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CDs are starting to move up a bit

Just a FYI, doesn't sound like a much, but 1 year CDs have moved to 1.25% at Schwab. 2 year @ 2.2, 3 year 2.55. Something to keep an eye on, especially for retired folks or anyone wanting to hold cash in a portfolio. I believe 1 year CDs were below a 1/2 % not to long ago, so something to keep an eye on.


  • edited March 30
    Thanks to both of you for the info. I just bought a 2 year @ 2.2 thanks to you guys. Maybe not great, but 1.5% better than the local banks. I'll be looking to build a ladder as things keep going up.

  • edited March 30
    If US Treasury Notes offer the same YTM as CDs, is one preferable over the other, except for the state tax exemption of the Treasury Notes? E.g., Liquidity, bid-ask spreads, transaction fees, etc. to buy and sell for orders of $0.5+M.
  • @BaluBalu, Treasury yields have moved rather quickly. So, T-Bills and T-Notes may offer better rates than comparable CDs. This isn't usually so and CDs offer better rates.

    But until that happens (as banks catch up), go for T-Bills and T-Notes.

    Review this previous thread,
  • Thanks, Yogi. I plan to review that thread again.
  • Yep, I see same, as long as hold to maturity. Though, technically, T-Bills not insured.
  • Treasury securities are backed by full faith and credit of the US. That is a higher guarantee than the FDIC insurance that is only from an agency of the US.

    1. What are Treasury Securities?
    United States Treasury securities, often simply called Treasuries, are debt obligations issued by the United States Government and secured by the full faith and credit (the power to tax and borrow) of the United States.
  • Hi @Charles
    Though, technically, T-Bills not insured.
    If one can not redeem (default) a Treasury issue; one will have many other things to be worried about, eh?
  • I absolutely agree.
  • Ditto for some AA-AAA rated IG corp bonds, like say Berkshire Hathaway or Apple. As guaranteed as investing gets, practically speaking.
  • With Fed meetings scheduled in early May (and then again on June 14-15 and July 26-27), would it make sense to wait just a few more months before starting a CD ladder?

  • A short term ladder starting at 3 mos will still pay more than cash

    Apple bond due 9/12/2022 is 1.1 YTM 0.91 YTW

    2% coupon but unlikely to be called I would think

    1.1 beats negative 2%
  • FWIW, Schwab has some very short term CDs available with really good rates. I figure if I'm going to hold cash it might as well be in something returning more than their MM account SWVXX pays out.

    I decided to put a bunch of cash into the 1 mo CD and a small amount into 6 mo while I wait for yields to increase even more.

    as of 4/21/22
    1 mo CD rate 0.753%
    6 mo CD rate 0.902%
    1 yr CD rate 1.60%
  • edited April 21
    Thanks, Mike. That is very good rate for one month CDs. Are those new issue or secondary?

    At Fido, the 2 yr CDs yields are higher than those of the 2-yr Treasuries. For all lower maturities, Treasuries currently yield materially higher.
  • edited April 21
    Ha. What am I missing?

    Why not put 100% into a 1-mo CD and then roll it over into another 1-mo CD? Does that not up to like 9% if done for next 12 months vs 1-yr CD at 1.6%?

    Assuming 1-mo rate continues of course.
  • edited April 21
    Oh. Never mind ... that must be annualized rates, I trust.
  • @Charles, those are annualized rates (-:)
  • Still not very compelling, is it?

    1-yr Amazon, Apple, and Walmart bonds all paying more than 2%.

    Pretty comparable to cash, I think.
  • edited April 21
    Yes, I know. On our search site, we don't annualize returns when period is less than 1 year.

    My bad.

    So desperate for yield!
  • Hopefully, by year end, rates will start being friendly to retirees again!
  • edited April 21
    Good to see 10-year new issue at 3.4%!

