3.2%, 10-year CD

[obgyn65]

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.

 

[Richard4444]

Thanks Obgyn. My last 'high yield' 5.21% 5 year CD comes due in 2 weeks. Ouch

 

[nun]

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?

 

[2B]

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.

 

[obgyn65]

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.
.

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?

 

[rbmrtn]

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.

 

[bjorn2bwild]

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.

 

[OAG]

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.

 

[gerntz]

What's the infatuation with CD's over high grade corporate bonds & high grade muni bonds that pay way more? Thanks.

 

[Coolius]

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.

 

[akck]

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.

 

[gerntz]

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.

 

[gerntz]

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.

 

[akck]

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.

 

[samclem]

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.

 

[gerntz]

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.

 

[hsv_climber]

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?

 

[Henry Lili]

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.

 

[obgyn65]

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.

Are you sure that you can do that with the brokerage CDs as suggested in the OP?

 

[samclem]

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.

 

[gerntz]

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.

It won't hurt till CD rates go over the bond rate & then you have to make up what you're behind till that point plus pay off the cost of breaking the lower rate CD - the lost interest. Net, the break even point, if there is one, could be way out there.

 

[hsv_climber]

Why would buying a 10-year Bond and holding it to maturity would hurt?

BTW, 10-year TIPS auction is tomorrow. Today's rate on 10-year TIPS is 0.7%.
It looks pretty attractive to me and I might participate with a small amount. It definitely beats the current I-bonds.

 

[OAG]

Here is a little financial maneuver that worked for me back in 2006. I was over the age of 59.5 (this is a key factor). Interest rates were going up very quickly reaching 6.25% on 7 year CD's. I had a group of Traditional and ROTH IRA CD's paying considerably below this rate. I called the Credit Union custodian of the CD's and said can I redeem ALL of my T & R CD's penalty free since I am over 59.5 years of age? They said yes you can but you will have to pay Federal & any applicable State Taxes unless you put the respective redeemed amounts back in to the appropriate T or R IRA within 60 days (which I already was aware of). I said well I want to redeem it ALL but reopen new CD's in the appropriate amounts now too. I did that and received the higher rates for 7 years without any tax or penalty impact.

 

[brewer12345]

Why would buying a 10-year Bond and holding it to maturity would hurt?

BTW, 10-year TIPS auction is tomorrow. Today's rate on 10-year TIPS is 0.7%.
It looks pretty attractive to me and I might participate with a small amount. It definitely beats the current I-bonds.

I bonds are very different from 10 year TIPS. I bonds can never have periodic interest rates below zero, TIPS can. With TIPS, you are guaranteed to get back at least your face amount at maturity (10 years), but that is it. If you liquidate before then you take what the market gives you (and that could be ugly). With I bonds you always get to liquidate at the accumulated value, minus any (vanishingly small) early surrender penalties. I like I bonds better for absolute safety despite the zero fixed coupon and the PITA nature of treasury direct.

 

[hsv_climber]

I bonds are very different from 10 year TIPS. I bonds can never have periodic interest rates below zero, TIPS can. With TIPS, you are guaranteed to get back at least your face amount at maturity (10 years), but that is it. If you liquidate before then you take what the market gives you (and that could be ugly). With I bonds you always get to liquidate at the accumulated value, minus any (vanishingly small) early surrender penalties. I like I bonds better for absolute safety despite the zero fixed coupon and the PITA nature of treasury direct.

Not entirely correct. You can't liquidate I-bonds at all for the first year (and then it is a 3 months penalty for the first 5).

In addition to that, you can't buy I-bonds in an IRA, like I am planning to do with TIPS.

Of course, "safety" is nice, but 0.7% / year is a decent bonus. But what you are calling "safety" here applies only to long periods of deflation and we have not had those in a long time.