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.
First, note that all of the "Preferred" CDs shown are new issues. OK, the "Quoted price" simply means that if you wanted to buy $1.00 of a particular CD the cost to you is $1.00 (100%). You will find that there are also older CDs out there, paying rates lower than newer ones.
Obviously you wouldn't buy those when you could just as easily buy one paying a better rate. So the "Quoted" (asking) price for one of those lower-paying CDs will be something less than 100%, so that the total income at maturity (YTM: Yield to Maturity) will be competitive with the higher-paying ones.
Similarly you will also find some older CDs paying more than the currently available ones. You can expect the "Quoted" to be higher than 100%. Same reasoning.
No one is interested in selling you a really small CD- the minimum is typically $1000.
The default 1-year "Preferred" list is only the tip of the iceberg-
• If you want a maturity other than the one-year default simply click on the maturity that you want- they go from 1 month to 10 years.
• If you really want to explore the CD universe use the "Visit Find CDs" link for a detailed CD search. There you can enter any parameter that you want, such as "non-callable" or a different maturity, or a minimum rate that you will accept.
So do we think the 5 to 10 yr Treasury rates are going down or higher which of course will have an impact on the 5+ yr CD rates?
Everyone on TV seems to be correlating equity prices to rate cuts by the Fed Reserve. I would have thought equity prices (discounted cash flows) and housing activity are impacted by 10 yr treasury rates. I can see a situation where the curve steepens: Fed cuts rates and 10 yr Treasury rates go high and stay high because of fiscal policy (deficits). How does that help equity prices, except from the slight boost in economic activity? I think a lot of consumer loan rates and businesses' working capital financing rates depend indirectly on the short end of the curve. Why are the equity quacks debating ad nauseam on TV whether the Fed will cut rates and by how much in 2024?
Nobody knows where longer term rates are headed, despite all of the punditry. The so-called experts have wrong repeatedly. I deal with the uncertainty by covering all of the bases. My CD ladders extend out 5 years, and when issues mature, I reinvest where I can get the best yield furthest out. Long term, I assume my intermediate bond funds will eventually start gaining value again, particularly if rates drop.
My CD ladder in taxable savings is heavy on the short end, with issues maturing every 1-3 months. My IRA ladders have issues maturing about every 6 months.
@Tarwheel concisely and accurately stated "Nobody knows where longer term rates are headed, despite all of the punditry." I would add that it's also regularly called a fool's game.
True story: Years ago and for a coupla years, I was diligently (some say "anally") projecting my defined benefit pension plan lump sum payment (one of three defined benefit pension plans in our household) that was largely driven by a coupla factors including the 10-yr rate. During one of those years, one of the most reliable investment houses projected a 3.5% change in the 10-yr in the coming 12 months. And voila! Amazingly they nailed the % move EXACTLY! Well, except for the all important direction of the move, which they said was going to be DOWN, but instead went (Oopsy!) UP.
The strategy for owning a CP CD ladder as one's fixed income sleeve has been posted about ad nauseum on this forum. I know that's true because I am one of its leading proponents and made a ton of posts about it. Any otherwise reasonably intelligent investor on this forum who still doesn't get it needs to go back and re-read some of the many other threads on the topic over the past year or so. It's pretty simple.
Basically, what are you hoping for (and I ask that pointedly as IMO, hope is what you're dealing with here) out of your dedicated bond funds over the next 5-yr period. 4%? 5%? 6%? And if your hopes are in that range, why did you NOT (when the option was available - it ain't now) instead take the stress, guessing and hoping out of the equation and guarantee a 5+% APY from an FDIC'd, CP CD 5-yr ladder?
BTW, the venerable Art Cashin used to routinely remind us, "I learned long ago that hope is not a viable, long-term investment strategy."
