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CDs
Jun 9, 2022 14:08:27 GMT
Chahta likes this
Post by FD1000 on Jun 9, 2022 14:08:27 GMT
I never looked at CD but start looking this morning. Observations: 1) I see the following rates at Schwab. How come the rates are so much better than rates directly with a bank? (examples: 2.25% for one year at Schwab vs only 1.4%) 2) Trading CD looks pretty easy compared to a bank. You just buy any amount, no need to go anywhere. Why is the world would you use a bank and open an another account? 3) Looks like I can buy $250K from each bank and it's federally insured. I can buy 4 of these for one million from 4 different banks. It gets better. Let's say I really like one bank. Potentially, I can buy and insured one million Dollar. I can buy $250K for all IRAs + another $250K in joint account. Live example: looking at CD at Schwab, Beal Bank CD pay annually 2.25%. I can buy $250K in my Trad IRA + another $250K in my joint account. My wife can also but $250 twice. This means I just bought one million dollar Goldman Sachs Bank CD and all are federally insured. 4) The pain begins if you want to sell before maturity. Schwab has to sell it for you. If rates go up, you lose, if they went down, you get more. So, think carefully how much you want to buy for how long. If you look at the attachments, the best 12 months rate is at line 2 paying 2.25%. Line 1 + 3 pay 2.35 + 2.35 for 15 months. At line 7 you see Goldman Sachs Bank CD paying 2.1% compared to their Marcus CD paying only 1.4%. At line 6 you see FIRST FED BK and they pay monthly...interesting. Attachments:
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CDs
Jun 9, 2022 14:22:12 GMT
Post by fishingrod on Jun 9, 2022 14:22:12 GMT
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galeno
Commander
KISS & STC
Posts: 221
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CDs
Jun 9, 2022 15:13:25 GMT
via mobile
Post by galeno on Jun 9, 2022 15:13:25 GMT
When we used Schwab International we used their brokered CDs and individual US treasuries for our FI allocation to avoid the 30% DWT which occurs with any and all US domiciled funds or ETFs.
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CDs
Jun 9, 2022 20:33:51 GMT
Post by anitya on Jun 9, 2022 20:33:51 GMT
Currently, for 2 yr and above maturities brokered CD rates are higher than that of corresponding treasuries. I have to check out the threads in fishingrod post, in case they shed some light.
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CDs
Jun 9, 2022 20:47:05 GMT
Post by anitya on Jun 9, 2022 20:47:05 GMT
Is there a transaction fees for buying brokered CDs?
The good thing about buying CDs is there is no bid-ask spread that we need to try to negotiate.
At Fidelity, for each brokered CD, there is a Buy button but no Sell button. So, selling before maturity might be tricky, as FD had alluded to in his OP. I prefer being able to sell online without broker assistance, especially when there is no published Bid yield I can see.
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CDs
Jun 9, 2022 21:38:59 GMT
Chahta likes this
Post by FD1000 on Jun 9, 2022 21:38:59 GMT
Is there a transaction fees for buying brokered CDs? The good thing about buying CDs is there is no bid-ask spread that we need to try to negotiate. At Fidelity, for each brokered CD, there is a Buy button but no Sell button. So, selling before maturity might be tricky, as FD had alluded to in his OP. I prefer being able to sell online without broker assistance, especially when there is no published Bid yield I can see. First, you should only buy what you think, you would hold to maturity. Second, there is no fee to buy brokered CDs. Third, since I never had these, I'm not sure if you have to call a rep to sell or not. The Rep told me, if I want to sell, the commission is 0.1% (not bad). Schwab will get me best offers, I can decide or not. If you sell, the buyer will pay what you deserve up to that point, you may not get the full principal. Suppose you bought 1 year CD at 2%, and want to sell after 6 months, you get 1% + plus you pay 0.1% (on $100K it's $100). The question is what you get on the original $100. If you don't like the offer, keep it to maturity. In any case, this is better than a bank, just my opinion. Thinking more about it and I'm not excited. I don't want to buy CD NOW because rates are going up. When I see rates stabilized, you would think it's time to buy CD, not so, this is when bond funds will start making money.
