6.25% CD ?

[brewer12345]

You are missing something real simple. Cash equivalents return yield only. Bonds return yield plus/minus capital gain/loss. The cap gain/loss has historically offset a good bit of equity cap gain/loss.

 

[DRiP Guy]

You are missing something real simple. Cash equivalents return yield only. Bonds return yield plus/minus capital gain/loss. The cap gain/loss has historically offset a good bit of equity cap gain/loss.

Doh.



(Thanks)

 

[kaneohe]

I just learned they have "brokerage CDs" (not a plug, but link included) with the advantage of no penalty for early withdrawal (except loss of any unpaid interest, of course)

You may wish to check with Fidelity but if their CDs are like Schwabs, there is no early withdrawal penalty but the value of the CD becomes subject to the market. If you are selling the CD because interest rates are higher and you want to reinvest in a higher yielding CD, it is likely that the value of your existing CD will be less than you thought---in which case, it does act somewhat like a bond. (sorry, doesn't look like I've figured how to do this quote biz yet)

 

[jazz4cash]

You may wish to check with Fidelity but if their CDs are like Schwabs, there is no early withdrawal penalty but the value of the CD becomes subject to the market. If you are selling the CD because interest rates are higher and you want to reinvest in a higher yielding CD, it is likely that the value of your existing CD will be less than you thought---in which case, it does act somewhat like a bond. (sorry, doesn't look like I've figured how to do this quote biz yet)

Good Point Kaneohe........Fidelity's Description of Brokerage CD:
Although a brokerage CD will return an investor's principal at maturity, its value if sold prior to maturity will fluctuate based on size, time remaining before maturity and the level of interest rates.

I did some checking the other day when this thread validated the PenFed CD rate, and I did not find any CD rates at Fidelity even close to DripGuy quoted.

 

[magellan_nh]

I've looked at the brokerage CDs from Vanguard and they always seem to offer significantly less than the best rates from bankrate.com or one-off offers like the one from PenFed.

My sense is that they are a convenience offering for people who don't want to hunt for the best rate. Better than sticking with the local bank, but not the best option.

Thanks to everybody for digging up and researching this great PenFed offer. I'll be signing up soon.

FYI, I made a small contribution to dory's server fund a while back, but finding this deal alone could cover for my "dues" to the forum for several years.

Jim

 

[jazz4cash]

Thanks, magellan..........I agree and have also made a contribution to the great resource.

...........still can't locate those 6.0-6.125 1yr and 2yr Fidelity CD's that dripGuy mentioned. This could help me as I am not sure if I can get a rollover completed in time to fund a PenFed CD

 

[DRiP Guy]

Thanks, magellan..........I agree and have also made a contribution to the great resource.

...........still can't locate those 6.0-6.125 1yr and 2yr Fidelity CD's that dripGuy mentioned. This could help me as I am not sure if I can get a rollover completed in time to fund a PenFed CD

I clearly might be misunderstanding something, but it looks like there is a 6% and a 6.125% among these - must admit I have not read the fine print, but I think it also said FDIC insured to $250,000. sorry for terrible formating:


http://fixedincome.fidelity.com/fi/FICorpNotesDisplay?name=CD

Disclosure Document (PDF)

# All New Issue CDs offered by Fidelity are fee-free.*
# Minimum investment amount is typically one CD.

* Learn more about CDs
* Participating in New Issue Offerings
* Learn about and sign up for fixed income alerts




Total Offerings Found: 6 * As of 12/30/2006 at 07:06 p.m.


Description Coupon Coupon Frequency Maturity Date sort down Rating Price Expected
Yield Call
Protected Settlement Date Quantity Available Attributes
Moody's S&P

5 Trade COUNTRYWIDE BANK VA 6.000000 01/26/2022 01/26/2007 6.000 SEMIANNUAL 01/26/2022 NR NR 100.000 6.000 No 01/26/2007 380 T1 SFP FDIC
6 Trade MIDFIRST BANK 6.125000 01/19/2027 01/19/2007 6.125 SEMIANNUAL 01/19/2027 NR NR 100.000 6.125 No 01/19/2007 2,043 T1 SFP FDIC SKY

FDIC now insures CDs for principal and accrued interest up to $250,000 per account owner per institution for depository assets held in qualifying retirement accounts such as traditional or Roth IRAs.

Page 10 here [caution - PDF file] shows one at 6.05% APY from Midfirst Bank direct, don't need to go through Fidelity. Note is callable 06/07, so if they don't need your money, you would get it back early, but still....

http://www.amuni.com/frameset_new.htm

Callable CDs

To help you earn the highest rate for your investment dollars, MidFirst offers Callable CDs. MidFirst's Callable CDs require a minimum opening balance of $5,000. The callable feature allows MidFirst to redeem the CD at the time of the call option or anytime thereafter. If the CD is called, you are still guaranteed the stated annual percentage yield for the investment period.

