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Maturing CDs

dtconroe
in Fund Discussions
At 76 years old and happily retired, I have been investing in CDs for the past few years. About 1/3 of my CDs will be maturing in the next month. It appears that the renewal rate, for "noncallable" CDs, will be around 4.3%. That is about 1% lower than the maturing CDs. I am wrestling with renewing at the 4.3% rate, with almost no stress, or jumping back into the more active investing options. Anyone else in a similar situation?
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Comments

  • MikeMMikeM
    Not everyone's cup of tea, but I have been getting added yield by buying "callable" bonds where the "next call date" is a year or 2 out there. I'm making the assumption a 5, 10 or even 20 year cooperate or gov. agency bond will be called at first call or some time after, while I still can get 5.5-6% until it is called.

    That said, I have much more money in bond mutual funds and ETFs now versus a year ago.
  • AnnaAnna
    edited December 5
    Many of my higher rate CDs are maturing. I am extending some to 3 to 5 years even if the rate is 3.40% for 3 years(the rate I am getting for one maturing today). I just turned 76 years of age. With ultra-conservative passive investing my post-retirement savings has doubled and, so far, knock on a lucky door, my non-saving, non-RMD income has exceeded my spending. (Spending, be deviled, 57% of that spending this year has been nothing but federal and property tax.) I discovered I just no longer want to chase the rates or the markets. I guess I should find some tax free stuff since anything I do seems to raise my unused dividends/interest and cost me more in taxes.

    Girls just wanna have fun.
  • yogibearbullyogibearbull
    2-yr T-Notes are at 4.13%, 5-yr 4.07%. Why go for 3.40% CDs?
  • howaya
    If your tax rate on qualified dividends is considerably less than CDs, why not consider replacing some of the maturing CDs with beaten down large-cap stocks? PFE, for example, is currently yielding ~6.65%. If you have no desire to hold individual positions there are ETFs such as those mentioned in www.nerdwallet.com/article/investing/high-dividend-etfs
  • hank
    edited December 5
    So good to hear from you @dtconroe. Was concerned about your absence. You have so much to offer when it comes to fixed income investing.

    Re ” … or jumping back into the more active investing options “

    A couple years older here and never been the “cash” type. But depends on a lot of personal situation factors. I’m at 7.5% in Fido’s MM fund. Take whatever they give me. The 2 “least risky” components of the larger portfolio (15.5% each) are CVSIX and LPXAX. Both should generate a percent or two over cash longer term. However, am prepared for some ocassional down years (- 3-5%) as well. And the fees tend to be higher than most want. Also, there’s been some discussion of (lower fee) JAAA as an alternative to cash - but we don’t have a firm grasp of the risk under certain adverse conditions.

    Just killing some time on a nasty winter morning. Best wishes.
  • dtconroe
    hank said:

    So good to hear from you @dtconroe. Was concerned about your absence. You have so much to offer when it comes to fixed income investing.

    Re ” … or jumping back into the more active investing options “

    A couple years older here and never been the “cash” type. But depends on a lot of personal situation factors. I’m at 7.5% in Fido’s MM fund. Take whatever they give me. The 2 “least risky” components of the larger portfolio (15.5% each) are CVSIX and LPXAX. Both should generate a percent or two over cash longer term. However, am prepared for some ocassional down years (- 3-5%) as well. And the fees tend to be higher than most want. Also, there’s been some discussion of (lower fee) JAAA as an alternative to cash - but we don’t have a firm grasp of the risk under certain adverse conditions.

    Just killing some time on a nasty winter morning. Best wishes.

    Hi hank, nice to hear from you. My investing choices have moved into very passive CDs in recent years. I just don't think my investing choices offer much information, that others would be interested in. My personal situation is virtually unchanged, except that I have no need to chase higher returns via active investing, with frequent buy/sell decisions. I still monitor a large number of watchlists, primarily various categories of bond oefs, but have not been inclined to invest in those bond oefs recently. I may choose to carve out a small position in a fund on my watchlist, just to stay in touch with something other than passive CD choices, so now is a time where that may be viable.
  • dtconroe
    MikeM said:

    Not everyone's cup of tea, but I have been getting added yield by buying "callable" bonds where the "next call date" is a year or 2 out there. I'm making the assumption a 5, 10 or even 20 year cooperate or gov. agency bond will be called at first call or some time after, while I still can get 5.5-6% until it is called.

    That said, I have much more money in bond mutual funds and ETFs now versus a year ago.

    Hey Mike, I have been monitoring both callable and noncallable CDs at Schwab. My focus has been on CDs in the 2 year or less range. I am not opposed to trying a callable CD but have not found those 5.5-6% callable CDs at Schwab. I will look again but am curious where you have been finding those callable CDs at those rates?
  • msf
    If you're willing to hold cash-ish (CDs in this case) for a couple of years, then why not take a closer look at RPHIX? If you wait it out a year or two, its minor volatility doesn't matter and it "always" does better than cash.