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Deleted
Deleted Member
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CDs
Jun 9, 2022 22:16:32 GMT
Post by Deleted on Jun 9, 2022 22:16:32 GMT
Is there a transaction fees for buying brokered CDs? The good thing about buying CDs is there is no bid-ask spread that we need to try to negotiate. At Fidelity, for each brokered CD, there is a Buy button but no Sell button. So, selling before maturity might be tricky, as FD had alluded to in his OP. I prefer being able to sell online without broker assistance, especially when there is no published Bid yield I can see. There's a Buy or Sell Button on Fidelity's Secondary CD Offering page. I looked at their CD and Treasury Ladder pages during the weekend and how to set up ladders, with or without automatic rollover. How to stop the automatic rollover at a future date was not mentioned. I did not get deeper into the subject or look at a video, losing interest in them for the time being.
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CDs
Jun 10, 2022 1:31:09 GMT
Post by anitya on Jun 10, 2022 1:31:09 GMT
This from Fidelity website -
Brokered CDs from Fidelity
Fidelity offers brokered CDs through two main venues—as new issue offerings and from the secondary market. Investors typically will see 50–100 new issue offerings and as many as 2,000 secondary offerings at any point in time. New issue offerings are typically sold at par and investors do not pay a trading fee to purchase them.4 Purchases (and sales) of secondary CDs incur a trading fee of $1 per CD (1 CD = $1,000 par value).
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CDs
Jun 10, 2022 1:41:40 GMT
Post by anitya on Jun 10, 2022 1:41:40 GMT
@haven ,
You are right. The page where I saw only the buy button (and no sell button) is when I clicked on the 2 yr CD yield at Fidelty Fixed Income Yields table. I did not expect that page to be new issue for CDs but now I see that is what it is. Fidelity Bond Yields table is how I access Treasury secondary market. I figured out the non-intuitive way to get to the secondary CDs. Not sure if Fidelity prefers that its customers buy new issue CDs.
I think I will just buy Treasuries and not bother with CDs.
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CDs
Jun 10, 2022 4:58:42 GMT
Post by bizman on Jun 10, 2022 4:58:42 GMT
Another plus for Treasuries is that if you live in a State with an income tax, Treasuries are free from that tax.
For example, say the top state tax bracket where you live is 9% and that is where you land. You would figure a tax-equivalent yield to compare to a bank cd the same way you would with a Muni. In the example I'll use a 2.75% coupon Treasury bought at par.
TEY = Treasury rate ___________________________. So, TEY = 2.75% TEY = 3.02% _____________ (1- tax rate avoided as decimal) (1 - .09)
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Post by Capital on Jun 10, 2022 10:00:42 GMT
@haven , You are right. The page where I saw only the buy button (and no sell button) is when I clicked on the 2 yr CD yield at Fidelty Fixed Income Yields table. I did not expect that page to be new issue for CDs but now I see that is what it is. Fidelity Bond Yields table is how I access Treasury secondary market. I figured out the non-intuitive way to get to the secondary CDs. Not sure if Fidelity prefers that its customers buy new issue CDs. I think I will just buy Treasuries and not bother with CDs. anitya , I currently hold a few Brokerage CDs at Fidelity. I always buy new issue and hold until maturity. I am not fond of the secondary CD market; however, when I click on the CDs on my positions page I do see a sell button. The secondary market is far from liquid and you are requesting a bid. It may take time to get a bid. You can either accept the bid or continue to hold. I have lately been buying Treasuries. For Treasuries I prefer the secondary market over the auctions. Expected yields at auctions are not necessarily what you will get. I do not normally get the highest yield posted due to the minimum quantity on the higher yields. I always find a just slightly lower yield offering I can buy in the Depth of Book for that bond listing. With both CDs and Treasuries there is no commission for buying; however, there is a spread in the secondary market for Treasuries. As for the secondary market in CDs, that appears to be the Wild West to me. One more thing about CDs when looking at longer maturities is call protection. Sometimes you can get a few more BP in yield for callable CDs. I tend to stay with call protected CDs. The only way the Bank will call a CD is when it is in the Banks favor and not yours.
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CDs
Jun 10, 2022 10:45:20 GMT
via mobile
Post by Chahta on Jun 10, 2022 10:45:20 GMT
CD or Treasury ladders are looking better these days for bond allocations. Capital, would there only be a danger for them being called if rates go down? Don’t see that happening anytime soon.
