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Current CDs are Compelling

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?
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Comments

  • dt. I am a happy retiree at 5.2%. Also worth mentioning are more choices from too big to fail banks as opposed to small no name banks. If one has no need to take risks this is a happy time.
  • I share your enthusiasm, but my CD ladders extend out 5 years. I also include Treasuries in my ladders for shorter term holdings. CD yields have been on of the bright spots in the inflation dilemma.
  • I'm similar to Tarwheel- about 50% CDs and 50% Treasuries out to 2028. I'm 85 (well, maybe 84.990632) so 2028 is about as far as I want to look. As far as rates, the CDs and Treasuries are pretty close. We still have a huge chunk in Schwab Treasury MMKT SUTXX which has been around 5.17% for some time now. I'm watching very warily- if rates start to trend either up or down I'm going to move more over to the ladder, but for now I'm just watching.
  • edited May 31
    I understand that each person has to look in the mirror, make some very personal assumptions, and then invest accordingly. When I look in the mirror, I see a relatively healthy person, with a family history of living into my mid to late 80s. But I also see a person, who is currently having to go through some major tests involving kidney disease, and a person whose age related skills are deteriorating and am just an accident away from being family history. For now, I choose to keep a sizeable chunk of my assets in illiquid CDs. I do maintain a sizeable chunk of my assets in liquid assets, or Bank CDs with acceptable termination fees. I can always return to momentum based mutual fund investing, but that is a lot stress for me that I choose to avoid, as long as I have low stress alternatives. Accumulation of assets is no longer important to me, but Preservation of assets is highly important, and right now Fixed Income options are highly attractive for my personal objectives. I have a bunch of cash from maturing CDs, and right now I am on the hunt for attractive CDs.

    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.
  • Follow up--the 1year CD paying 5.3% disappeared before I could purchase it today. As an alternative, I bought a 9 month CD paying 5.35%. This was acceptable for me as I was seeking a short term CD for my taxable account. I focus on liquidity more in my taxable account with a ladder of shorter term CDs and MMs, and are more supportive of longer term CDs in my Traditional IRA account.
  • dt. I am sure you know this but others may not. I have learned that you can buy a CD and not pay for it till the settlement date. So if you have a CD maturing on the 4th and you spot one that you want and it doesn’t settle till the 7th you can pull the trigger today … this applies to Schwab.
  • I went and looked -- there's a one-year CD from Wells Fargo at 5.4% right now.
  • sfnative said:

    I went and looked -- there's a one-year CD from Wells Fargo at 5.4% right now.

    Yep, shorter maturities (3mo, 6mo, 9mo, 12mo) are adding higher yielding CDs the last few days. 5.4% seems to be available from many well-known banks, including the 5.4% for one year from Wells Fargo. At Schwab, Wells Fargo is offering some of the highest yielding CDs, for most all categories of CDs. Might not stay that way for long, but currently Wells Fargo CDs look good.

  • I had 100 K at Schwab, was going to buy ETFs, changed my mind and they put me into 5.15 CD at a Missouri bank- I sleep a little betternow- I got enough money in the Wall Street casino
  • I am sort of going the other way. As my CDs mature, I am redeeming them. The last one will mature in about 2 months. Putting the cash in our MM fund for right now. It is paying a fraction over 5.25%, but plan to later go with a I-T Bond Fund.

    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.
  • @Hondo. I get that. I try and try and try to get my dear wife interested or motivated to do exactly what you describe. Massive fail on my part. My fall back is just do Wellesley and do done with it but so far I refuse.
  • hondo said:

    I am sort of going the other way. As my CDs mature, I am redeeming them. The last one will mature in about 2 months. Putting the cash in our MM fund for right now. It is paying a fraction over 5.25%, but plan to later go with a I-T Bond Fund.

    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.

    hondo, I wish you nothing but the best, and you know what is best for you and your wife.

    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!
  • Just about the same situation here. I'm trying to get my wife comfortable using the Schwab site but it's going to be a challenge.
  • Old_Joe said:

    Just about the same situation here. I'm trying to get my wife comfortable using the Schwab site but it's going to be a challenge.