    Portfolio Visualizer comparing RPHIX and cash

    I believe MikeM was looking at corporate bonds, not callable CDs. Only assume that the bond will be called if it is currently trading above par. Even then, should interest rates go back up, or if the company issuing the bond should have cash flow issues, you may wind up with the bond for a longer period of time.

    I just had a muni bond called that was eligible to be called a couple of years ago. For whatever reason the government entity didn't call the bond for awhile. The bond was even trading above par, so not it not getting called was a plus for me. But much of the time if a bond doesn't get called, it's because its price has dropped below par. Then you're stuck with the bond or you sell it at a loss.
  • Tarwheel
    DT, I’ve been facing the same dilemma. The best yields I can find for call- protected CDs at Fidelity are about 4% in the 3-5 year range, and 4.2 in the 1-2 year range.Treasuries are slightly lower but more liquid. Recently I’ve been reinvesting in short-term bond funds (FCNVX, THOPX and USFR). I’ve also bought some agency bonds yielding more than 5%, but they are likely to be called if rates drop.
  • BaluBalu
    I would say a solid money center bank callable bonds, callable Agency bonds, PAAA, and RPHIX are all good choices. Instead of either / or, you can split between them.
  • Old_JoeOld_Joe
    @dtconroe- good to hear from you again. We are in exactly the same situation as you describe. I recently bought a long-term Deutsche Bank bond at 5.75%, callable in two years (that MikeM found) from Schwab. However as msf mentions hoping for a call in two years may have been a bad move, since it seems likely that inflation may increase substantially under the new, improved political franchise. If that happens, we may be stuck with that bond for much longer than desirable.
  • fred495
    edited December 6
    Good point, Old Joe, that's why I am putting some of the proceeds of any maturing CDs into bond OEFs like CBLDX, DHEAX, ICMUX and RCTIX.

    I am also putting money into two low risk market neutral funds like QQMNX (SD=7.2%) and JMNAX (SD=4.4%), and HELO, a hedged equity fund.

    So far, so good. If not, I'll just pull the trigger. At my age, I prefer to err on the side of caution.

    But, good luck.
  • Old_JoeOld_Joe
    @fred495- Thanks- I think that we're going to need it.
  • dtconroe
    BaluBalu said:

    I would say a solid money center bank callable bonds, callable Agency bonds, PAAA, and RPHIX are all good choices. Instead of either / or, you can split between them.

    I owned very low risk bond oefs for many years. RPHIX was a long term holding, as my most dependable bond oef for my "cash alternative" holdings. I am going to take a second look at callable CDs.
  • dtconroe
    Old_Joe said:

    @dtconroe- good to hear from you again. We are in exactly the same situation as you describe. I recently bought a long-term Deutsche Bank bond at 5.75%, callable in two years (that MikeM found) from Schwab. However as msf mentions hoping for a call in two years may have been a bad move, since it seems likely that inflation may increase substantially under the new, improved political franchise. If that happens, we may be stuck with that bond for much longer than desirable.

    I am not good at trying to predict the market, even for the near future. I expect some political turmoil in the near future, but I am not good at predicting politics either. CDs have been good for both my financial objectives, as well as my mental health, for a few years now. At my age, winning investing trophies is not important to me. My financial objectives are much more "modest"--just make enough TR to preserve principal, with as little stress as possible. I am not opposed to callable CDs, or even very low risk bond oefs like RPHIX, but not really interested in more risky investments than that. Other investors can chart the path that fits their financial objectives, and I realize that I am probably too conservative/risk averse, for most other investors/posters on this forum.
  • dtconroe
    fred495 said:

    Good point, Old Joe, that's why I am putting some of the proceeds of any maturing CDs into bond OEFs like CBLDX, DHEAX, ICMUX and RCTIX.

    I am also putting money into two low risk market neutral funds like QQMNX (SD=7.2%) and JMNAX (SD=4.4%), and HELO, a hedged equity fund.

    So far, so good. If not, I'll just pull the trigger. At my age, I prefer to err on the side of caution.

    But, good luck.

    Hi Fred, looks like you are back to using the same kind of bond oefs that you were using before the most recent market tumble. I am not there yet, but I do have a lot of good feelings about lower risk bond oefs like RPHIX, CBLDX, and DHEAX. I maintain a watchlist of very conservative/low risk bond oefs, but I am expecting those funds to become more volatile, than the past couple of years. But as I have said in the past, I am not a good predictor of the future, and will likely stay more conservative and risk averse, than most posters/investors on this forum
  • stillersstillers
    edited December 6
    We avoided this very issue by taking the opportunity when it was there to build a 5-yr CD ladder averaging 5+% that completely replaced our bond sleeve. In consideration of the (current high) probabilities of rate cuts in Dec, March and May, we will continue to replace maturing CDs as they fall off the ladder with the current, in our opinion, still acceptable 1-5-yr, 4+% rates.