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Deleted
Deleted Member
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CDs
Jun 10, 2022 11:25:57 GMT
Post by Deleted on Jun 10, 2022 11:25:57 GMT
Using Google this morning, I found Fidelity's statements about Auto-Roll and how to cancel it. There is an embedded link to the PDF Auto-Roll-Subscriber-Agreement. Both the main article and the PDF have good information, which I will use in reconsidering ladders this fall. "Canceling the Auto Roll Service You can cancel the Auto Roll Service at any time. If you only wish to cancel the Auto Roll Service and revoke your authorized instructions, you may do so either at the position or at the account level. To cancel the Auto Roll Service of a single position simply cancel the pending order from the Orders page on Fidelity.com. To cancel the Auto Roll Service for all positions within an account, you may unsubscribe from the Alerts Service for that account. Additionally, owners of a CD Ladder with the Auto Roll Service enabled may cancel the Auto Roll Service by making the appropriate selection from the Purchased Ladders list. This list may be accessed from the Bond Ladder Tool Page. The Auto Roll Service will continue until you affirmatively cancel the Auto Roll Service If you have any other questions or require further assistance, please contact a Fidelity representative at 1-800-544-5372." www.fidelity.com/fixed-income-bonds/fixed-income-tools-services/auto-roll-program#:~:text=You%20can%20call%20a%20Fidelity,like%20to%20cancel%20the%20purchase.
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Post by Capital on Jun 10, 2022 12:36:03 GMT
CD or Treasury ladders are looking better these days for bond allocations. Capital , would there only be a danger for them being called if rates go down? Don’t see that happening anytime soon. Chahta , for CDs it is a factor of both rate and maturity. Let's say that you are buying a 3-year CD with a real nice rate. In one year you have a 2-year CD at that same rate. If rates have been stable new 2-year CDs may be yielding less that the CD you are holding. It may be beneficial for the Bank to call your CD and replace it with new cheaper 2-year money. As your old 3-year CD gets nearer to maturity the call risk increases.
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CDs
Jun 10, 2022 13:03:05 GMT
Post by bizman on Jun 10, 2022 13:03:05 GMT
I wouldn't buy a callable cd. The yield premium is usually tiny and the period of call protection so short that the math just doesn't work for me. A cd buyer giving away a cheap call option is money in the pocket of the issuing bank 99.9% of the time.
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Post by fishingrod on Jun 10, 2022 13:06:54 GMT
CD ladders are where it is at, for people who want to use CDs as a portion of their portfolio. I have a five year CD ladder. I have had it for a long time. It is five 5 year CDs, with one maturing each year, which I buy another 5 year CD with. So even though each CD is a 5 year CD, the 'duration' of the whole ladder is only 2.5 years. So like Capital , said "for CDs it is a factor of both rate and maturity." Ladders enable one to take advantage of higher yielding, longer duration CDs, while keeping the total duration lower. But this process takes 4 years to implement.
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Post by Chahta on Jun 10, 2022 13:10:59 GMT
For me I wouldn’t go over 1 year now.
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CDs
Jun 10, 2022 13:23:39 GMT
Post by fishingrod on Jun 10, 2022 13:23:39 GMT
As with any bond always look for 'YTWC' or yield to worst call to view the worst case scenario, barring default.
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Post by fishingrod on Jun 10, 2022 13:26:32 GMT
For me I wouldn’t go over 1 year now. Not recommending but, one could certainly start with a 5 rung one year CD ladder of brokered CDs or Treasuries, keeping duration very low.
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Post by FD1000 on Jun 10, 2022 13:39:27 GMT
Looking at treasuries and they pay more. Below you can see 13 months paying 2.75% which is 0.5% more than one year CDs. Attachments:
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CDs
Jun 10, 2022 13:45:55 GMT
Post by fishingrod on Jun 10, 2022 13:45:55 GMT
Looking at treasuries and they pay more. Below you can see 13 months paying 2.75% which is 0.5% more than one year CDs. Selling at a premium only YTM 2.557%, but still better than CDs.
And State and local tax free!
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CDs
Jun 10, 2022 21:26:51 GMT
Post by anitya on Jun 10, 2022 21:26:51 GMT
@haven , You are right. The page where I saw only the buy button (and no sell button) is when I clicked on the 2 yr CD yield at Fidelty Fixed Income Yields table. I did not expect that page to be new issue for CDs but now I see that is what it is. Fidelity Bond Yields table is how I access Treasury secondary market. I figured out the non-intuitive way to get to the secondary CDs. Not sure if Fidelity prefers that its customers buy new issue CDs. I think I will just buy Treasuries and not bother with CDs. I bought today 2 yr Treasuries at 3.06+% yield. Sometimes the bid-ask spreads may appear wide, especially when looking at yields. Instead, focus on the price - e.g., 0.1 difference in price is $100 for a $100K principal purchase. You can decide how much time you want to spend trying to haggle the right yield or price. 3 mo (1.5%) to 2 yr (3.1%) Treasury rates look pretty compelling. My Treasury purchases will be in that maturity range. Do plan to leave some cash (10%) in MM accounts to increase beta risk in the portfolio. Good luck!
