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State Bk India New York NY 3.4% CD
Old 10-14-2014, 11:19 AM   #1
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State Bk India New York NY 3.4% CD

While looking at CD options at Vanguard, I see a 3.4% 10 yr CD.
"State Bk India New York NY CD 3.4%24"
Its insured by the FDIC, but State bank of India?
Is it as safe as any CD as its insured by the FDIC?
Or something to avoid? High risk CD? LOL LOL
Thoughts?

Plan to set up a CD ladder and this one stands out..........
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Old 10-14-2014, 11:38 AM   #2
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Interesting. I'm still learning about the brokered CDs. I do allocate some funds to CD ladders, so it'd seem more convenient to do it all in my vanguard account.
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Old 10-14-2014, 12:17 PM   #3
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I called the FDIC and talked for about 20 minutes. Its solid.
Fully insured to 250k no problem.
Been in the USA since 1971 no problem. And if there is an issue its covered by the FDIC in a couple days. Looks pretty good! Am pleasantly surprised.
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Old 10-14-2014, 12:17 PM   #4
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FDIC insured is FDIC insured. I don't like a 10 year term on a brokered CD because if rates spike you have take the beating instead of just surrendering for whatever the penalty is on a non-brokered CD. YMMV.
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Old 10-14-2014, 12:23 PM   #5
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There's no way I'd buy a brokered CD with a 10 year term. When rates go up, the value of that thing will plummet and, unlike a CD bought straight from the bank, you can't get out of it and just accept the early withdrawal penalty. You've got to sell it (at a big hit) or hold it to maturity (earning maybe several points less interest for many years).

I think a far better bet would be a CD bought straight from the issuer that has a reasonable early withdrawal penalty. If interest rates go through the roof, you've got a relatively low-cost escape option. A penalty of 180 days of interest ain't much at the present low rates.

Edited to add: Ooops, I cross posted with Brewer. What he said.
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Old 10-14-2014, 02:14 PM   #6
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So you don't think a laddered approach is the way to go?
Say $40k each in a 1/2/5/7/10
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Old 10-14-2014, 03:12 PM   #7
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So you don't think a laddered approach is the way to go?
Say $40k each in a 1/2/5/7/10
That is up to you. Personally, I much, much prefer to have cheap embedded optionality in what is supposed to be my absolutely safe "ohsh!t" money. A 10 year brokered CD with a high duration (8? 9?) in a low interest rate environment does not meet that definition. I think a far smarter play is to buy CDs from the likes of Pen Fed, Navy Fed and any of the other "biggest bums" (Ally, Symphony, etc.) going as far out as needed to get a decent rate. The difference is that you have an option in the direct CDs to get your money out with only a nominal loss. The loss on a longer dated brokered CDs could be a lot higher than nominal.
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Old 10-14-2014, 03:25 PM   #8
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Brokered CD's: Be prepared to hold to maturity or probably (possibly) lose money (even principal) to sell early on the open market.

Bank/CU CD's: Generally can be redeemed early for a penalty of interest (no loss of principal).

Also brokered are generally 10 year duration (versus lesser period for most Bank/CU CD's). You have already mentioned FDIC (important) but may be CALLABLE early at no penalty to the issuer.

Brewer: I did not mean to step all over your post.
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Old 10-14-2014, 03:51 PM   #9
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No biggie, OAG.

Actually, brokered CDs come in almost any flavor or maturity imaginable. You can even get structured index-linked CDs in a dizzying array of permutations. So be aware that all sorts of things are available, and many of them have obvious and not-so-obvious downsides.

