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Old 07-02-2013, 08:33 PM   #21
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I shared this information a few months ago. Not that interesting anyway. The feeling of financial safety and independence is what interests me most.
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I don't think anyone knows what the income is around here.
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Old 07-02-2013, 08:35 PM   #22
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Yes. I can break any CD at any time and buy another higher rate CD or buy a deferred annuity since I am still in my 40s.
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Wow, you'd be willing to lock up money for 10 years? TEN? You'd have to be able to bail anytime after 1 year without giving up any earned interest or I wouldn't do this. .
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Old 07-02-2013, 09:06 PM   #23
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Yes. I can break any CD at any time and buy another higher rate CD or buy a deferred annuity since I am still in my 40s.
Are you absolutely sure about that? Did you read the fine print on this contract?
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Old 07-02-2013, 09:14 PM   #24
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Yes. I have done it several times already. Edward Jones lets me sell them if I want to. I need to pay a small penalty though.
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Are you absolutely sure about that? Did you read the fine print on this contract?
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Old 07-02-2013, 09:40 PM   #25
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Yes. I have done it several times already. Edward Jones lets me sell them if I want to. I need to pay a small penalty though.
They let you sell them or surrender them? Big, big difference.
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Old 07-02-2013, 10:31 PM   #26
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My CDs average 2.8% for the next 10 years. Worry free. Can you say the same about your investments? :-)
I am not worried at all. I maintain a cash or cash equivalent allocation using GICs (guaranteed investment certificates, known as CDs in the US) with ladders of 1-5 years, supplemented by HISA. Currently, cash an cash equivalents account for ~15% of my NW. As these GICs mature they will be used for withdrawals over the next 5 years, which will cover the retirement risk zone for me. GIC rates range from 2-4%, the higher rates being the 5 year GICs now maturing. My equity/fixed income portfolio is generating more income than I am spending and it returned close to 8% last year net of fees. I recently took some of my surplus cash and invested it in that portfolio because current returns on cash are so low. I think the main purpose of cash is liquidity with safe and predictable returns. A 10 year GIC would not serve the purpose of liquidity.

I hope that helps in understanding how decisions are made chez Meadbh.
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Old 07-04-2013, 03:58 PM   #27
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I don't know the difference, sorry. I guess I get the actual amount that my statement at Edward Jones says. Some CDs show a higher value than when I bought them, others are lower.
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They let you sell them or surrender them? Big, big difference.
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Old 07-04-2013, 04:19 PM   #28
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I don't know the difference, sorry. I guess I get the actual amount that my statement at Edward Jones says. Some CDs show a higher value than when I bought them, others are lower.
I don't understand this. I thought CDs were guaranteed to generate a certain rate of return. Even if that is 0.1%, the value should increase over time, at least in nominal terms. The only reason I can think of why the nominal value of a CD would decrease is that management fees are being deducted from it, presumably by Edward Jones. Is there not a way to purchase CDs through a bank and avoid these fees?

Disclaimer: no hubris intended.
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Old 07-04-2013, 04:48 PM   #29
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No. Some of my CDs have a current value higher than their maturity value, for example a 2.6% expiring in 2018, while another 2.8% CD expiring in 2019 has a lower value. I have no idea how they compute this. No worries about hubris, some posters made their points and I made mine.

Take care.

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I don't understand this. I thought CDs were guaranteed to generate a certain rate of return. Even if that is 0.1%, the value should increase over time, at least in nominal terms. The only reason I can think of why the nominal value of a CD would decrease is that management fees are being deducted from it, presumably by Edward Jones. Is there not a way to purchase CDs through a bank and avoid these fees?

Disclaimer: no hubris intended.
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Old 07-04-2013, 04:49 PM   #30
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Originally Posted by Meadbh View Post
I don't understand this. I thought CDs were guaranteed to generate a certain rate of return. Even if that is 0.1%, the value should increase over time, at least in nominal terms. The only reason I can think of why the nominal value of a CD would decrease is that management fees are being deducted from it, presumably by Edward Jones. Is there not a way to purchase CDs through a bank and avoid these fees?

Disclaimer: no hubris intended.
Meadbh, you are thinking of an 'old fashioned CD' issued by a bank that you deposit money directly with the bank.

obgyn is referring to a brokered CD, which is purchased/sold/redeemed similar to a corporate bond (albeit, in most cases, FDIC insured). There are sometimes aspects of brokered CDs which are different than traditional CDs you deposit directly with your bank.