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Deleted
Deleted Member
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CDs
Jun 10, 2022 22:22:39 GMT
Post by Deleted on Jun 10, 2022 22:22:39 GMT
I have a lot to learn about buying individual bonds. I'll start with new issue treasuries in a ladder this fall. Maybe the dust will have settled by then.
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CDs
Jun 10, 2022 22:51:45 GMT
via mobile
Chahta likes this
Post by Capital on Jun 10, 2022 22:51:45 GMT
Over the last few months I have come to realize that my issue with holding bonds in my portfolio had less to do with bonds and more to do with holding them in EFTs and OEFs. I started realizing this when I saw that the only bond EFT I held was 0-5 year maturity high yield EFT. I simply do not now want to hold a bond asset with a constant maturity whose value fluctuates constantly. I plan to hold individual bonds in the future. I'm starting with Treasuries and will expand from that as I gain knowledge of the bond market.
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CDs
Jun 11, 2022 4:55:58 GMT
via mobile
Capital likes this
Post by Chahta on Jun 11, 2022 4:55:58 GMT
I think that is wise now. I do have some bond OEFs I will not sell the majority of my bond allocation is going to CD or treasury ladders for the foreseeable future. It is looking like a ladder will move towards 3% once the 3, 6, 9 get rolled over to a year.
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Post by FD1000 on Jun 11, 2022 13:09:31 GMT
The most common sense now is to buy 3 months treasury or CDs. 1) You lock only 3 months 2) The rate is great at 1.4%, which is over 5.5% annually and higher than 6-12 months 3) Rates will continue to be high for a while. The Fed is raising rates and why I would wait for next week. 4) Better idea to lock ST if you want to trade later. Disclaimer: this is only an opinion, I'm not a financial advisor or an expert. ( link) BTW, I can see that Fidelity has better rates than Schwab...interesting.
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Post by yogibearbull on Jun 11, 2022 13:20:42 GMT
Be aware that CDs have to pay 25-50 bps (just as funds do; no free lunch) to be listed on brokerage platforms by Fido, Schwab, etc. That is why one sees many unfamiliar banks. Rates offered are net of all fees. Be sure to check about FDIC insurance as I have seen some US and foreign banks offering brokerage CDs without FDIC insurance. Of course, unlike bank CDs that have early redemption penalty, brokerage CDs just fluctuate in value but will pay full amounts on maturity.
T-Bills/Notes are also good and safe options now and there are no commissions at major brokerages for new issues or secondary market purchases (besides tiny bid-ask spreads) - that is indeed a free lunch.
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Deleted
Deleted Member
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Post by Deleted on Jun 11, 2022 15:09:47 GMT
The most common sense now is to buy 3 months treasury or CDs. 1) You lock only 3 months 2) The rate is great at 1.4%, which is over 5.5% annually and higher than 6-12 months 3) Rates will continue to be high for a while. The Fed is raising rates and why I would wait for next week. 4) Better idea to lock ST if you want to trade later. Disclaimer: this is only an opinion, I'm not a financial advisor or an expert. ( link) BTW, I can see that Fidelity has better rates than Schwab...interesting. The 3 month 1.4% rate is already annualized.
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CDs
Jun 11, 2022 16:02:58 GMT
Post by fishingrod on Jun 11, 2022 16:02:58 GMT
The most common sense now is to buy 3 months treasury or CDs. 1) You lock only 3 months 2) The rate is great at 1.4%, which is over 5.5% annually and higher than 6-12 months 3) Rates will continue to be high for a while. The Fed is raising rates and why I would wait for next week. 4) Better idea to lock ST if you want to trade later. Disclaimer: this is only an opinion, I'm not a financial advisor or an expert. ( link) BTW, I can see that Fidelity has better rates than Schwab...interesting. This is incorrect. The 1.4% is the annualized rate, not 5.5%.
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Post by yogibearbull on Jun 11, 2022 16:12:01 GMT
Most rates quoted are ANNUALIZED whether for maturities less than or greater than 1.
TR can be different. Most TR for less than 1 yr are not annualized UNLESS so stated. Cumulative TR are obviously not annualized. When there is a possible confusion, TR (annualized) should be used.
Very confusing is the quarter-over-quarter-a-year-ago GDP change that is also annualized in economic reports. IMO it shouldn't be.
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