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Since I am not a Schwab customer, I am holding my cash in TFLO (iShares Treasury Floating Rate Bond ETF) which currently gives me a 30 Day SEC Yield of 4.56% along with no state and local taxes. But, as DT says: "for "how long" is the question".
OP: If you are OK with illiquidity (which is typically the case with CDs), than an alternative might be MYGAs. As of 12/7, MYGA rates for my state (TX) were on offer from A-rated insurance companies, as high as:
2 year 5.2% 4 year: 5.2% 6 year 5.4%
Live quotes are available at 'stantheannuityman.com' No FDIC insurance on these, but, the A-rating may provide some comfort. And the insurance industry is heavily regulated generally. Interest earned in non-qualified accounts is deferred from taxes until withdrawn.
I don't own any annuities (other than Soc Security). Simply pointing out one possible option. Thx
Just for clarification, I fully understand the illiquidity issues of CDs, especially when bought through a brokerage like Schwab. To cope with that illiquidity, I set up a short duration ladder at Schwab for the brokerage CDs--that is why I have 1/3 of my CDs maturing now, and the remaining 2/3 of my CDs maturing at several times throughout 2025. I also moved a large percentage of my "taxable" Schwab account, in 2023, to CDs in a local Bank account--those Bank Account CDs can be sold before maturity, with a less "painful" early redemption fee. Also, with all of my Schwab brokerage accounts (taxable and IRA), I maintain MM accounts for liquidity purposes, such as RMD selling obligations each year. I am required by IRS to liquidate over $50,000 per year, which leads me to pay taxes, while putting those RMD redemptions into my taxable brokerage account and high yield local Bank accounts. When CDs mature, I have to reassess my reinvestment options, but I do maintain a "preservation of asset" approach, collecting dividends each year to offset my redemptions.
@dtconroe : For someone that uses CD's as much as you do, I would have thought that your ladder would have reached out a few more years. Different strokes for different folks, Derf
”Given the largely as-expected jobs report, the federal-funds futures market put an overwhelming 85.1% probability the Federal Open Market Committee would lower its key policy rate by 25 basis points from the current target range of 4.5% to 4.75% at the conclusion of its two-day policy meeting on Dec. 18, according to the CME FedWatch site … That pretty much assumes that the next key data release, November’s consumer price index, doesn’t surprise to the upside.”
”Jobs Data Should Cement a Rate Cut. What’s Uncertain Is Everything Else.” Author: Randall Forsyth
(Excerpt #2) Provocative reader comment on article ”Inflation Isn’t Dead Yet. How to Protect Your Retirement Income”. I’ve quoted the comment in full, but have omitted name. I’m not expert enough on bonds to have an opinion, but thought this might prompt some informed discussion.
”After inflation bonds at current prices pay almost nothing, and junk bonds aren't much better. Bonds have zero protection against inflation. If you want TIPS (or any bonds) buy them on your own, not in a fund. That way you get paid in full at maturity and don't have to worry about price changes (drops from interest rate increases) before maturity. And don't pay off your mortgage; the Fed and Congress will continue to pay off 3 % of your balance every year, and will probably do a lot better for you. And with inflation supposedly nearing 2 % that is after drops in oil prices. Between Middle East problems, the topping of the Permian, green policy fantasies, and lots else, oil will almost certainly be going up and inflation with it.”
... I also moved a large percentage of my "taxable" Schwab account, in 2023, to CDs in a local Bank account--those Bank Account CDs can be sold before maturity, with a less "painful" early redemption fee. Also, with all of my Schwab brokerage accounts (taxable and IRA), I maintain MM accounts for liquidity purposes, such as RMD selling obligations each year.
When choosing between a 1 year CD and say, an 18 month CD in a taxable account, it may be worth keeping in mind that the 1 year CD (or any shorter one) might not be taxed until its maturity date. Interest is taxable as credited, which is why getting a CD that pays its interest at maturity makes the interest tax-deferred. The downside is that you don't get monthly interest payments if you need the cash flow.