Disclaimer_1: We own a 5-yr CP CD ladder paying 5+% APY as our fixed income sleeve and it now serves as self-insurance for our projected LTC needs. The current 5-yr CP CD rate is still over our % hurdle and we continue to replace rungs as they fall off. This strategy has given us WAY more time to spend on our stock sleeve (IMO, where real money is made) and the extra time and effort afforded us by the ladder has resulted in blowout TRs over the past 1-to-1 1/2 years as we've accurately identified some of the best places to be in that market (that is, US, AI, LCG and Semis).
Disclaimer_2: I'm tired of posting the same thing over-and-over again and I trust some forum participants are tired of reading it as well. So this will be my last time. For those who still don't get it, maybe try reading it s-l-o-w-l-y one last time?
Another way to see Schwab offerings is, from the top line, to click Research and then Bonds, CDs, Fixed Income. The result is a page showing rates out to 30 years of a wide variety of instruments. I find it interesting that the slope of CD's is not as negative as for Treasuries. Click any item on this page and you get a page of dozens of offerings. Click on any offering and you get a pop-up of offering details. You can buy from the offering page - just be sure you are in your desired account.
I have a ladder of CDs and Treasuries, and recently had a CD called. Was able to rebuild that rung with a Treasury of shorter duration but higher interest rate than the called CD. This will work only as long as the yield curve is negatively sloped.
I continue to use CDs as long as they keep paying 5% or more. Currently at Schwab, they have a significant number of non-callable CDs. For me in retirement, it is a very comfortable, no risk way, to make the 4 to 6% TR that I seek in retirement. I maintain about a dozen CDs in an 18 month ladder, with a preference for 12 month CDs I also use the Schwab Money Market funds, SNAXX and SWVXX, for those assets I need for liquidity.
My Banking Direct (MBD) has among the top rates for high yield savings (5.55%) and CDs. Its parent is NYCB, the former rescuer that is needing a rescue itself. This problem has been pointed out before - banks in trouble often offer the highest rates. Be careful. Sure, the FDIC protection is there, but if a troubled bank is taken over or reorganized, then all those high rates will adjust. And you won't get a memo from the FDIC before it moves. Twitter LINK
Has anyone had any CDs called in? When I first started buying CDs, I didn’t realize they could be called unless listed as uncallable. I soon realized my mistake and have only bought noncallable CDs or Treasuries since then.
However, I initially bought about six callable CDs in my ladders. Some of the shorter issues have matured, but I’ve still got 5 callable CDs with maturities ranging from a few months to 3-4 years. Only one of my CDs has been called in, and ironically it was a shorter maturity issue that I was able to replace at the same rate. I’m assuming the longer term CDs will be called in, but I’m satisfied with the 5% yields in the meantime. I’m surprised that none of these have been called yet because their yields are well above current rates.
@Tarwheel, I've had multiple CDs called since it was my preference to get higher return as long as available by buying callables. Different philosophy then everyone else here, but I figured the reason for re-calls would be the same reason to start investing back into bond funds - which I have. I haven't kept exact tract, but it seems like most of the calls have been from JPMorgan Chase, but that may be because most of my buys were from them.
edit: by the way, if you open the CD detail it gives you the "next callable" date. Doesn't mean it will be called but that's the hump you would need to pass.
Bought an 18 month non-callable CD this week at Schwab, to replace one that matured last week. The CD pays 5% interest, and is from an A rated bank. The 18 month CD fits well into a CD ladder I have in place. As a retired person, I am very comfortable buying CDs, which pay at least 5%, from banks with a strong financial rating.
I am redeeming cds as they mature and moving the cash to my VG MM fund, 5.27%. If cds start paying better than the MM, I may invest again at my cu. I only buy cds at my credit union. It has always paid a good rate. I will not shop around for a few tenths of a percent.
VUSXX has virtually the same yield as VMFXX (this has been true for several months), and is mostly state tax exempt.
