in a year.

btw, there is no reason to buy CDs with an early withdraw penalty. Buy a brokered CD. My broker tells me that he has been able to sell CDs for clients for very minimal losses or even with small gains. (The seller keeps all accrued interest).

Derf

Looked at Vanguard last night, 12-18 month CD's ! A boat load of callable.

dtconroe

dryflower said:

How long will it last, and where will it peak? Those are the questions. The consensus seems to be that it will only last for about a year, not more than 2, and that it will peak around 6%, maybe a little less and not more than 6.25%. That's a very strong consensus, and it seems that many take it as a forgone conclusion. That's not to say that it's wrong.

If I really believed in it strongly, I would try to go out as long as I could within the next year at anything over 5.5% -- but really I'm not so sure. I'm afraid inflation might get out of control. If we go out one year now, I think rates will still be this good or better in a year.

btw, there is no reason to buy CDs with an early withdraw penalty. Buy a brokered CD. My broker tells me that he has been able to sell CDs for clients for very minimal losses or even with small gains. (The seller keeps all accrued interest).

I am not seeing that very optimistic CD scenario for longer term CDs, but CD investing involves projections for rates, and I did choose a short term laddering scenario in 2022, with many CDs maturing in 2023 and early 2024. The first 6 months of 2024 will be a major test for me, to make CD investing decisions, possibly choosing longer term CDs if the rates are higher than today.

hondo

Old_Joe said:

"I realize my thinking is slowing"

@hondo- I've passed through that phase and am now in the "my thinking is evaporating" phase. I can hardly wait to see what comes next. Maybe a weekend pass from "the home".

Old Joe: Man, I know what you mean. I know the time will come, but I believe it will be a long time off. Then bang, one day you realize the time HAS arrived.

Well, there is nothing a person can do but make adjustments and keep going.

hondo

larryB said:

@hondo. Same boat here. My wife has no interest in this stuff and I think more and more about a vastly simplified portfolio going forward. As my CD’s and treasuries mature it might be time to build a position in Wellesley or some such thing. At least in the IRA accounts. That and sell the boat

Same here concerning the wife's interest. Actually, I already have a fairly simple portfolio, so I should not be so concerned. Two balanced and one bond fund in the IRA/Roth and two balanced and one bond fund in the taxable accounts plus MM and some CDs. I could but don't want to change the taxable funds because of the large capital gains involved. We have owned them for a long time. I suppose that I should stop looking at this stuff so often and let it ride.

hondo

My house is about 50 years old, and I am having to spend more and more each year on ACs, Hot Water heaters, plumbing, and a number of "surprises" outside of my house. I am starting to question whether we need to "sell the house" and buy smaller and newer house that requires less maintenance. My wife wants to stay in the house, and so I do have to manage our investments to keep up with the demands of owning an old home--liquidity has to be taken into account with my taxable account for these surprises. </blockquote

DT: I know what you mean about older homes. We have been in ours about 40 years. We have found out that after that long, things just wear out or need to be updated. We have talked about downsizing, but we do like it out here so we have decided to stay as long as we can.

dtconroe

There are a number of factors with "personal" complications, in making lifestyle/materialistic changes later in life. My wife and I are in pretty good health now, but who knows what tomorrow will bring. Moving/relocating has a lot of stress involved, but if you are going to do it, there is some logic to do it while you are in good health and mentally strong, while being "forced" to move in old age, is a scenario that sounds very repulsive to me. We bought a little dog about 4 years old, as an action to help my wife with age related depression, and now my wife is concerned that moving will be tough on her "child/dog" who loves our current home. When your pet's mental health becomes a major consideration, in old age decisions, I am not sure whether to laugh or cry about this decision! Somehow, I need to figure out investing decisons, with all of these more personal factors to be considered--our pet dog is uncooperative in letting us know what she thinks!