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3.2%, 10-year CD
Old 09-15-2013, 07:34 AM   #1
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3.2%, 10-year CD

For those of us who like CDs, please note rates seem to be going up. Last week I was able to buy a 10-year 3.2% CD. Rates are expected to continue to rise.

Good luck.
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Old 09-15-2013, 08:27 AM   #2
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Thanks Obgyn. My last 'high yield' 5.21% 5 year CD comes due in 2 weeks. Ouch
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Old 09-15-2013, 08:28 AM   #3
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Originally Posted by obgyn65 View Post
For those of us who like CDs, please note rates seem to be going up. Last week I was able to buy a 10-year 3.2% CD. Rates are expected to continue to rise.

Good luck.
I see you can get brokered CDs from Vanguard that pay 3.2%. I've never considered brokered CDs, what's the actual process about buying them, commissions etc and how is the interest paid to you and what do you do at maturity?
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Old 09-15-2013, 08:51 AM   #4
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I see you can get brokered CDs from Vanguard that pay 3.2%. I've never considered brokered CDs, what's the actual process about buying them, commissions etc and how is the interest paid to you and what do you do at maturity?
You need a brokerage account at Vanguard. It will be created instantly if you don't have one now. New CDs are typically available without commission. Buying "experienced" CDs involve a commission ($50 is the max I think -- please check with them). Frequently, you can get a better yield buying a CD this way even with the commission.

At maturity, the cash shows up in your brokerage account. Interest payments also show up as they are paid.
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Old 09-15-2013, 09:01 AM   #5
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I buy my CDs via Edward Jones. To answer your questions, I just call them when I have money available in my bank account, they give me the best rate available, and if I approve, they withdraw the money on the date chosen. There is no commission. The interest is paid directly into my bank account. And at maturity, the CD principal is available for withdrawal.
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I see you can get brokered CDs from Vanguard that pay 3.2%. I've never considered brokered CDs, what's the actual process about buying them, commissions etc and how is the interest paid to you and what do you do at maturity?
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Old 09-15-2013, 09:11 AM   #6
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Most brokers have them. Schwab has some 10yr @ 3.25%. No commision to buy new issue. To get out early they are sold at market prices, like a bond, so you may not get back what you put in. Best held to maturity. Interest is deposited to your account per the CDs term, money is returned to you at maturity.

In some cases the equivalent treasury may be better, you can buy those commission free also.
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Old 09-15-2013, 10:45 AM   #7
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If you decide to venture into the secondary market, Fidelity charges a very reasonable $1/1,000 for a 10 bond(CD) purchase. Slightly more for < 10, slightly less for higher #'s. You will see the commission before hitting send. Vanguard charges about twice that.
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Old 09-16-2013, 06:17 AM   #8
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I am seeing 4 & 4.1 CD's on the Vanguard site. The do have a call feature of about a year but in a rising rate situation that should not be a problem. They are FDIC insured but they have a lot longer term (20 to 30 years). However that longer term could form the basis of a reasonable DIY "Annuity" (assuming the call feature is not invoked). Thanks OBGyn65 for the hint.
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Old 09-16-2013, 04:29 PM   #9
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What's the infatuation with CD's over high grade corporate bonds & high grade muni bonds that pay way more? Thanks.
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Old 09-16-2013, 05:20 PM   #10
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I would prefer to buy a high quality bond with a 10 maturity instead of a CD for the higher yield.

The primary risk of a bond is default and BK - not very likely if the bond is BBB+ or higher. And, if purchased near par, you get your money back at maturity. If there should be a buyout, the acquiring company usually assumes debt obligations of the acquired firm.

For example, I own Wells Fargo bonds, maturing August 2023. Effective yield is 4.6%, bought at 96 cents on the dollar. I consider this to be just as safe as a 10 year FDIC insured CD.
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Old 09-16-2013, 05:50 PM   #11
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What's the infatuation with CD's over high grade corporate bonds & high grade muni bonds that pay way more? Thanks.
CD's are FDIC insured, up to the same limit as any insured bank account.
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Old 09-16-2013, 06:42 PM   #12
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CD's are FDIC insured, up to the same limit as any insured bank account.
I know. But seems a large price/dividend reduction to pay vs. high quality bonds imo. On $100K, could be talking $4500/yr dividend vs. $3200 interest.
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Old 09-16-2013, 06:44 PM   #13
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I would prefer to buy a high quality bond with a 10 maturity instead of a CD for the higher yield.

The primary risk of a bond is default and BK - not very likely if the bond is BBB+ or higher. And, if purchased near par, you get your money back at maturity. If there should be a buyout, the acquiring company usually assumes debt obligations of the acquired firm.

For example, I own Wells Fargo bonds, maturing August 2023. Effective yield is 4.6%, bought at 96 cents on the dollar. I consider this to be just as safe as a 10 year FDIC insured CD.
Trust me, I'm with you.
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Old 09-16-2013, 06:59 PM   #14
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I know. But seems a large price/dividend reduction to pay vs. high quality bonds imo. On $100K, could be talking $4500/yr dividend vs. $3200 interest.
That's the current price of 0% risk.
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Old 09-16-2013, 08:45 PM   #15
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What's the infatuation with CD's over high grade corporate bonds & high grade muni bonds that pay way more? Thanks.
If rates go up you can withdraw the money from a CD and pay just 60 days worth of interest (depending on the bank, if you are the initial purchaser, etc), then just buy another CD at the higher rate. 60 days worth of interest at today's rates is a very small amount. Different situation with a long term bond--if interest rates go up you can't get out cheaply to buy another one.

And then there's the FDIC insurance.
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Old 09-17-2013, 06:53 AM   #16
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If rates go up you can withdraw the money from a CD and pay just 60 days worth of interest (depending on the bank, if you are the initial purchaser, etc), then just buy another CD at the higher rate. 60 days worth of interest at today's rates is a very small amount. Different situation with a long term bond--if interest rates go up you can't get out cheaply to buy another one.

And then there's the FDIC insurance.
Meanwhile until the CD rates go up you're generating ~1/3 more income and even when the CD rate is higher, the bond could still be paying more. And even if the CD goes higher than the bond rate, you're playing catch up on income.
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Old 09-17-2013, 10:25 AM   #17
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If rates go up you can withdraw the money from a CD and pay just 60 days worth of interest (depending on the bank, if you are the initial purchaser, etc),
Are you sure that you can do that with the brokerage CDs as suggested in the OP?
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Old 09-17-2013, 04:05 PM   #18
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Some shorter CD maturities are paying 2.0% (5YR), 1.5% (3 YR) and 1.25% (2YR) if shorter term is what your looking for.
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Old 09-17-2013, 05:21 PM   #19
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For the record, I am not suggesting anyone follows my approach. I just wanted to post to indicate that CD rates have been going up. It does seem though that the penalty for early withdrawal is higher than 30 or 60 days' interest.
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Are you sure that you can do that with the brokerage CDs as suggested in the OP?
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Old 09-17-2013, 08:07 PM   #20
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Are you sure that you can do that with the brokerage CDs as suggested in the OP?
No, that's why I wrote that being the initial purchaser has an impact.

And to anybody trying to eek out an extra 1% by buying a 10 year bond over a CD--that'll hurt when interest rates go up. And they ain't gonna go down from here. But grab the nickels while you can.
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