In a moderate (5%) to high (10%) income tax state, the fund can save 20-40 basis points in taxes (assuming the fund is 80% invested in Treasuries and yields stay above 5%). It may not be worth shopping different institutions to gain a few basis points, but moving from VMFXX to VUSXX can be done overnight and doesn't involve multiple institutions.
I am redeeming cds as they mature and moving the cash to my VG MM fund, 5.27%. If cds start paying better than the MM, I may invest again at my cu. I only buy cds at my credit union. It has always paid a good rate. I will not shop around for a few tenths of a percent.
I struggle a bit with how much money I want to hold in a Brokerage MM fund. None of it is insured, so you have to basically trust that the brokerage investors will do an excellent job of how to keep the MM money as safe as possible, without government insurance for protection. The great majority of my brokerage investments are in an IRA, and in general I choose to only hold an amount in my MM that equals the RMD amount for that year. Everybody has their system they believe in, but for now, I prefer the safety FDIC insurance of my CDs, even though I might get "a few tenths of a percent" more in that MM.
@dt. You raise an interesting question about the safety of a “”prime money market. “. I admit to becoming complacent about it. I am overweight FDIC insured CD’ s and have avoid maturities less than a year because of liquidity and administrative concerns in favor of MM. My ladder has enough steps already. And if general conditions were bad enough for MM to fail I wonder if the FDIC might be overwhelmed.
M-mkt regulations are quite tough now. Look around, there are hardly any small m-mkt funds - they have been merged or liquidated. It was unheard of just few years ago for firms to offer m-mkt funds from other firms, but now, some even offer a menu of m-mkt funds from other firms (ML/BoA, E*Trade/MS, etc). Sure, Fidelity, Schwab, Vanguard still offer their own m-mkt funds, but many firms don't have that choice. And m-mkt reforms are ongoing, especially for gates for retail-prime m-mkt funds and other aspects for institutional-prime m-mkt funds (with floating NAVs). I don't worry about government m-mkt funds with $1 NAV. Without the fear of gates, retail-prime m-mkt funds with $1 NAV will be fine too. For liquid part of fixed-income, one can look broadly at a mix of m-mkt funds, T-Bills, short-term CDs, ultra ST bond funds. It isn't a good idea to rely entirely on any one of these, or to claim that one would never have x or y or z. BTW, institutions are stuck with m-mkt funds and T-Bills (ask Warren Buffett) because what will do with limited FDIC insurance, now restricted to 5x per account per bank with all sort of tricks.
"look broadly at a mix of m-mkt funds, T-Bills, short-term CDs, ultra ST bond funds. It isn't a good idea to rely entirely on any one of these, or to claim that one would never have x or y or z"
@Old_Joe. Sage advice. Also select on line saving accounts could be added to that list. For the risk adverse filling up the 70% of a 30/70 portfolio takes some effort.
I don't worry about government m-mkt funds with $1 NAV. Without the fear of gates, retail-prime m-mkt funds with $1 NAV will be fine too.
For the most part, I agree with Yogi. My qualification is that liquidity is somewhat in the mind of the beholder. In my mind, I wasn't particularly concerned about the theoretical possibility of gates, just as I am not concerned about the current theoretical seven day notice requirement to get money out of a bank savings account or the current theoretical seven days it could take a MMF to deliver cash upon share redemption (see any MMF prospectus).
Fidelity didn't seem to be concerned about gates when they existed. At Fidelity, you can keep all your cash in a "non-core" prime MMF and Fidelity will consider that the same as cash for all purposes. That is, you can use it to settle trades, write checks, etc. I asked Fidelity what it would do if I made a trade on Mon, and before settlement on Wed my prime fund implemented a gate (so settlement cash wouldn't be available on Wed). Fidelity's honest response was "we don't know".
