Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

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.

    Support MFO

  • Donate through PayPal

10-Year CDs @ 4%

edited June 30 in Other Investing
Yay!

image

https://www.screencast.com/t/pTjo2Q2ZUig

I know relative to inflation not good.

Still, nice to see.
«13

Comments

  • Spread looks more normal as well.
  • Another avenue would be stocks at 4% (in the form of a dividend). For example TROW is at 4.16%

    https://finance.yahoo.com/quote/TROW?p=TROW
  • bee said:

    Another avenue would be stocks at 4% (in the form of a dividend). For example TROW is at 4.16%
    https://finance.yahoo.com/quote/TROW?p=TROW

    Yes, just since this Spring, I'm into single-stocks, and have chosen them with dividends in mind. This is a mutual fund discussion board, though. When I look at the TRP Equity Income fund, PRFDX, the yield is just plain paltry. Same with everyone's darling, PRWCX. But I own a big slug of it, because in the end, it's TOTAL RETURN we're after. Also look at FFGCX (Commodities) and BMO Bank of Montreal. Yield on the former is 2.61%, not really in the same ballpark with TROW. But BMO? Dividend yield is at 3.99%. "Close enough for gov't work." Have a cigar. One more: PSTL. Postal Realty Trust, with a div. yield of 6%. (I own none of these.)
  • I just created an 18-month CD ladder with cash that was sitting in a money market earning nothing. Overall, my ladder is yielding 2%, which isn’t great but much better than 0.2%. The CDs mature every 3 months, so I can take advantage of further rate increases.
  • beebee
    edited June 14
    VYM is paying a 2.72% dividend. SPY is paying 1.38%.

    Not sure if ETFs of mutual funds adjust the dividend daily like a stock does so this dividend payout percentages may be stale.
  • edited June 14
    Hi @Charles
    What is the source and date of your image for CD rates in your opening post in this thread? Anyone else able to discovery these type of rates today?
    Thank you.
    Catch


  • Last week I bought a 30 day CD that runs from 6/22 - 7/22. That brings me to ask, is that bank relying on rate increase this week to make money by taking my CD purchase money & investing it if & when CD rate goes up ?
    I have more dry powder & will be taking out another CD short term in the future.
  • edited June 15
    Buying CD ladder makes sense as partial replacement of money market in the cash bucket. The shorter end looks attractive. After the June rate hike, the CD rates will likely to increase. Recalled that CDs were paying double digits back in the 70’s, and people bought CDs. That was, however, a different era.

    Dividend paying stocks are ok too for longer term growth. The dividend yield should not compare to CDs since they take on a complete different risk profiles.
  • @Sven ; Brother-in-law was a banker at that time, & tells of people bringing in CD's to pay the penalty to get the higher rate Cd's ! I hope that at least they weren't callable !
  • CDs are attractive relative to money market. The 18-month ladder that @Tarwheel suggested is near the sweet spot. When the rates go higher later this year (several more rate hikes are anticipated), start a second CD-ladder. Will check out our local banks and credit unions.

    I bonds are also great, but only wish one can buy more than $10K per year (plus $5K additional from previous year tax refund).

  • @Catch22,

    I don’t know the source of his image, but comparable rates are easy to find on Fidelity’s CD page. They are sorted by maturity dates, and you can easily find the best rates for any time period.
    catch22 said:

    Hi @Charles
    What is the source and date of your image for CD rates in your opening post in this thread? Anyone else able to discovery these type of rates today?
    Thank you.
    Catch


  • Schwab.
  • Everyone will put their on spin and expectations on this bear market, strong probability of becoming a recession. For me, I am 74, and 9 years into retirement. My focus is to preserve my accumulated assets, and to do my best to make a positive return in this tough market. I exited the market several months, with a slight YTD loss--less than 1% and have been in money market funds. I am now adding shorter term CDs to my portfolio, to ensure I will finish with a positive total return by year end. My focus is on 6 to 9 month CDs, which have been going up in interest return in the past month. I am expecting shorter term CD interest rates to rise significantly by the end of the year--if I am correct, I will look at some laddering for 2023, but if I am wrong and this bear market/possible recession is shorter than I have predicted, then hopefully I can catch some of the rebound and maybe more stability in investing. My current, imperfect opinion, is that 2022 will not improve for the remainder of the year, and 2023 will not start off well--I may very well be wrong, but I think the Feds will continue raising interest rates to try to beat down inflation, oil supply will struggle for the rest of the year, and we will start seeing unemployment creep up. All in all, I would prefer the safety of CDs until I see more positive signs that this bear market is over.
  • Local CU here (Hickam FCU, Oahu) offers 0.85% interest rate on a 60-month CD. And to get that, you must tie-up $200k. That's just a bad joke. Navy FCU--- my other one--- wants you to let them hold your money for SEVEN years in order to get 3.15% from them. No, thanks.
  • edited June 19
    Schwab is offering a 2 year CD at 3.10%, a 18 month CD at 2.7%, 12 month at 2.65%, 9 monrh at 2.1%, and 3 month at 1.8%. It takes a minimum of $10,000 for a CD. I am expecting these rates to increase substantially during the last half of 2022. Longer term CDs do not interest me.
  • Yup, Bought 1 month CD @ 1% at Chuck's place. I'll wait for the next rate increase to see if I will buy another month or go longer.
    Differ strokes for differ folks, Derf
  • Fido is showing their current CD ladders as follows:

    1 yr = 2.14%
    2 yr = 2.75%
    5 yr = 3.14%

    When you click on these "CD ladders" at Fido, you may end up with some questionable CD issuers.

    Their FZDXX money market fund is giving .86% (7 day yield).
  • edited June 19
    These 3rd party brokerage platforms (Fido, Schwab, etc) charge 0.25-0.50% fee for the CDs to be listed on their platforms. They don't do this as public service. So, many of these brokered CDs are from less-known and even financially shaky banks; several CDs may be from foreign banks. Be sure that the brokered CDs are covered by the FDIC insurance as some may not be.

    But there is one exception to these platform fees - the US Treasuries (T-Bills/Notes/Bonds, FRNs, TIPS, Zeros). Major brokers offer them commission-free. As banks are under the US supervision (via the Fed, FDIC, OCC), they are just playing nice. Banks do try to make up for this "free" service by using the float - most take your money on the Treasury auction day, or a few days after, but well before the settlement date. This is unlike stock trading where one has until the settlement day to have the money available.
  • @yogibearbull : The CD I bought at Schwab starts on 6/22 - ends7/22. I take it Chuck is using the money as "float". Could this be instead of the bank paying a fee ? CD was purchased about 10 days ago.

    Thanks YBB, Derf
  • edited June 20
    On Schwab, they offer a long list of CDs offered by "FDIC" banks, and the rates I quoted above were from this list. The CD list clearly states what the CD interest rate is, when the interest is distributed (monthly, quarterly, semi annually, at maturity, etc.), and on what date the CD maturity date is and when you will get your CD purchase amount returned to you. I do not believe the individual purchaser is charged a fee that is deducted from the Coupon amount or the distributions, as there was no written "fee deduction" stated in the purchase transaction. I also had conference calls with a regional Schwab representative, their regional fixed income specialist, and their transaction specialists to ensure that their brokerage CDs were the same as Bank CDs, on these basic CD characteristics. I also ensured that the FDIC coverage rules and limits were the same for brokerage CDs and banks. Also, after I purchased CDs, it shows up in my online Account accurately reflecting my initial cost of the CD, without any deduction for the fee Yogi is discussing.

    If Yogi believes they are "hiding" fees that I am paying, for the CD, or that their advertised Coupon rates for the CD are not accurate, or that you will not get your purchase price for the CD returned to you at the Maturity Date, then I will be waiting for additional details that I will discuss with Schwab.
  • edited June 20
    CD rates quoted by Fido, Schwab, etc are net of any platform fees that offering banks have to pay. Buyers are not charged any additional fees. Brokers are not required to disclose their internal fee info.

    Buyers should be aware (and check) the FDIC coverage. Brokerage platforms don't provide any blanket guarantees on FDIC coverage for all CDs on their platforms. Do check this for banks one has never heard of and for the foreign banks.

    Brokered CDs differ in one important respect from bank CDs (bought directly from banks). Brokered CDs fluctuate in value according to the current bid-ask (that depend on interest rates and other factors) and one would get the current bid if one sells early; they do pay full face amount on maturity. On the other hand, bank CDs have defined interest penalties for early withdrawals (typically 3 mo interest) and don't fluctuate in value beyond that. So, clearly they are not the same regardless of what brokerage customer reps may have said.
  • Thank you for the update @dtconroe. I also buy from Schwab and what you state has been my understanding over the years. Schwab clearly states that all banks on their new issue list are covered by FDIC. Because all the banks listed are FDIC insured, how big or small the bank is or where it is located hasn't been a concern to me. I hope that is not a naïve view.
  • Fees
    Schwab typically receives a fee from each issuer in connection with the placement of the CDs. Schwab may seek to negotiate a higher or lower placement fee based on Schwab's view of competitive necessities. The amount of the placement fee paid to Schwab will affect the interest rate the issuer is willing to pay on the CDs. Placement fees aid to Schwab generally range from 0 to 65 basis points (0.65%).
    https://www.schwab.com/resource/certificate-of-deposit-disclosure-statement

    As Ken Tumin writes over at depositacounts.com, sometimes you can't get your money out of a bank CD before maturity:
    Bank Refuses an Early Withdrawal Request
    It's bad enough that you will lose some interest, but it's possible that a bank can refuse the early withdrawal request. Some banks give themselves this right to refuse an early withdrawal in their disclosures.
    https://www.depositaccounts.com/blog/important-details-of-cd-early-withdrawal-penalties.html

    He also notes that early withdrawal penalties are often more than 3 months interest: "For maturities over one year, a penalty of 6 months of interest is common."

