CD advice

[John Galt III]

Quote:

Originally Posted by wolf Penfed lost my CD business, when they made their EWP outrageous However, if I were to open long term CD. I would have multiple small CD's. Just in case I had to close early. ie. Instead of one 100K CD. Have 5, 20K CD's.

Check with your institution about limits on number of, or dollar amount of, any ACH transfers. At my credit union they (or the govt) limit the number of outgoing transactions per month (not just ACH) from the savings, but no such limit from the checking. $25 penalty per transaction over six, going out of savings acct. And, of course, read the rules on their website.

[jazz4cash]

Quote:

Originally Posted by brewer12345 Staying short is a strategy I have been using. The other thing I have been doing is when one of my credit unions offers a CD with a decent rate that allows additional deposits in the future I open one with a small balance. That way if the option turns out to be attractive I have a marker down already if they decide to stop offering that particular product/rate. Navy has a couple of these types of CDs currently available.

+1
This is a really under appreciated perk IMO. As the maturity date approaches you can get extraordinary rates on the additional funds added to the CD. With the current 40 month IRA CD I can get 3.75 for a 12 month CD for funds added at 28 months....unless better rates are available on new CDs (highly unlikely). It’s like inverting the CD yield curve.

[audreyh1]

Quote:

Originally Posted by John Galt III Check with your institution about limits on number of, or dollar amount of, any ACH transfers. At my credit union they (or the govt) limit the number of outgoing transactions per month (not just ACH) from the savings, but no such limit from the checking. $25 penalty per transaction over six, going out of savings acct. And, of course, read the rules on their website.

Most savings accounts are subject to Federal Regulation D which limits the number of withdrawals to 6 per statement cycle.

In terms of amount limits with ACH transfers, these can usually be bypassed by initiating fund transfer in or out from a financial institution with much higher ACH limits.

[Gearhead Jim]

Although I dislike the EW penalty listed on most CD's, a five year ladder and some reserves in MM funds is simple and covers most potential problems.


With a normal CD, the max possible EW loss is spelled out in the contract.
With a brokered CD, during a financial crisis, the possible loss is much larger, if you can even sell at all. Not likely, but very few foresaw 2008 either.

[audreyh1]

Quote:

Originally Posted by Gearhead Jim Although I dislike the EW penalty listed on most CD's, a five year ladder and some reserves in MM funds is simple and covers most potential problems. With a normal CD, the max possible EW loss is spelled out in the contract. With a brokered CD, during a financial crisis, the possible loss is much larger, if you can even sell at all. Not likely, but very few foresaw 2008 either.

Why would you assume that it would be more difficult to sell a CD during a financial crisis? They are FDIC insured. During a financial crisis interest rates usually drop, so a higher rate CD would be desirable. Seems like they would be quite liquid compared to any non-government bonds and there would be demand.

[RothReady2Retire]

Ally Bank has, 10 day best rate guarantee. Also 150 day early withdrawal penalty. FYI

[audreyh1]

Quote:

Originally Posted by RothReady2Retire Ally Bank has, 10 day best rate guarantee. Also 150 day early withdrawal penalty. FYI

For CDs up to 24 months, the Ally Bank early withdrawal penalty is 60 days.

For CDs 25 months to 36 months, the early withdrawal penalty is 90 days.

They don't get up to 150 days until the CD duration exceeds 49 months.

[almost there]

"Ally Bank has, 10 day best rate guarantee"
On what? Their own rates? Aside from the 12 month. Almost everyone kills them rate wise.

[Kimo]

I bought a 1 , 2 and 3 year all at decent prices. I am waiting to see if thr 5 year gets better.

[jetpack]

Having gone the route of opening bank accounts for their CDs, I have found that I hate that option.

More paperwork, logins, and I have to be around when the CD closes, or they auto rollover.

Now, I just go with vanguard brokered CDs. So much simpler, and a higher rate.

I do wish though that they offered a /real/ secondary market with no spread. If you try to sell a CD on vaguard, you don't name your price, or use the current market price. They give you a below market price. Very deceptive. Only buy them if you're planning to hold to maturity.

[almost there]

I have both brokered, and non brokered CD's. At this time, credit unions have the highest rates. Not sure if this is the norm? Or not...?

[Earl E Retyre]

Quote:

Originally Posted by jetpack Having gone the route of opening bank accounts for their CDs, I have found that I hate that option. More paperwork, logins, and I have to be around when the CD closes, or they auto rollover. Now, I just go with vanguard brokered CDs. So much simpler, and a higher rate. I do wish though that they offered a /real/ secondary market with no spread. If you try to sell a CD on vaguard, you don't name your price, or use the current market price. They give you a below market price. Very deceptive. Only buy them if you're planning to hold to maturity.

I also have been moving from opening CDs at banks to brokered CDs for the same reason. Also, I have my IRA at Vanguard and recently decided it made more sense for me to buy the CDs in my IRA for tax purposes.

Regarding your comment about Vanguard setting the price when and if you want to sell … I am somewhat confused as to how it sets the price. While I am not planning on selling, when I look at my Cost Basis, it tells me:
- the 3.5% CDs I purchased 1 week ago for about $150k is now worth $580 more. So, theoretically, I could make a .38% gain in 1 week if I sold

-the 3.25% CD I purchased last June for $120k is now worth $729 less or a .61% loss in 6 mos if I sold

I cannot find any 3.5% 5 yr brokered CDs right now, so perhaps these values make sense due to the fluctuation in CD prices available? Just seems a bit extreme to me.