It sounds like obgyn has brokered CDs, which will likely be worth different values if he had to sell them prior to maturity. The bid/ask spread on brokered CDs are typically like corporate bond spreads: atrocious for the average individual investor. Unless there is a plan on exercising an estate death put feature, I'd never advise someone to buy a brokered CD who thinks there's a decent chance they'll have to sell prior to maturity, due to the large hit you'll likely take if you have to sell.

One thing to keep in mind obgyn: your statement may show a value of 102.35 on a CD, but if you went the very next day to sell it, there would likely be a significant difference in what you are quoted for a bid price vs what the statement 'value' is.
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Old 07-04-2013, 05:17 PM   #31
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Meadbh, you are thinking of an 'old fashioned CD' issued by a bank that you deposit money directly with the bank.

obgyn is referring to a brokered CD, which is purchased/sold/redeemed similar to a corporate bond (albeit, in most cases, FDIC insured). There are sometimes aspects of brokered CDs which are different than traditional CDs you deposit directly with your bank.

It sounds like obgyn has brokered CDs, which will likely be worth different values if he had to sell them prior to maturity. The bid/ask spread on brokered CDs are typically like corporate bond spreads: atrocious for the average individual investor. Unless there is a plan on exercising an estate death put feature, I'd never advise someone to buy a brokered CD who thinks there's a decent chance they'll have to sell prior to maturity, due to the large hit you'll likely take if you have to sell.

One thing to keep in mind obgyn: your statement may show a value of 102.35 on a CD, but if you went the very next day to sell it, there would likely be a significant difference in what you are quoted for a bid price vs what the statement 'value' is.
Thanks for the very helpful explanation, MB. Those sound like investments I would avoid. I like to keep "simple" investments as uncomplicated as possible. Googling this subject suggested that brokered CDs could give higher interest rates due to their negotiating power. A couple of years ago I called one of these brokerages and found that their GIC rates were inferior to what I was able to negotiate with my bank. I think it helps that I am a loyal customer.
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Old 07-04-2013, 08:20 PM   #32
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I like to keep "simple" investments as uncomplicated as possible. Googling this subject suggested that brokered CDs could give higher interest rates due to their negotiating power. A couple of years ago I called one of these brokerages and found that their GIC rates were inferior to what I was able to negotiate with my bank. I think it helps that I am a loyal customer.
Well, brokered CDs can have a great place in a portfolio (and perhaps GICs in Canada vary a bit more regarding yields and complexity compared to brokered CDs in the US?):

--Estate death put feature: I placed all of my grandmother's investments into various brokered (FDIC-insured) CDs, all of which had the death-put feature. The best part of this is that it permits the estate to either keep/retitle the CD, OR redeem it at full value, at the option of the estate. When she passed in 2011, I elected to retitle a 5.5% fixed CD with at least 3 years left until the first callable date, and promptly sold it for well above par. The other CDs, we elected to redeem. I don't know if many banks would go through the hassle of retitling CDs to heirs (or even if they permit it), or would simply require you to cash them all in.

--Higher average yield: Because a bank can issue several million of CDs in a short time with relatively little expense, they can offer higher rates. Of course, these higher rates sometimes come hand-in-hand with different conditions (see next point).

--Conditional rates: While one typical downfall of many brokered CDs is that they often be called by the issuer after a certain date, they sometimes have various rate formulae that you can use to hedge. For instance, one CD I put my grandmother into was a 20 year CD with a fixed rate, and it paid out interest as long as LIBOR was less than 5.5%. This allows you to lock in a relatively higher rate (at the time), and if rates stay low, you still get this decent yield. If rates jumped up an insane amount, then you might get zero interest - but I really didn't see that happening within 5 years of her buying the CD (and given her age/health, if she did live 5 years, her zero interest on a relatively tiny CD would have been worth the extra time she had).

Along this line, in 2008/2009, some brokered CDs also had very generous first-year guarantees because the banks were trying to increase cash on hand (like several Bank of America and Bank Hapoalim CDs), sometimes with juicy rates of 7%, 8%, and even one at either 8.5% or 9%! The equation after the first year was a spread CD, where you take the 30yr Treasury yield, subtract the 2 year Treasury yield, and multiply by a factor (usually 4 or 4.5).