    Then there's the risk that a CD may be callable by the issuer. I've seen that with brokered CDs but not with bank CDs. Though that's not proof that banks don't also issue callable CDs. Of course with rates rising, callability is not a concern.

  • edited June 20
    ADVANCE to the 12:00 minute mark for a brief lesson on how “rainy day” time deposit withdrawals work.




  • CD rates quoted by Fido, Schwab, etc are net of any platform fees that offering banks have to pay. Buyers are not charged any additional fees. Brokers are not required to disclose their internal fee info.

    Buyers should be aware (and check) the FDIC coverage. Brokerage platforms don't provide any blanket guarantees on FDIC coverage for all CDs on their platforms. Do check this for banks one has never heard of and for the foreign banks.

    Brokered CDs differ in one important respect from bank CDs (bought directly from banks). Brokered CDs fluctuate in value according to the current bid-ask (that depend on interest rates and other factors) and one would get the current bid if one sells early; they do pay full face amount on maturity. On the other hand, bank CDs have defined interest penalties for early withdrawals (typically 3 mo interest) and don't fluctuate in value beyond that. So, clearly they are not the same regardless of what brokerage customer reps may have said.

  • edited June 20
    On the Schwab CD quote page, under New Issues, they organize the CDs by term (1 month, 3 month, 6 month, 9 month, 1 year, 18 months, 2 years........), and the listings are only for FDIC insured banks. For each Bank listed, they then give a clear statement of the coupon interest rate it is paying, the frequency of interest rate payments, and what the Maturity date is for the CD. Again, I discussed all of these details in conference calls with Schwab representatives, and the subject of my call was to ensure there is no difference between CDs you buy directly from a bank, compared to CDs you buy from the banks through the brokerage. I am confident that that information is correct. However, I did not do additional extensive research on each bank to determine if they are "financially shaky banks", to use your terminology. I will say that your statement above, about Brokered CDs fluctuating in value according to bid/ask is accurate, and in my conference calls with Schwab, they did not acknowledge that difference from CDs offered directly from banks. When I monitored my CDs in my account, I did see those daily values changing very frequently, and that was a surprise to me. I called my regional Schwab representative back, she acknowledged that "they could have done a better job with that aspect of the description brokerage CDs", but she then connected me with the CD office at Schwab, who assured me that those fluctuating daily values are "just paper values", and if I held those CDs to maturity, I would get all the coupon interest accurately quoted on their CD brokerage page, and on the maturity date I would have CD amount distributed back into my account cash account. I do believe that there are some differences in the penalties, for early selling of the CDs, between brokerage bought CDs and Banks, so you need to be fully aware of those penalty differences if you have any plans on doing that.
  • My question still remains from above post.
    "@yogibearbull : The CD I bought at Schwab starts on 6/22 - ends7/22. I take it Chuck is using the money as "float". Could this be instead of the bank paying a fee ? CD was purchased about 10 days ago.

    Thanks YBB, Derf

    So who is using my CD money from time of purchase until the actual starting date of CD ?Purchase was made appt. 10 days from start of CD start date 6/22.

    Is it possible that 6/22 to 7/22 is the last start & ending period to make the buy of that particular CD ?

    I have noted - & + value on CD as reported by dtconroe.
  • @Derf. This is similar to Schwab (and Fido) using float when one buys Treasuries.

    For your CD, Schwab is using that float + fees it charges the bank to list the CD. So, it is a combo - not either/or. If you call Schwab, it may justify taking your money to firm up your order for that CD. If the bank has only certain amount in that CD to be sold via Schwab, tying up your money makes it a firm order when that CD listing is removed from Schwab CD list.

    IMO, there are better ways to do this - charge some nonrefundable advance/ commitment fee and collect the rest on the settlement/issue date.

    The main point is that Schwab platform service is not free and it has to get the money some how. So, it is using the float from you (and that adds up from thousands of Schwab customers buying CDs) and also the bank is really out of the offered CD interest plus Schwab listing fees.
Sign In or Register to comment.