  • Thanks Charles and yogi. To be honest I overlooked the annualized rate implication. Still better than the Schwab MM rate though which my cash has been sitting in. I think I'll make $12 profit this month:)
  • Yes, better than MM at least!
  • In Taxable accounts you might look at individual munis bonds too.

    High Quality Massachusetts ( GO and Harvard) 1 year bonds pay 1.7% tax free. Two years 2.2%

    There are a lot of OID bonds selling for below par, but I have to look at tax consequences a little more.
  • Tax reporting on muni bonds has gotten a whole lot easier on bonds purchased since 2017.

    OID interest is imputed annually and tax free. So it generally only affects things like IRMAA that include tax-exempt interest.

    I'm not seeing 1-2 year Mass. GO bonds offered with OID (neither new issue nor secondary). But I'm only looking at Fidelity's offerings, and each broker has its own inventory (plus bonds obtained through third party services). Perhaps if you could give a sample CUSIP, we could better understand what you're looking at. (EMMA has detailed info by CUSIP.)

    What I'm wondering is whether the discount you are seeing is original issue (treated as tax-free) or secondary market (taxed as ordinary income upon sale, unless treated as taxable cap gain under de minimis rule).

    Aside from amortization of bond premiums, those are the tax consequences of tax-exempt munis in a nutshell. The devil, as they say, is in the excruciating details.
  • edited April 22
    hi @msf, If I buy in the secondary market a bond selling at a discount because of increase in interest rates from the time of issuance, does the brokerage issue a form 1099 for the interest income accrued from the amortization of the discount? For simplicity, let us assume the bond was issued at par.
  • msf
    edited April 22
    Tax treatment of market discount is as I described (net gain generally counted as taxable ordinary income upon sale), unless you make a 1278(b) election.

    If you do make that election, and only if you make that election, is the accrual reported in box 10 on Form 1099-INT. (If the bond was issued with OID, then the accrual is reported instead in box 5 on Form 1099-OID.)

    Here's Fidelity's form for informing them of your election. I haven't checked into the procedures for notifying the IRS because in most cases it is preferable to defer taxable income until time of sale rather than to declare accrual annually.

    See also the instructions for 1099-INT box 10 and 1099-OID box 5. (1099-INT, box 10) (1099-OID, box 5)
  • Thanks, msf. It is interesting that all market discount is treated as ordinary income (ignoring timing or deminimus amount). I guess US Govt wants to treat all return on principal of a fixed income instrument as ordinary income. But gains on fixed income funds are properly treated as cap gains. Seems like coming out of a credit event, one is better off buying a fund rather than individual bonds if buying in a taxable account.
  • It is interesting that all market discount is treated as ordinary income (ignoring timing or deminimus amount).

    Gains in excess of imputed interest (typically using constant yield to maturity) are taxed as cap gains. For example, suppose a bond is purchased at $90 with a 2% yield (disregarding coupons), and it is sold a year later for $92. 2% x $90 = $1.80, so the extra 20¢ appreciation is taxed as a capital gain.

    Mutual funds are pass through entities. Broadly speaking, you get taxed as if you owned the securities. (There are some special case pass-through rules for funds, such as passing short term gains through as ordinary income.)
  • edited April 23
    Thanks, msf. May be I should have elaborated in my previous post - my focus was on market discount. In your example, instead of the bond, if I buy a representative bond fund, when I sell the bond fund, would not I recognize the $2 also as a cap gain? For example, if I bought ARTFX, instead of the underlying bonds, ARTFX passes through the coupon (minus expenses), and when I sell ARTFX, I recognize cap gains for all the appreciation coming out of a credit event - there is no imputed interest income in excess of the coupon (minus expenses) I have ever seen a bond fund report. Now, if the same applies to a Treasury bond versus a Treasury bond fund, the results are even more skewed, as the narrowing of a market discount is strictly due to change in interest rates.

    On your comment of short term cap gains being passed through as ordinary income, I think a lot of investors do not pay attention to the consequences of that recharacterization but they can be real.
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