I have a very large percentage of my Schwab CDs maturing. I was very pleased to see the rates that are being offered-5.4% for very short term periods, 5.35% for 1 year, 5.2% for 18 months, and 5% for 2 years. As a 76 year old retiree, these CDs are very compelling as a safe investment, for a large part of my portfolio. I continue to maintain an 18-month CD-ladder. I just added two 18 month CDs, one from Wells Fargo and one from Bank of America, paying 5.2%. Tomorrow, I plan on adding a 1-year CD, paying 5.3%. Will likely do more CD shopping next week. For more liquid options, Schwab is still offering MMs, paying over 5%, but MM rates have been dropping in the past couple of months. As long as CDs stay at these higher levels, I am a willing investor, but I am skeptical that they will stay at these levels much longer, but who really knows for sure?
Comments
Just a note that yesterday, I identified a one year CD through Schwab, that was very appealing to me, but I did not pull the trigger. This morning, I went into to invest in that CD, and it is gone. Maybe that CD will re-emerge later today, but if not, then I will have to start searching for a viable alternative. Next week, I have additional CDs maturing, but will have re-evaluate the available options at that time--maybe just MMs for awhile.
I do like CDs, but always having to search for the best rate to reinvest as they mature is something my wife would not want to do when I am gone. No, that is not true, it is something she would not do, so I'm going with I-T Bonds with the dividends reinvested.
I am 86, she 85, so we don't think in long terms any more.
A big part of my decision to use CDs, besides their attractive yields recently, is my wife understands CDs. We use to invest in CDs extensively about 20 years ago, but then the market crashed, banks started closing, and CD rates started dropping like a rock. During that period, my wife became the elderly caretaker of her mother, and worked closely with me to select CDs paying in the 5% range--they were all over the place at local banks and she use to go with me to various banks to buy a CD. My wife fully understands the basics of Bank CDs, interest rates, redemption fees, reinvesting dividends or capturing dividends, etc.
When CDs started to resurface as a viable investing option about 2 years ago, she and I discussed what we should do with our Schwab Brokerage Accounts (her IRA, my IRA, and a Joint Taxable Account). We had cashed out of the market, and had investing options to talk about. She was very excited about the option of using the CDs available at Schwab, and she has learned the differences between a Bank CD and a Brokerage CD. Because of my wife's understanding of CDs, her comfort with CDs, and my desire to feel good about my wife knowing how to work with the Schwab Brokerage office close to where we live, I continue to such all of the returns out of CDs, as long as I can. My wife and I talk about every CD I purchase and for the first time in many many years, my wife is involved again in our investing decisions--that is of huge importance to me!
But to be fair, what is compelling for me, would not necessarily be compelling for others, such as you.
Carving into the respective CP CD rates though:
I find nothing compelling about a 1-yr CP CD rate of 5.45% when VMRXX is paying 5.29%. On a $100K investment, the difference over the 12-months is ($5,450-$5,290 or) $160 IF the MMkt rate holds steady for the full period. That piddly difference is not a compelling difference that would cause me (at least, and I trust manty others) to lock up $100K for a year, regardless of our age.
To wit, with MMkt cash this year, instead of locking it up in a ST CP CD, I made three ST stock trades (documented on this forum in real time) on GOOGL (2) and NVDA and made some whopping ST gains. Proceeds went back into MMkt.
Conversely, locking in a 5-yr CP CD rate of 4.70% IS compelling to me given my (at least, and I trust many others) notion that we won't be seeing anything near 4.70% rates in 2029 when the 5-yr CD matures. The same notion applies to a 3-yr CP CD rate of 4.90%.
I do not believe that MMkt rates will hold steady for the next 12 month period, and most investors can't get a MMkt paying 5.29%. Many investors prefer a more secure government MMkt fund that pays under 5%. For the past 2 months, my MMkt rates have been dropping, and I expect them to continue to drop over the next 12 months. As far what CD rates will be at the end of the next 5 year period, that is just too speculative for me to guess. When MMkt rates went to zero in 2007/2008, I doubt anyone expected them to stay at zero for the next 15 years.
VMRXX product summary from VG website: "The fund invests at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The fund invests more than 25% of its assets in securities issued by companies in the financial services industry, which includes securities issued by certain government-sponsored enterprises. The fund is considered one of the most conservative investment options offered by Vanguard. Although the fund invests in short-term U.S. government securities, the amount of income that a shareholder may receive will be largely dependent on the current interest rate environment. Investors who have a short-term savings goal and are interested in a fund that invests in securities issued by the U.S. government or its agencies may wish to consider this option." [Bold added]
The sentence in Bold is not there in product summary for VMFXX, their default sweep fund. Is that the only difference between these two products?