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Is it really worth it to tie up money for 1 year at 5.45 %/CD compared to total access in a money market account paying 5.25%, unless you think rates are going to come down in the next year?
It depends on how likely you are to need the money. You can get a5.65% 1-year CDnot counting a 3 mo penalty if you redeem early. Depending on how likely you are to draw on the money, your expected return could beat the MMF.
Either way, you're making some bets - how likely you are to need the money and which way interest rates will move.
In a taxable account, I might place my bet on a 1 year Treasury (5.46% as of the moment). It is tax-deferred and state tax-exempt. Unless you expect rates to go up, you won't lose principal with this, and could even make some money if rates drop and you cash in (sell) early.
I do not think that I bonds (with a 3 mo penalty) make sense for a one year investment.
I own both, but attempt to have enough CDs where they are maturing throughout the year. I do own MMs for emergency liquidity needs, but do not have confidence that rates will continue rising significantly going into the future, so I prefer to lock in some returns while they are available, and then depend on maturing CDs that will provide cash throughout the year as they mature.
Just checked CD and MM rates at Schwab. Lots of CDs in the 5.5 range, and for the first time in awhile, all CDs from 3 month to 5 years, are paying at least 5%. That seems to project a lot of confidence by banks that CD rates are going to stay high for a long time. For those more interested in liquidity, MMs are paying as high as 5.23% to 5.38% in their Prime MM Funds.
I think it makes sense if your liquidity needs are low and you can create a CD ladder of 3,6,9,12-month maturities. You will only need to keep cash you need less than 3 months in MM-Funds.
Last check at Vanguard , longer Cd's Callable. Not my cup of tea !
Not sure why Vanguard is so different than Schwab. I randomly clicked on multiple CDs in all maturity ranges, at Schwab, and they were all non-callable. These are very well known banks offering these CDs (Morgan Stanley, Wells Fargo, Bank of American, UBS, Discover, etc. etc.). There also a large number of regional and state banks, with high financial ratings, offering the same. From what I have read from other posters, Fidelity offers very similar non-callable CDs that Schwab is offering.
If anyone is looking for CALLABLE CD’s at Schwab they are to be found by going to TRADE, Then BONDS, and the CD’s listed above the Bond grid are generally callable.
If anyone is looking for CALLABLE CD’s at Schwab they are to be found by going to TRADE, Then BONDS, and the CD’s listed above the Bond grid are generally callable.
Probably a few ways to get there, @larryB. My clicks are 'research tools' - 'bonds, cd's, fixed income'.
In any case, I, and I'm probably in the minority, am all about getting the few 10th's of a percent more out of Cd's and bonds by buying callables. I have spread out a bunch of CDs and bonds over a 2 year period, but I haven't built structured ladders, so if a CD or bond is called, so be it. I collect the higher interest until then. But, I do understand the other side of the argument.
If anyone is looking for CALLABLE CD’s at Schwab they are to be found by going to TRADE, Then BONDS, and the CD’s listed above the Bond grid are generally callable.
That is enlightening! I start off with going to Products, then "Bonds, CD's,& Fixed Income", then "Compare CDs"--almost all CDs, in the varying maturity ranges, are non-callable. Even though I am not interested in Callable CDs, it is good to know how to find them at Schwab.
@MikeM- Well, a couple of things to consider- first, a short-duration callable CD of a year or so is likely not to be called. Beyond that (arbitrary) timeframe I think that a lot would depend on your age and investment outlook. An older person like me would probably opt for non-callable, but a younger person might actually want a callable, because the impetus for a call would typically be a fall in overall market interest rates.
In that situation a younger person might very well want to reinvest that money in something other than CDs or bonds at that point, so a call could be advantageous.
@Old_Joe. Keen insight on possible smart use of callable CD’s. And you bring up why best investment practices depend on your age. Too often advice is given as if age is irrelevant. Bernstein wrote a whole book about it. When I advise my thirty something daughter I have to repeat to myself that for her it’s time in the market. For me it’s how much time is left.
Comments
Either way, you're making some bets - how likely you are to need the money and which way interest rates will move.
In a taxable account, I might place my bet on a 1 year Treasury (5.46% as of the moment). It is tax-deferred and state tax-exempt. Unless you expect rates to go up, you won't lose principal with this, and could even make some money if rates drop and you cash in (sell) early.
I do not think that I bonds (with a 3 mo penalty) make sense for a one year investment.
In any case, I, and I'm probably in the minority, am all about getting the few 10th's of a percent more out of Cd's and bonds by buying callables. I have spread out a bunch of CDs and bonds over a 2 year period, but I haven't built structured ladders, so if a CD or bond is called, so be it. I collect the higher interest until then. But, I do understand the other side of the argument.
In that situation a younger person might very well want to reinvest that money in something other than CDs or bonds at that point, so a call could be advantageous.
Well said, larryB