    I don't expect my wife will ever go to the Schwab site and make investing choices on CDs. I do expect that she will call the local Schwab brokerage office, get linked to the Fixed Income Specialist, and communicate with the Fixed Income Specialist about CDs, as a part of a Fixed Income management plan for her. She has the ability to discuss Fixed Income options pretty well with Schwab brokers assigned to our account, but that is the limit of her skill set.
  • larryB said:

    @Hondo. I get that. I try and try and try to get my dear wife interested or motivated to do exactly what you describe. Massive fail on my part. My fall back is just do Wellesley and do done with it but so far I refuse.

    larryB: Using Wellesley is not a bad idea. We use it pretty heavy in our tax-deferred accounts. My wife currently has her RMD set up to come out monthly and proportional across all three of her IRA funds, two balanced, one bond, so rebalancing is not necessary. I had a long conversation, yesterday, with an agent in the change of ownership dept. at our brokerage. So the current plan, in a nutshell, is for her to call the Change of Ownership Dept. and have my T-IRA and Roth IRA "Assumed" by her T-IRA and Roth IRA. Her monthly distribution would remain in force for the larger balance. With the larger monthly RMD and our monthly pensions, she should be set. Of course, she will have to transfer our joint account in kind to her personal account. In case of excess expenses, such as medical or long term care, she can draw from the taxable funds.
  • dtconroe: I am sorry. I seem to have sort of hijacked your thread. So, this is my final post on this thread.
  • hondo said:

    dtconroe: I am sorry. I seem to have sort of hijacked your thread. So, this is my final post on this thread.

    No problem--CD commentary seems to have played out.

  • edited June 5
    IMO, the most compelling CP CD rates are at 5 years. This is a moment in time that will pass far quicker than many here think. Not sure what is compelling about 1-12 mo rates when Prime MMkt funds are paying just about the same and provide full flexibility for that bucket.
  • stillers said:

    IMO, the most compelling CP CD rates are at 5 years. This is a moment in time that will pass far quicker than many here think. Not sure what is compelling about 1-12 mo rates when Prime MMkt funds are paying just about the same and provide full flexibility for that bucket.

    Everyone has their own personal criteria for how they use brokerage CDs. I personally do not want to tie up my money for 5 years at my age, but others may be interested in doing that. Regarding MM funds, I do maintain a fair amount for liquidity reasons, but I have already started to see some decline in MM rates over the past couple of months, and I do not expect those rates to stay the same, or increase in the future.

    But to be fair, what is compelling for me, would not necessarily be compelling for others, such as you.
  • edited June 7
    To clarify, I fully agree that CP CD rates are compelling in relation to other FI options. I've Just Said No to bonds for the foreeseable future thanks to CP CD rates being well over my threshold to ditch bonds.

    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%.
  • Stillers: "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................ I trust many others) notion that we won't be seeing anything near 4.70% rates in 2029 when the 5-yr CD matures."

    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.

  • Any investor with $3,000 can BUY VMRXX paying 5.29%.
  • edited June 8
    What is the difference between VMFXX and VMRXX, except for the 1 or 2 basis points 7-day yield difference?

    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?
  • stillers said:

    Any investor with $3,000 can BUY VMRXX paying 5.29%.

    Looks like a Vanguard Money Market Fund--I can't get it at Schwab, where all my brokerage assets are located. I can get a comparable fund, with that interest rate, at Schwab with a $1million cash investment. I don't know if it is available at other brokerages, or what comparable funds are available at other brokerages.
  • At Schwab $1.00 minimum. SWVXX 1 YEAR +5.27. Their prime money market, should be similar to VMRXX.
  • Art said:

    At Schwab $1.00 minimum. SWVXX 1 YEAR +5.27. Their prime money market, should be similar to VMRXX.