    We have looked at and are watching some of the popular ST and HY bond OEFs but are currently still Just Say(ing) No to them. No need for us at this point to add their respective risks given our ladder.
  • AndyJ
    edited December 6
    My Treasury ladder is getting shorter and shorter, I'm in the redeployment camp too, and somewhere in the range of dt and Fred in degree of risk aversion. Maturing T proceeds are going into funds very much like Fred mentioned, and into ultrashort etf's that have been discussed at length on MFO. A chunk of the latter is $ to some degree waiting in the wings for better opportunities.

    That's more tinkering than you want, @dtconroe, but the ultrashorts might be a place for some of your CD proceeds. Hope things are otherwise going well for you.

    P.S. CBRDX is another low duration fund in the CrossingBridge stable you might look at.
  • MarkMark
    Does LONZ appeal to any of you or are we talking about two different universes here?
  • larryB
    @dt. Great to see your post. Missed your conversations that are totally relevant for investors of a certain age and circumstance. Facing the same challenges and I am guided Buffet’s Rule Number one.
  • BaluBalu
    What is that?
  • Mona
    BaluBalu said:

    What is that?

    Never lose money.

    https://www.investopedia.com/financial-edge/0210/rules-that-warren-buffett-lives-by.aspx

  • Old_JoeOld_Joe
    @Stillers- yes, I did the same, but our ladder is only out to the end of '27. I'm 85, and my wife is not financially intuitive, so I'm not at all sure how much further out to push that.

    Normally I would agree with accepting lower CD rates as the Fed continues to reduce, but if the next administration does even half of what is promised I cannot see how inflation will go anywhere but up.
  • Derf
    Maybe it's time to shorten the ladder !?
  • AndyJ
    edited December 6
    Mark said:

    Does LONZ appeal to any of you or are we talking about two different universes here?

    It's pretty junky if that's a concern, but another good ultrashort duration option of Pimco's.
  • Old_JoeOld_Joe
    Well, my wife is 83, and CDs are a good place for her as they are simple and straightforward and will continue to come due after I'm not here to juggle things. So a CD ladder out a few more years for her seems reasonable.
  • fred495
    edited December 6
    Hi DT, good to see you back. I always enjoyed reading your informative posts.

    Yes, I am/will be using the same kind of low risk bond OEFs (all with SD<4%) I was using before the most recent market tumble for about for about 60 to 70% of my portfolio. The remainder will be in low risk alternative/hedged funds.

    At this time, I'm not purchasing new CDs. As I said, I think Old_Joe makes a good point when he states that "it seems likely that inflation may increase substantially under the new, improved political franchise".

    In the meantime, be well and good luck.
  • BaluBalu
    Thanks, Mona.
  • dtconroe
    I have not mentioned MMs, where I have been holding a large chunk of my maturing CDs. I have chosen to use the highest yielding MMs at Schwab, which holds a broad range of investing categories, including US and foreign government and corporate sources. SNAXX and SWVXX are paying about .25% more than Bank CDs through Schwab. Those MMs are very liquid and have been dropping slowly, but at least offer a short term earnings advantage over CDs. Again you get into a guessing game about where rates are heading, and you have to be confident/comfortable with these more "diversified" MM investments. If you opt for safer US Government based MMs, you are pretty much mirroring the noncallable CD rates. In 2023, I opted to move a large chunk of my Schwab Taxable money to Capital One CDs, but as those Capital One CDs mature, I am now considering moving that CD money back to Schwab, where I can find more attractive investing returns. With my IRA money at Schwab, I hold SNAXX which offers much better rates than I can get with CDs--but for "how long" is the question.
  • Baseball_Fan
    No one can say for certain if we'll have inflation increases going forward...assumptions are being made...just the same ERC filings due to end in 2025, tuition loan forgiveness will end, energy costs likely to decrease, wasteful govt spending reduced, quite possible (hopefully) peace dividend to come under new govt etc etc...who knows, sure could go the other way?

    what is wrong with staying short duration in Tbills/notes US2yr or less? still getting over 4%, no state taxes...think back a couple years ago and what dozen years before that...2% looked good, no?

    Maybe stay with rolling US3M, US6M, US12MTbills out to a year with 90% of your monies and take the other 10-15% and go with GRNY, Tom Lee's new ETF...you can still be real conservative...
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