OTOH, the possibility of redemption fees on MMFs still exists, though in a different form than before. "non-government money market funds must impose a discretionary liquidity fee if the fund’s board (or its delegate) determines that a fee is in the best interest of the fund." (I leave it to readers to figure out what a mandatory discretionary fee is.) This just became effective April 2. https://institutional.fidelity.com/app/proxy/content?literatureURL=/9910956.PDF https://www.sec.gov/files/33-11211-fact-sheet.pdf
Personally, I suspect I may be more likely to go down in a Boeing plane than to lose money in a MMF, though that's just a gut reaction.
Comments
Obviously you wouldn't buy those when you could just as easily buy one paying a better rate. So the "Quoted" (asking) price for one of those lower-paying CDs will be something less than 100%, so that the total income at maturity (YTM: Yield to Maturity) will be competitive with the higher-paying ones.
Similarly you will also find some older CDs paying more than the currently available ones. You can expect the "Quoted" to be higher than 100%. Same reasoning.
No one is interested in selling you a really small CD- the minimum is typically $1000.
The default 1-year "Preferred" list is only the tip of the iceberg-
• If you want a maturity other than the one-year default simply click on the maturity that you want- they go from 1 month to 10 years.
• If you really want to explore the CD universe use the "Visit Find CDs" link for a detailed CD search. There you can enter any parameter that you want, such as "non-callable" or a different maturity, or a minimum rate that you will accept.
Everyone on TV seems to be correlating equity prices to rate cuts by the Fed Reserve. I would have thought equity prices (discounted cash flows) and housing activity are impacted by 10 yr treasury rates. I can see a situation where the curve steepens: Fed cuts rates and 10 yr Treasury rates go high and stay high because of fiscal policy (deficits). How does that help equity prices, except from the slight boost in economic activity? I think a lot of consumer loan rates and businesses' working capital financing rates depend indirectly on the short end of the curve. Why are the equity quacks debating ad nauseam on TV whether the Fed will cut rates and by how much in 2024?
My CD ladder in taxable savings is heavy on the short end, with issues maturing every 1-3 months. My IRA ladders have issues maturing about every 6 months.
True story: Years ago and for a coupla years, I was diligently (some say "anally") projecting my defined benefit pension plan lump sum payment (one of three defined benefit pension plans in our household) that was largely driven by a coupla factors including the 10-yr rate. During one of those years, one of the most reliable investment houses projected a 3.5% change in the 10-yr in the coming 12 months. And voila! Amazingly they nailed the % move EXACTLY! Well, except for the all important direction of the move, which they said was going to be DOWN, but instead went (Oopsy!) UP.
The strategy for owning a CP CD ladder as one's fixed income sleeve has been posted about ad nauseum on this forum. I know that's true because I am one of its leading proponents and made a ton of posts about it. Any otherwise reasonably intelligent investor on this forum who still doesn't get it needs to go back and re-read some of the many other threads on the topic over the past year or so. It's pretty simple.
Basically, what are you hoping for (and I ask that pointedly as IMO, hope is what you're dealing with here) out of your dedicated bond funds over the next 5-yr period. 4%? 5%? 6%? And if your hopes are in that range, why did you NOT (when the option was available - it ain't now) instead take the stress, guessing and hoping out of the equation and guarantee a 5+% APY from an FDIC'd, CP CD 5-yr ladder?
BTW, the venerable Art Cashin used to routinely remind us, "I learned long ago that hope is not a viable, long-term investment strategy."
Disclaimer_1: We own a 5-yr CP CD ladder paying 5+% APY as our fixed income sleeve and it now serves as self-insurance for our projected LTC needs. The current 5-yr CP CD rate is still over our % hurdle and we continue to replace rungs as they fall off. This strategy has given us WAY more time to spend on our stock sleeve (IMO, where real money is made) and the extra time and effort afforded us by the ladder has resulted in blowout TRs over the past 1-to-1 1/2 years as we've accurately identified some of the best places to be in that market (that is, US, AI, LCG and Semis).