If you don't need the cash (possibly not the situation here), you don't need to liquidate IRA holdings to take RMDs. They can be taken in-kind. If the market is up this can be advantageous as you need to distribute (withdraw) fewer shares to meet your RMD requirements. And if the market is down and if you've kept some liquid holdings in the IRA, you can use those for the RMDs instead.
No matter how you take the RMD distribution you owe taxes on the value of the distribution. Unless you use the distribution to make direct qualified charitable distributions (QCDs) to qualified nonprofit/charitable organizations.
@dtconroe : For someone that uses CD's as much as you do, I would have thought that your ladder would have reached out a few more years. Different strokes for different folks, Derf
Hi Derf, no I have not made a long term commitment to CDs as a long term investment option. I have used them in the past, and more recently, when they satisfied some investment objectives. When the rates change direction and start dropping below a base rate, then I prefer to re-evaluate other investing options. A short term ladder meets my needs for liquidity and flexible investing options. At 76, almost 77, I don't choose to go out very far on a CD ladder. Since retiring about 10 years ago, I have been moving much more toward a 4 to 6% TR goal, that allows me to preserve capital, by producing TR, which allows me to replenish principal, after RMD distributions each year. For several years I used a short term momentum based investing option, focusing on low risk bond oefs--I may choose to return to that investing approach as CDs mature, and if CD returns fall below 4% rates......"Different Strokes for Different Folks'
... I also moved a large percentage of my "taxable" Schwab account, in 2023, to CDs in a local Bank account--those Bank Account CDs can be sold before maturity, with a less "painful" early redemption fee. Also, with all of my Schwab brokerage accounts (taxable and IRA), I maintain MM accounts for liquidity purposes, such as RMD selling obligations each year.
When choosing between a 1 year CD and say, an 18 month CD in a taxable account, it may be worth keeping in mind that the 1 year CD (or any shorter one) might not be taxed until its maturity date. Interest is taxable as credited, which is why getting a CD that pays its interest at maturity makes the interest tax-deferred. The downside is that you don't get monthly interest payments if you need the cash flow.
If you don't need the cash (possibly not the situation here), you don't need to liquidate IRA holdings to take RMDs. They can be taken in-kind. If the market is up this can be advantageous as you need to distribute (withdraw) fewer shares to meet your RMD requirements. And if the market is down and if you've kept some liquid holdings in the IRA, you can use those for the RMDs instead.
No matter how you take the RMD distribution you owe taxes on the value of the distribution. Unless you use the distribution to make direct qualified charitable distributions (QCDs) to qualified nonprofit/charitable organizations.
msf, here is the key statement from my Original Thread Post regarding CDs that are maturing:
"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?
If you are a CD investor, with current CDs that are maturing, I would be interested in your response regarding your personal investing decision, about reinvesting the maturity back into CDs, or shifting to a different kind of investment.
I'm using SUTTX at Schwab as a holding operation, waiting to see what our shiny new and improved administration winds up doing re inflationary possibilities.
I'm using SUTTX at Schwab as a holding operation, waiting to see what our shiny new and improved administration winds up doing re inflationary possibilities.
Using a MM fund at Schwab seems like a viable option. When my CDs mature, I will likely place it in SNAXX initially, but probably not for very long.
msf, here is the key statement from my Original Thread Post regarding CDs that are maturing:
"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?
If you are a CD investor, with current CDs that are maturing, I would be interested in your response regarding your personal investing decision, about reinvesting the maturity back into CDs, or shifting to a different kind of investment.
In one sense I'm not in a similar situation. I've been taking advantage of the inverted yield curve we've had for a few years and so I do not have bonds or CDs maturing soon. OTOH, I'm in a similar situation because I have this short term cash that has been giving me better returns but is no longer doing so.
That piece was written three months ago and M* was suggesting finally going longer (i.e. intermediate as opposed to short). I stayed short - too much uncertainty and now with "promised" tariffs, migrant expulsions (affecting labor costs), etc., rising inflation (and rising interest rates) seem far from improbable. Just the other day I heard that it will be hard to bring down food prices. Quelle surprise.