    SWVXX is not currently paying 5.27%--it resets every 7 days, and is currently paying 5.16%. Its rate has been dropping for about the past 2 months. SNAXX is the Institutional Class counterpart, that is currently paying 5.3%, but requires $1 million investment to purchase it. If you intend to buy any MMkt rate currently, it is highly unlikely it will stay that high for the next 12 months, given the recent performance trend of it going lower. Everyone has an opinion, that may or may not be accurate, but I think MMkt rates will drop around .5% over the course of the next 12 months.
  • dtconroe said:

    Art said:

    At Schwab $1.00 minimum. SWVXX 1 YEAR +5.27. Their prime money market, should be similar to VMRXX.

    SWVXX is not currently paying 5.27%--it resets every 7 days, and is currently paying 5.16%. Its rate has been dropping for about the past 2 months. SNAXX is the Institutional Class counterpart, that is currently paying 5.3%, but requires $1 million investment to purchase it. If you intend to buy any MMkt rate currently, it is highly unlikely it will stay that high for the next 12 months, given the recent performance trend of it going lower. Everyone has an opinion, that may or may not be accurate, but I think MMkt rates will drop around .5% over the course of the next 12 months.
    You may be right. How I handle this is while putting a good chunk of the income segment of my portfolio in money market funds, I have also put money into bond funds rather than CDs, so if money market yields go down from interest rates going down, bond funds (at least investment grade) will go up in value. I had been buying CDs starting a few years ago, once they matured I put them into money market funds and bond funds (some investment grade, some multisector or high yield). I now prefer the flexibility of money in money market funds and not locked into a CD, and my bond funds have exceeded what I would have received in CDs. If anything, a good substitute for a CD would be the ETF MINT (and not be locked in) or a good short term bond fund. I could turn out to be wrong, but that’s what I have been doing.
  • edited June 8
    VMRXX is the old VG Prime M-Mkt. When 2014/16 m-mkt reforms happened, VG tried to get an exception because VMRXX was in retail-prime category. When exception wasn't allowed, its name was changed to VG Cash Reserves Federal & it adjusted objectives. VG already had Federal VMFXX. These 2 funds could be merged but VG kept both - VMFXX as core/settlement & VMRXX with 1 bps lower.
  • Chinfist said:

    dtconroe said:

    Art said:

    At Schwab $1.00 minimum. SWVXX 1 YEAR +5.27. Their prime money market, should be similar to VMRXX.

    SWVXX is not currently paying 5.27%--it resets every 7 days, and is currently paying 5.16%. Its rate has been dropping for about the past 2 months. SNAXX is the Institutional Class counterpart, that is currently paying 5.3%, but requires $1 million investment to purchase it. If you intend to buy any MMkt rate currently, it is highly unlikely it will stay that high for the next 12 months, given the recent performance trend of it going lower. Everyone has an opinion, that may or may not be accurate, but I think MMkt rates will drop around .5% over the course of the next 12 months.
    You may be right. How I handle this is while putting a good chunk of the income segment of my portfolio in money market funds, I have also put money into bond funds rather than CDs, so if money market yields go down from interest rates going down, bond funds (at least investment grade) will go up in value. I had been buying CDs starting a few years ago, once they matured I put them into money market funds and bond funds (some investment grade, some multisector or high yield). I now prefer the flexibility of money in money market funds and not locked into a CD, and my bond funds have exceeded what I would have received in CDs. If anything, a good substitute for a CD would be the ETF MINT (and not be locked in) or a good short term bond fund. I could turn out to be wrong, but that’s what I have been doing.
    I don't know how long I will emphasize CDs, but for now, I will take advantage of CDs in an 18 month ladder. If CD rates deteriorate, I have a sizeable number of CDs maturing throughout 2025, and will reserve the option of reinvesting those proceeds into something different--I will cross that bridge when I get to it. I like CD ladders, as I always have a CD maturing every few months, giving me ongoing cash availability for adjustments in my investing options. I have historically invested in bond oefs, since I retired--I can always return to that option if necessary, but I will ride the cd horse as long as rates stay high.
  • Exactamente. Same here.
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