Disclaimer_2: I'm tired of posting the same thing over-and-over again and I trust some forum participants are tired of reading it as well. So this will be my last time. For those who still don't get it, maybe try reading it s-l-o-w-l-y one last time?
I have a ladder of CDs and Treasuries, and recently had a CD called. Was able to rebuild that rung with a Treasury of shorter duration but higher interest rate than the called CD. This will work only as long as the yield curve is negatively sloped.
This problem has been pointed out before - banks in trouble often offer the highest rates. Be careful. Sure, the FDIC protection is there, but if a troubled bank is taken over or reorganized, then all those high rates will adjust. And you won't get a memo from the FDIC before it moves.
Twitter LINK
Edit/Add, 4/10/24. Now read about it at CNBC.
https://www.cnbc.com/2024/04/10/nycb-is-paying-the-nations-highest-interest-rate-apy.html
However, I initially bought about six callable CDs in my ladders. Some of the shorter issues have matured, but I’ve still got 5 callable CDs with maturities ranging from a few months to 3-4 years. Only one of my CDs has been called in, and ironically it was a shorter maturity issue that I was able to replace at the same rate. I’m assuming the longer term CDs will be called in, but I’m satisfied with the 5% yields in the meantime. I’m surprised that none of these have been called yet because their yields are well above current rates.
edit: by the way, if you open the CD detail it gives you the "next callable" date. Doesn't mean it will be called but that's the hump you would need to pass.
In a moderate (5%) to high (10%) income tax state, the fund can save 20-40 basis points in taxes (assuming the fund is 80% invested in Treasuries and yields stay above 5%). It may not be worth shopping different institutions to gain a few basis points, but moving from VMFXX to VUSXX can be done overnight and doesn't involve multiple institutions.
https://investor.vanguard.com/investment-products/money-markets#mm-rates
Of course this only makes sense in a taxable account.
And m-mkt reforms are ongoing, especially for gates for retail-prime m-mkt funds and other aspects for institutional-prime m-mkt funds (with floating NAVs).
I don't worry about government m-mkt funds with $1 NAV. Without the fear of gates, retail-prime m-mkt funds with $1 NAV will be fine too.
For liquid part of fixed-income, one can look broadly at a mix of m-mkt funds, T-Bills, short-term CDs, ultra ST bond funds. It isn't a good idea to rely entirely on any one of these, or to claim that one would never have x or y or z.
BTW, institutions are stuck with m-mkt funds and T-Bills (ask Warren Buffett) because what will do with limited FDIC insurance, now restricted to 5x per account per bank with all sort of tricks.
Exactly right.
For the most part, I agree with Yogi. My qualification is that liquidity is somewhat in the mind of the beholder. In my mind, I wasn't particularly concerned about the theoretical possibility of gates, just as I am not concerned about the current theoretical seven day notice requirement to get money out of a bank savings account or the current theoretical seven days it could take a MMF to deliver cash upon share redemption (see any MMF prospectus).
Fidelity didn't seem to be concerned about gates when they existed. At Fidelity, you can keep all your cash in a "non-core" prime MMF and Fidelity will consider that the same as cash for all purposes. That is, you can use it to settle trades, write checks, etc. I asked Fidelity what it would do if I made a trade on Mon, and before settlement on Wed my prime fund implemented a gate (so settlement cash wouldn't be available on Wed). Fidelity's honest response was "we don't know".
OTOH, the possibility of redemption fees on MMFs still exists, though in a different form than before. "non-government money market funds must impose a discretionary liquidity fee if the fund’s board (or its delegate) determines that a fee is in the best interest of the fund." (I leave it to readers to figure out what a mandatory discretionary fee is.) This just became effective April 2.
https://institutional.fidelity.com/app/proxy/content?literatureURL=/9910956.PDF
https://www.sec.gov/files/33-11211-fact-sheet.pdf
Personally, I suspect I may be more likely to go down in a Boeing plane than to lose money in a MMF, though that's just a gut reaction.