Cash (1-2 month maturity) is still looking good and I see no reason to gamble before Feb 2025 on the direction of rate movements.
I've given my thoughts before on places to keep cash short term. If you can get into a low cost Treasury MMF (Treas only for high income tax states), they are yielding near or more than prime MMFs (and more after-tax). Those are typically $1M min: SUTXX (4.43% SEC yield, 4.53% APY), FSIXX (4.44% SEC yield, 4.54% APY) w/$1 min at Merrill Edge. Going out a bit longer is RPHIX. Slightly longer still are AAA CLOs like PAAA (pure AAA) and JAAA (smidgen of AAs, longer history).
JAAA acquitted itself respectfully in 2022, dropping 2.33% from Jan 1 before recovering. In comparison, floating rate ETFs like FLRN and FLOT dropped 1.34% and 1.65% respectively. They all were positive for the year, while MINT bottomed out at -2.16% from Jan 1 and lost a percent on the year.
4.3% nonCallable Cds have virtually disappeared for now. Doubtful they will reappear anytime soon. I had a Bank CD mature, and I decided to reinvest it back into a 12month CD at the same bank, at 4%. Schwab brokerage CDs do not look very attractive at all, so I am inclined to just place any maturing brokerage CDs into MM funds for now. You can get callable CDs at Schwab for about 4.5%, with the first call date being in about 6 months
Speaking of Schwab, I just purchased a Treasury (91282CAY7) paying 4.338 out to 11/30/27. There's also a fair number of similar offerings there on Schwab.
The purchase was financed by selling an equivalent amount of SUTXX, which was 4.92% on 9/30/24, but is now down to 4.39% and seems to be heading lower. Trying to maximize income is a fine balance between SUTXX which is presently paying a bit more (but is not guaranteed to continue that), and Treasury/CD, which is presently paying a bit less (but is guaranteed to maturity.)
Notes: • The SUTXX percentages are 7-day yields at the times noted. • Our Fixed Income ladder is now 52% Treasury and 48% CDs, extending out to January 2028. • Fixed Income is now 42% of total income; MMKT Income is 58%.
For the hell of it I just checked Treasury (91282CAY7) at Schwab, and today the best return is down to 4.32%. This whole scene is apparently very volatile and can change very rapidly.
Yields fell since the rate cut this week. Most noncallable CD’s (1-2 years) are yielding 4.2% at Fidelity. Still sticking with T bills and USFR in non-IRA accounts.
Short term yields seem to have anticipated the Fed move. The 1 month yield dropped significantly between Dec 2 (4.75%) and Dec 12 (4.43%), but has been relatively flat since (now 4.43%).
OTOH, the 2 and 10 year rates started their most recent rise on Dec 6 (4.10% and 4.15% respectively) and have continued to rise to and through the Fed rate increase (now yielding 4.30% and 4.52%). Perhaps anticipating higher inflation?
One approach is not to be too greedy. If one is satisfied with 4.3% for three years, one can go with that and not look back.
Another approach is to go short term (giving up almost no yield at the moment), with the hope that longer term rates won't reverse course and drop. If that plays out and short term rates resume falling, one can switch horses (to multi-year bonds/CDs) and pick up the same (or better) rates as now.
This requires keeping a closer eye on rates and the economy so as not to get caught flat footed if rates drop across all maturities.
2- and 10-year treasury yields (since July)
2- and 10-year treasury yields compared with 1-month treasury yield (since July)
@Sven, for FRN funds (USFR, TFLO), approx yield = 4.296% + spread - ER. I am sticking with USFR too.
One can get better yields with Treasury only MMFs, but only through a limited number of brokerages (those offering access to institutional class shares). It's a tradeoff - more work to access but easier bookkeeping (no cap gains, wash sales, etc. with MMFs).
Call Protected CDs of 1-5-yr maturities of just under effective yields of 4.3% are currently available on Fido's Secondary Issues market. To discerning CD buyers, the CP CD buying scale was recently tipped to Secondary Issues being preferable many times to New Issues.