Review "CD Rates" or for more information contact your personal banker or the MidFirst MoneyLine at 1-888-MIDFIRST option 6.

https://www.midfirst.com/PersonalBanking/CDIRA/CDs.asp

 

[jazz4cash]

Check the Maturity Dates.........

The Countrywide Bank 6.0 Coupon matures in 2022.....a 15 yr CD
The Midfirst Bank 6.125 Coupon matures in 2027.........a 20 yr CD

I guess that's not bad, but I thought you found something much shorter.

 

[DRiP Guy]

Check the Maturity Dates.........

The Countrywide Bank 6.0 Coupon matures in 2022.....a 15 yr CD
The Midfirst Bank 6.125 Coupon matures in 2027.........a 20 yr CD

I guess that's not bad, but I thought you found something much shorter.

Yes, I did want shorter myself (12/24 mo) . When I saw the maturity dates on the underlying instrument, I went back to the Fidelity description, and according to what I understood, they are the ones buy a huge package of these to hold to that maturity, and they are 'repackaging' part of it to sell to me, hence the 'brokerage CD' term. I further thought I saw maturities of one and two years, but maybe that is what I glitched on, because how they could make any money on that proposition would be beyond me, so clearly I must be missing something, and I have said that in each post I made on the topic.

I also am leery of this disclaimer language:

If your CD has a maturity date of more than one year from the date of issue, the pre-maturity sale price may be less than its original purchase price, particularly if interest rates are higher at the time of sale. The secondary market may also be limited. Fidelity currently makes a market in this CD but may not do so in the future.

I am trying to see where I got the shorter maturity info, but doing so find myself up to my eyeballs in info on the Fidelity site on CDIPS, CATS and TIGERS - stuff that sounds like it ought to be in a zoo, not my accounts...

A Pen Fed ladder maybe is looking good...

[Edited to add] Yup, sorry for the excursion, folks, looks like I was off in the weeds on the Fidelity thing. For their 1 yr 'brokerage' CD product, they say the yield is 5.2%.

 

[Nords]

FYI, I made a small contribution to dory's server fund a while back, but finding this deal alone could cover for my "dues" to the forum for several years.

Every time this board leads me to a profitable investment, I share a little with the server fund.

It beats sharing commissions with the brokerage.

 

[Nords]

Speaking of astonishing ways for PenFCU to lose money, what am I missing here?

Fixed Equity Loan Rates
OWNER OCCUPIED HOME - no closing costs
80% OR LESS LOAN TO VALUE (LTV)
Borrow $10,000 - $400,000 APR
Up to 60 Months 5.74
61 to 120 Months 5.99
121 to 180 Months 5.99
181 to 240 Months 5.99

7-Year money-market certificate APY 6.25%

Arbitraging $400K equity loan at 0.25% would generate $1000/year before taxes.

There's gotta be a pre-payment penalty or some other catch... maybe PenFed figures that no one will bother for less than $1000/year.

 

[jazz4cash]

Speaking of astonishing ways for PenFCU to lose money, what am I missing here?

Well, here's my theory: The "real" profit comes from the credit card operations.

I think penfed's CC's run around 9.9%. My other CU cards are in that range also. These are 25-50% lower than the major banks. The mortgage products are generally more competitive, but that 80% loan equity product is a grand slam....and so is the 6.25 CD!

The 5 yr Home Equity rate at NFCU is currently ~5.6%............lower than 1st mortage rates! The pre-payment penalty is generally that you must have a minimum draw for 2 yrs or they charge back the closing costs.

 

[brewer12345]

No catches. I suspect that they do the CD sale as an interest rate management tool. If they are running a big duration mismatch, they can either run a CD special where lots of money jumps into 5 or 7 year CDs, or they can go buy a cap/swaption/other derivative. Since they are a member-focused credit union, they do the former.

 

[Nords]

The 5 yr Home Equity rate at NFCU is currently ~5.6%............lower than 1st mortage rates! The pre-payment penalty is generally that you must have a minimum draw for 2 yrs or they charge back the closing costs.

Darn, I feel like I've been asleep at the switch.

A $350K loan from NFCU at 5.65% deposited into PenFed's 6.25% CDs... that's a $2100/year pre-tax zero-risk bonus on dead equity. I'll have to check their closing costs and see if we can move fast enough.

No catches. I suspect that they do the CD sale as an interest rate management tool. If they are running a big duration mismatch, they can either run a CD special where lots of money jumps into 5 or 7 year CDs, or they can go buy a cap/swaption/other derivative. Since they are a member-focused credit union, they do the former.

OK, this makes sense and gives reassurance that they're behaving rationally.

I just got off the phone with both CUs. PenFed's latest CD rates are good through 31 Jan and NFCU says that they won't match PenFed's latest CD rates. However NFCU says that their next board of directors meeting is 17 Jan and they'll post their new CD rates on 22 Jan. We'll see what happens.