I will play Devil's advocate for a moment. If you are buying low risk fixed income, Brokered CDs of modest duration and above treasury coupons may be acceptable. A 3 or 4 year CD with a decent (2% or better) coupon might be fine in limited quantities if you are building a ladder and expect to hold to maturity (or close to it - liquidating a 4 year CD with 1 year to go would likely have limited downside). I just think that if you want to go longer you are far better off with direct CDs from a credit union or bank.
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Old 10-14-2014, 03:55 PM   #10
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I was all set to buy a cd directly with Ally but the interest penalty is bigger than I thought. I was putting 500,000 in a 5 year 2.4% cd which means I would receive 1000 monthly. When I asked about the penalty she said 12 months of income (12,000.00) That doesn't seem small to me....
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Old 10-14-2014, 04:03 PM   #11
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I was all set to buy a cd directly with Ally but the interest penalty is bigger than I thought. I was putting 500,000 in a 5 year 2.4% cd which means I would receive 1000 monthly. When I asked about the penalty she said 12 months of income (12,000.00) That doesn't seem small to me....
I usually look for a 6 months of interest penalty, which is what Pen Fed and Navy Fed do for 5 year CDs.
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Old 10-14-2014, 04:07 PM   #12
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Thanks brewer....since that post I did try another bank with the same answer, I will try your suggestions.
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Old 10-14-2014, 04:17 PM   #13
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All good advice. Its in an IRA so the plan is not to bother it for many moons. Unless I do a 72T, I have 6 1/2 yrs. to 59 1/2. So, Its probably not going to be disturbed. For the past 2 years I keep thinking the rates are going to go up, not sure what Yellen is thinking.......... When it does go it will probably be .25 every 6 months or year for quite a while....... Not too much to look forward to. LOL LOL
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Old 10-14-2014, 04:25 PM   #14
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So you don't think a laddered approach is the way to go?
Say $40k each in a 1/2/5/7/10
No, there's no problem with the ladder. It's the brokered CDs, rather than direct ones, particularly for the very long ones. A lot can happen in ten years. I see that you intend to hold them, but if rates go to 6% and inflation is at 4%, it's not just the opportunity cost of losing out on the chance to get 6%--you'll actually be losing buying power on that money, maybe for a the majority of a decade.
The fact that you nor anyone else can predict future interest rates with any accuracy is an argument against brokered CDs, regardless of the rate they offer. And to take the risk for this tiny increment of increased return just doesn't seem like a good idea. Just my opinion.
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Old 10-14-2014, 04:29 PM   #15
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I have a retirement account where the only CD option is to buy brokered CDs or I would also go the credit union CD route.

For years I have been buying brokered FDIC CDs from every bank associated with whatever unstable economy or government I can find since the rates are usually higher. So far so good. I just ladder the CDs and spread the money around plus with FDIC insurance, why not?
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Old 10-14-2014, 05:21 PM   #16
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I don't like 10 yr CD's either....... But its starting to look like Japan around here.........

Quote:
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FDIC insured is FDIC insured. I don't like a 10 year term on a brokered CD because if rates spike you have take the beating instead of just surrendering for whatever the penalty is on a non-brokered CD. YMMV.
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Old 10-14-2014, 06:11 PM   #17
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I usually look for a 6 months of interest penalty, which is what Pen Fed and Navy Fed do for 5 year CDs.
The last time I checked State Farm Bank, their 5 year rates were comparable to Ally, EverBank, etc. But, the penalty at State Farm Bank was still only 6 months of interest. Not as good as the Pen Fed specials but better terms than I am seeing with the better known online banks.

Good luck.
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Old 10-14-2014, 06:57 PM   #18
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The last time I checked State Farm Bank, their 5 year rates were comparable to Ally, EverBank, etc. But, the penalty at State Farm Bank was still only 6 months of interest. Not as good as the Pen Fed specials but better terms than I am seeing with the better known online banks.

Good luck.
Actually, I am comfy with a year of interest if the terms are good enough on a longer CD. I did not flinch at that surrender penalty when Pen Fed had their silly 10 year 5% CD offer. I would suggest that terms are not all that attractive for a 5 year CD and a year interest penalty.
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Old 10-14-2014, 07:57 PM   #19
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Almost There, I'd ladder the 5 yr, 7 yr, and 10 yr CD's. That will get you about 2.88 % to start. After 5 years you'll be able to reinvest the maturing CD's into new 10 yr CD's and then every 2 to 3 years after.

You can also buy individual corporate bonds for higher rates. You can ladder higher interest shorter bonds, and longer term CD's for instance.
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Old 10-15-2014, 06:05 AM   #20
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My Vanguard mailing address is in Texas, and I can't buy the State Bank of India CD's due to Blue Sky laws. As near as I understand, there are more regulatory hurdles in the Blue Sky states and some banks don't bother to hurdle them all. So I think the State Bank of India CD's are only available in 47 states. Otherwise, I would be interested.

If you are logged into your Vanguard account, and your address is in one of those three states, the CD won't show up when pull up the new issue CDs available for a certain maturity. This is probably true for other brokerages, also.
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