FWIW, both of our recent CP CD BUYs and all 3 of same in accounts we manage were BOT on the Fido Secondary Issues market, and all 5 were slightly better BUYs than those available as New Issues. Smallish discounts, but still, discounts, are back. In markets where every interest penny counts, we always take the free ones. Well, OK, not totally free. Scoping Secondary Issues takes a few minutes!
I have considered Treasury based MM funds, but am choosing to use a more "diversified" MM fund at Schwab, where they will use some high quality corporates, and other Government offerings besides treasuries. I qualified for SNAXX in 2020 in my IRA account, when I met the $1 million investment requirements, but have to use SWVXX for my taxable holdings because I did not have enough money to qualify for SNAXX in my taxable account. I guess you have to make a "risk" decision within the MM fund offerings.
Comments
If you are OK with illiquidity (which is typically the case with CDs), than an alternative might be MYGAs. As of 12/7, MYGA rates for my state (TX) were on offer from A-rated insurance companies, as high as:
2 year 5.2%
4 year: 5.2%
6 year 5.4%
Live quotes are available at 'stantheannuityman.com'
No FDIC insurance on these, but, the A-rating may provide some comfort. And the insurance industry is heavily regulated generally. Interest earned in non-qualified accounts is deferred from taxes until withdrawn.
I don't own any annuities (other than Soc Security). Simply pointing out one possible option. Thx
Different strokes for different folks, Derf
(Excerpt #1) Randall Forsyth comments on scheduled Dec. 18/19 FOMC Meeting …
”Given the largely as-expected jobs report, the federal-funds futures market put an overwhelming 85.1% probability the Federal Open Market Committee would lower its key policy rate by 25 basis points from the current target range of 4.5% to 4.75% at the conclusion of its two-day policy meeting on Dec. 18, according to the CME FedWatch site … That pretty much assumes that the next key data release, November’s consumer price index, doesn’t surprise to the upside.”
”Jobs Data Should Cement a Rate Cut. What’s Uncertain Is Everything Else.”
Author: Randall Forsyth
(Excerpt #2) Provocative reader comment on article ”Inflation Isn’t Dead Yet. How to Protect Your Retirement Income”. I’ve quoted the comment in full, but have omitted name. I’m not expert enough on bonds to have an opinion, but thought this might prompt some informed discussion.
”After inflation bonds at current prices pay almost nothing, and junk bonds aren't much better. Bonds have zero protection against inflation. If you want TIPS (or any bonds) buy them on your own, not in a fund. That way you get paid in full at maturity and don't have to worry about price changes (drops from interest rate increases) before maturity. And don't pay off your mortgage; the Fed and Congress will continue to pay off 3 % of your balance every year, and will probably do a lot better for you. And with inflation supposedly nearing 2 % that is after drops in oil prices. Between Middle East problems, the topping of the Permian, green policy fantasies, and lots else, oil will almost certainly be going up and inflation with it.”
Both excerpts from Barron’s / December 9, 2024
https://www.seattlebank.com/about/updates/updates-detail.html?cId=84542
If you don't need the cash (possibly not the situation here), you don't need to liquidate IRA holdings to take RMDs. They can be taken in-kind. If the market is up this can be advantageous as you need to distribute (withdraw) fewer shares to meet your RMD requirements. And if the market is down and if you've kept some liquid holdings in the IRA, you can use those for the RMDs instead.
No matter how you take the RMD distribution you owe taxes on the value of the distribution. Unless you use the distribution to make direct qualified charitable distributions (QCDs) to qualified nonprofit/charitable organizations.
"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?
If you are a CD investor, with current CDs that are maturing, I would be interested in your response regarding your personal investing decision, about reinvesting the maturity back into CDs, or shifting to a different kind of investment.