 

[brewer12345]

I dunno how to post it pretty, but if you want to see their latest financials, you can dig them up here: http://www.ncua.gov/indexdata.html

They have a large slug of loger term fixed rate mortgages and their funding is predominately short term (1 year and less to mturity/repricing). That means t hey have a potential issue with a mismatch between asset and liability durations (in size, this is bad). So I think they partially close the gap with the CD sale.

 

[JohnEyles]

I posted this to another thread, and maybe it was thought too stupid to
acknowledge, but I'll try again ...

Why not put all one's fixed-income in these 6.25% CDs ? Is not 6+%
a pretty optimistic total ROR for the FI portion of a portfolio ?

I can imagine one answer is that if the main purpose of FI allocation is
to damp portfolio volatility by being uncorrelated with equity returns,
then one would hope for substantially better than 6% FI return during
periods when equity returns falter.

 

[cute fuzzy bunny]

Awright...i've been thinking of pulling the trigger on a PFCU acct for some time now. 6.25% for 5 years looks pretty good.

Do note that over 5 years they pull a years interest out of the cert for early termination vs six months for the 3-5 year varieties.

 

[brewer12345]

Awright...i've been thinking of pulling the trigger on a PFCU acct for some time now. 6.25% for 5 years looks pretty good.

Do note that over 5 years they pull a years interest out of the cert for early termination vs six months for the 3-5 year varieties.

Ayuh. Unless it is in an IRA, you are over 59.5 and wearing a pink tutu at the time of withdrawal. I think 5 years is the way to go if you want to jump in this particular pool.

 

[cute fuzzy bunny]

So since you're on, care to contrast this with the ISM offering? Looks to me like for periods of CPI exceeding 2.5% ISM would pay better...for periods of less than that, this would be better...?

 

[brewer12345]

So since you're on, care to contrast this with the ISM offering? Looks to me like for periods of CPI exceeding 2.5% ISM would pay better...for periods of less than that, this would be better...?

Put it this way: My parents are extremely conservative investors. The CD is perfect for them. They had some loose cash in a savings account, and some ducats floating around in a brokerage account I manage for them. When ISM got really, really close to 21, I put every spare penny already in the brokerage account into ISM rather than the CD. As ISM rises, the CD gets more attractive.

At current prices, you have to assume that inflation will stay at ~2% or lower to come out ahead with the CD. But ISM has a lot longer maturity and more volatility vs. the CD.

 

[FIRE'd@51]

I suppose one could argue that the credit quality of the CD (with FDIC) is better since ISM is single A. On the other hand, if the Fed begins to cut rates later this year, real rates will likely drop and one could sell ISM at a profit.

 

[brewer12345]

I suppose one could argue that the credit quality of the CD (with FDIC) is better since ISM is single A. On the other hand, if the Fed begins to cut rates later this year, real rates will likely drop and one could sell ISM at a profit.

Yup, that's the trade-off. Having said that, I fully expect that SLM Corp. (issuer of ISM) will pay every coupon and principal on time and any takeover is likely to result in a ratings upgrade of teh debt.

 

[DRiP Guy]

I told you guys I would update you incrementally, and I also saw some incredulity over the combo of Penn Fed's great CD rates versus low fixed mortgage rates.

I got a letter today from PenFed telling me they got my money. Yay! Included in the letter was a list of fees. It looks to be about forty different fees (I am not making this up), including an "International Transaction Fee", "bad adress fee", etc, in addition to your more pedestrian NSF, paper statement, and non-network ATM stuff.

So I think they probably make a ton of money off of credit cards, shorter term loans (military signature loans, motorcycles, personal loans, etc) and fees from those who are unaware or too lazy to plan. I think most people reading this forum would manage their funds well enough to avoid most of these fees, but then, most people aren't readers of this forum!

Don't forget also that the beauty of Credit Unions is that 1) They are there to benefit the members, not to sell you out as part of a multinational M&A with golden parachutes for the scoundrels, 2) they don't have all of the overhead and fees that traditional banks do.

To steal from Martha, "It's a good thing."

 

[OAG]

New Rates effective 1/24/07 at NFCU

Well they did match PENFED but only on the $20K CD's.

 

[Nords]

Re: New Rates effective 1/24/07 at NFCU

Well they did match PENFED but only on the $20K CD's.

OAG, I dragged up this old thread and merged your post into it.

I called NFCU Monday (22 Jan) and was told that they'd be offering a special deal on 5 Feb-- $8K minimum for 15 months at 6%. Since this was just an official rumor and not fact, and because it wouldn't start up until after PenFed's special ended, I pointed out the "bird in the hand, two in the bush" aspect. NFCU's customer-service rep pretty much said "Yeah, we don't care."

But she was able to cash in our NFCU CD which I immediately EFT'd over to PenFed. Not only did we get a shorter term, but at PenFed's higher interest rate we'll make up the early redemption penalty in 22 months of their 36-month CD.

I guess NFCU's deal is good for those who aren't able to get over to PenFed by the end of this month. But we'll have to see if they really do have that offer up on their website on 5 Feb...