[Ready]

Brokered CDs act like bonds in that they are interest rate sensitive. They will go up in market value if interest rates go down, and they go down in value if rates go up. This is why I never buy them. If I want interest rate sensitivity I will just buy bonds. If I want guaranteed return with a fixed early termination penalty I go with bank CDs. As long as you hold brokered CDs to maturity you won't have to worry about this. Some brokered CDs are callable though, meaning the bank can terminate early if they feel they can lower their rates and still attract new money.

I do agree that opening new bank accounts to chase higher rates is a major pain though.

[Dtail]

Have brokered and bank CD's with the intention to only hold to maturity.

[jetpack]

Quote:

Originally Posted by Earl E Retyre I also have been moving from opening CDs at banks to brokered CDs for the same reason. Also, I have my IRA at Vanguard and recently decided it made more sense for me to buy the CDs in my IRA for tax purposes. Regarding your comment about Vanguard setting the price when and if you want to sell … I am somewhat confused as to how it sets the price. While I am not planning on selling, when I look at my Cost Basis, it tells me: - the 3.5% CDs I purchased 1 week ago for about $150k is now worth $580 more. So, theoretically, I could make a .38% gain in 1 week if I sold -the 3.25% CD I purchased last June for $120k is now worth $729 less or a .61% loss in 6 mos if I sold I cannot find any 3.5% 5 yr brokered CDs right now, so perhaps these values make sense due to the fluctuation in CD prices available? Just seems a bit extreme to me.

Have you tried to sell one? It does depend on if there are bids in for it... If there is none, vg will give you a lowball price for it. You're not going to get the price they list as the current market value.

Also, look at the BID / ASK spread. it's crazy. Why can't I sell the CD for what others are buying it at?

[Earl E Retyre]

Quote:

Originally Posted by jetpack Have you tried to sell one? It does depend on if there are bids in for it... If there is none, vg will give you a lowball price for it. You're not going to get the price they list as the current market value. Also, look at the BID / ASK spread. it's crazy. Why can't I sell the CD for what others are buying it at?

No, I have not tried to sell one. My plan anyway is to hold until maturity. Thanks for this info - good to know.

I assume Fidelity is the same way but have not checked on it.

[audreyh1]

Quote:

Originally Posted by jetpack Have you tried to sell one? It does depend on if there are bids in for it... If there is none, vg will give you a lowball price for it. You're not going to get the price they list as the current market value. Also, look at the BID / ASK spread. it's crazy. Why can't I sell the CD for what others are buying it at?

Spreads are a feature of markets. The less liquid the issue, the wider the spread. That's just the way it is. If an issue is very liquid (i.e there is a lot of continuous trading with numerous buyers and sellers as in for example, Treasuries) then the spreads tend to be small.

[audreyh1]

Quote:

Originally Posted by Ready Brokered CDs act like bonds in that they are interest rate sensitive. They will go up in market value if interest rates go down, and they go down in value if rates go up. This is why I never buy them. If I want interest rate sensitivity I will just buy bonds. If I want guaranteed return with a fixed early termination penalty I go with bank CDs. As long as you hold brokered CDs to maturity you won't have to worry about this. Some brokered CDs are callable though, meaning the bank can terminate early if they feel they can lower their rates and still attract new money.

To me this just shows that CDs really are the same as a bond except there is no credit risk.

Personally I prefer the known early withdrawal penalty ahead of time so that I don't have to sell on a secondary market. But considering I rarely close CDs early, I probably wouldn't hesitate if I found a deal through the broker that soundly beat what I could get directly from one of my established banks or credit unions or via Treasuries. I keep looking.

[Sunset]

Quote:

Originally Posted by jetpack Having gone the route of opening bank accounts for their CDs, I have found that I hate that option. More paperwork, logins, and I have to be around when the CD closes, or they auto rollover. Now, I just go with vanguard brokered CDs. So much simpler, and a higher rate. ...

I have just bought some CD's at Ally, and as long as you have an Ally bank account (pays 2% currently), then it's easy as pie.

A few clicks, and it is all done. No paper involved, except they still mail you a letter to say it's all done (which is dumb to me).

You can when you set it up , decide if you want it to rollover, or deposit all back to your account.

I will check out Vanguard brokered CD's to see what they are like, I've never bought one of theirs before, but higher rates interest me

[calmloki]

Quote:

Originally Posted by Brat Years ago we purchased a car using Columbia CU. No problems. As I recall their rate beat FirstTech CU. I think the new CU charter law requires some qualifying conditions but, golly, a lot of folks have a relative or a business relationship in WA or NW Oregon (Portland MSA).

I've been trying to get a CD funded at Columbia CU for over a week. The people I've interacted with on the phone have been friendly and great to talk to - but I probably will pass on the CD. Just too hard to get it funded. Tried to ACH from our Discover savings account, which failed, and they would only accept a cashiers check thereafter. Set up a savings account at Columbia to ACH into and transfer into the CD - $500/day limit. Really? And the friendly people are under the impression a $500/day ACH limit is normal industry standard? Thought I'd ask how we could get our money out after the CD matured: a few weeks before it matured we send in a written paper request, the signature is verified, funds are mailed out. Some other option was offered that involved notaries and maybe an overnight notary, but it was just feeling like the universe was telling me to pass on this great offer.
Guess we'll be going with the shorter term (preferable to us) Navy Federal 3.25% CD.

We did fund easily a East Boston Savings Bank 2.5% savings account a while back and I'm chewing my nails - voice interactions make me feel like I'm talking to Icepick Eileen or Kneecap Nora. Will EBSB give up our funds when we are ready? Hope so