The return to a non-inverted yield curve was due to short term rates dropping faster than long term rates, not because long term rates rose. See M* graph here of curves for 2020 (ZIRP), Sept 2023 (highest, inverted), June 2024 (similar shape with a bit lower yield), and Sept 2024 (flat-ish, 2/3% lower, greater drop at short end)
https://www.morningstar.co.uk/uk/news/255673/how-to-position-your-bond-portfolio-as-short-term-yields-fall.aspx
That piece was written three months ago and M* was suggesting finally going longer (i.e. intermediate as opposed to short). I stayed short - too much uncertainty and now with "promised" tariffs, migrant expulsions (affecting labor costs), etc., rising inflation (and rising interest rates) seem far from improbable. Just the other day I heard that it will be hard to bring down food prices. Quelle surprise.
That Sept. M* piece was written almost exactly at a minimum in 10 year Treasury rates: 3.63% on Sept 16th, currently 4.32%. A purchase of a multi-year CD or Treasury bond in Sept would have locked in a lower rate than one should be able to get now.
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024
Cash (1-2 month maturity) is still looking good and I see no reason to gamble before Feb 2025 on the direction of rate movements.
I've given my thoughts before on places to keep cash short term. If you can get into a low cost Treasury MMF (Treas only for high income tax states), they are yielding near or more than prime MMFs (and more after-tax). Those are typically $1M min: SUTXX (4.43% SEC yield, 4.53% APY), FSIXX (4.44% SEC yield, 4.54% APY) w/$1 min at Merrill Edge. Going out a bit longer is RPHIX. Slightly longer still are AAA CLOs like PAAA (pure AAA) and JAAA (smidgen of AAs, longer history).
JAAA acquitted itself respectfully in 2022, dropping 2.33% from Jan 1 before recovering. In comparison, floating rate ETFs like FLRN and FLOT dropped 1.34% and 1.65% respectively. They all were positive for the year, while MINT bottomed out at -2.16% from Jan 1 and lost a percent on the year.
The purchase was financed by selling an equivalent amount of SUTXX, which was 4.92% on 9/30/24, but is now down to 4.39% and seems to be heading lower. Trying to maximize income is a fine balance between SUTXX which is presently paying a bit more (but is not guaranteed to continue that), and Treasury/CD, which is presently paying a bit less (but is guaranteed to maturity.)
Notes:
• The SUTXX percentages are 7-day yields at the times noted.
• Our Fixed Income ladder is now 52% Treasury and 48% CDs, extending out to January 2028.
• Fixed Income is now 42% of total income; MMKT Income is 58%.
I am sticking with USFR too.
OTOH, the 2 and 10 year rates started their most recent rise on Dec 6 (4.10% and 4.15% respectively) and have continued to rise to and through the Fed rate increase (now yielding 4.30% and 4.52%). Perhaps anticipating higher inflation?
Daily yield table, Dec 2024
One approach is not to be too greedy. If one is satisfied with 4.3% for three years, one can go with that and not look back.
Another approach is to go short term (giving up almost no yield at the moment), with the hope that longer term rates won't reverse course and drop. If that plays out and short term rates resume falling, one can switch horses (to multi-year bonds/CDs) and pick up the same (or better) rates as now.
This requires keeping a closer eye on rates and the economy so as not to get caught flat footed if rates drop across all maturities.
2- and 10-year treasury yields (since July)
2- and 10-year treasury yields compared with 1-month treasury yield (since July)
Merrill Edge offers FSIXX (4.40% 7 day yield, 4.49% APY, in 2023 94.89% state tax exempt) and UTIXX (4.39% 7 day yield, 4.49% APY, in 2023 99.25% state tax exempt) with $1 mins.
WellsTrade has similar offerings (including a slightly better share class of the Fidelity fund, FRSXX) with no mins.
FWIW, both of our recent CP CD BUYs and all 3 of same in accounts we manage were BOT on the Fido Secondary Issues market, and all 5 were slightly better BUYs than those available as New Issues. Smallish discounts, but still, discounts, are back. In markets where every interest penny counts, we always take the free ones. Well, OK, not totally free. Scoping Secondary Issues takes a few minutes!