Sure, they are sometimes more complex than a simple flat rate, but the equations aren't crazy complex, and at the time, it was a great way for someone in their 80s to enjoy a very generous average portfolio yield of something like 6% while equities and all other yields were dropping. If she had stuck with bank CDs, the overall yield would have been maybe 2% back in 2009-2011 (and I shudder when I think of what her portfolio would have been over the past year or two as many CDs would undoubtedly have been called).
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Old 07-27-2013, 01:12 AM   #33
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For those who are following long term CD rates, I bought one 10 year CD this week @ 2.9%. The best rate I have seen in more than a year.
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Old 07-27-2013, 05:06 AM   #34
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where is that cd available? I have been looking for something better than 1%.
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Old 07-27-2013, 06:48 AM   #35
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My contact at Edward Jones called me last Thursday about that CD, the rate is 2.9%, expiring 2023.

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where is that cd available? I have been looking for something better than 1%.
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Old 07-27-2013, 06:50 AM   #36
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I am an old person that has a COLA'd pension and am on SS which provides 200% of our current expenses and medical expenses are covered (100% beyond Medicare). Our home is paid for and our car is under warranty through 2017. Our savings are 100% CD's in a ladder through early 2021 all FDIC/NCUA insured. Current return on this ladder is 5% today. However about 50% of this ladder will mature over the next about 2.5 years starting later this year. I have always purchased the longest term insured CD's with the intent to hold them to full term and have done that and will continue to do that (personally I think the talk of early withdrawal penalties is a bit of a "red herring" since a properly managed ladder should mitigate or eliminate that happening - JMO). BTW I have done this for over 40 years so in my case I know it can work - did it or will it beat the stock or bond market? I don't know but I do sleep soundly.
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Old 07-27-2013, 07:47 AM   #37
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There are currently some at schwab @ 3.05% for 10yrs. As mentioned before, early redemption for brokered CDs is different than what is done at a bank/CU. If you hold to term, then of course the penalty does not impact you.

If SS covers yours expenses then since it is COLA'd you don't have to worry too much about inflation and your CDs.
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Old 07-27-2013, 08:00 AM   #38
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It's always nice to read posts from other very conservative investors. You are even more conservative than me. May I please ask how did you manage to have a current 5% return on your CDs ? Mine is only about 2.75 average over the next 10 years.
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I am an old person that has a pension and am on SS which provides 200% of our current expenses and medical expenses are covered (100% beyond Medicare). Our home is paid for and our car is under warranty through 2017. Our savings are 100% CD's in a ladder through early 2021 all FDIC/NCUA insured. Current return on this ladder is 5% today. However about 50% of this ladder will mature over the next about 2.5 years starting later this year. I have always purchased the longest term insured CD's with the intent to hold them to full term and have done that and will continue to do that (personally I think the talk of early withdrawal penalties is a bit of a "red herring" since a properly managed ladder should mitigate or eliminate that happening - JMO). BTW I have done this for over 40 years so in my case I know it can work - did it or will it beat the stock or bond market? I don't know but I do sleep soundly.
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Old 07-27-2013, 08:29 AM   #39
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Mostly from 6.25% 7 yr PFCU 2006 CD's and the 5% 10 yr CD special they ran in 2011 along with Capital One's 5.25% and 5.5% 10 yr CD's they had in 2004 and 2005. I used a 2.75% 15 year HELOC that is kept at $0 balance to take advantage of good rates when they came along. Hopefully that will continue to still work in the future. BTW my ladder is only 7 years in duration now.
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Old 07-27-2013, 08:40 AM   #40
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PFCU is for penfed, correct ? I contacted them last year after reading about it here. I did not meet their eligibility requirements. On the other hand, Edward Jones keep telling me they get me the best CD rates available, which may not be true.

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Mostly from 6.25% 7 yr PFCU 2006 CD's and the 5% 10 yr CD special they ran in 2011 along with Capital One's 5.25% and 5.5% 10 yr CD's they had in 2004 and 2005. I used a 2.75% 15 year HELOC that is kept at $0 balance to take advantage of good rates when they came along. Hopefully that will continue to still work in the future. BTW my ladder is only 7 years in duration now.
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