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Old 04-12-2018, 08:47 PM   #21
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Exactly why I hate brokered CDs. They offer no protection if you need to sell early in a rising interest rate environment yet they offer no premium over the credit unions CDs that fix your early term penalty at 6 months.
Note that banks have wised up and penalties are now often 3% of the amount withdrawn. I suspect more banks will do this soon. (to keep the cheap money they have)
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Old 04-12-2018, 10:13 PM   #22
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Originally Posted by Al18 View Post
Interest on a brokered CD does not compound like a typical bank CD. For comparison, a 60 month bank CD paying 2.79% APY will mature at the same amount as a 60 month brokered CD paying 2.95% when it matures.
Which is why you should always compare APY. I do think the brokers should be required to show APY, as the banks are.

I use these in an inherited IRA along with treasury bills to get a better return on cash set aside for distributions. Fidelity is getting a high ER on their money market accounts which I don't want to pay. I have to work to avoid that loss.
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Old 04-13-2018, 05:58 PM   #23
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Note that banks have wised up and penalties are now often 3% of the amount withdrawn. I suspect more banks will do this soon. (to keep the cheap money they have)
So if the APY is 3% this would represent 12 months penalty instead of 6 months. That would begin to make the brokered CDs look a little better but I still think I would take the guarantee of a one year fixed interest penalty versus selling a CD prior to maturity in the open market.
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Old 04-13-2018, 06:21 PM   #24
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So if the APY is 3% this would represent 12 months penalty instead of 6 months. That would begin to make the brokered CDs look a little better but I still think I would take the guarantee of a one year fixed interest penalty versus selling a CD prior to maturity in the open market.
Currently that bank is offering less than 1% so it would take a major move. Other banks are moving to charging a penalty based upon the then current interest rate, i.e. 1 year at the difference between the current and the CD interest rate. Further some are also saying promo rates do not apply to renewed CDs either. The other nice thing about brokered cds is at maturity the funds automatically appear in your settlement account. (Of course the down side is no compounding).
Of course with the fairy flat yield curve on brokered CDs it does not make sense to go out beyond 2 to 3 years. (2.65 at 2 years 3.0 at 5 years and 10y at 3.2%) Since I expect rates to continue rising and the flat yield curve stay short.
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Old 04-13-2018, 07:10 PM   #25
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Using Vanguard for CD ladder

So when you say the funds automatically appear in your settlement account at maturity, are you referring to the principle or interest and principle? I see some brokered CDs pay monthly and others pay annually and I assumed the interest payment goes into another account which could be a high yield savings to offset some of the loss incurred by not compounding.

I hate the way Ally compounds monthly but the interest doesn't get credited until year end. At least I thing that's what they do.
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Old 04-13-2018, 08:20 PM   #26
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So when you say the funds automatically appear in your settlement account at maturity, are you referring to the principle or interest and principle? I see some brokered CDs pay monthly and others pay annually and I assumed the interest payment goes into another account which could be a high yield savings to offset some of the loss incurred by not compounding.

I hate the way Ally compounds monthly but the interest doesn't get credited until year end. At least I thing that's what they do.
At Vanguard the interest goes to you settlement account, federal money market fund, as does the principal when the security matures. You get a 1099b when the fund matures showing the distribution, but you just offset it against the basis and there is no gain or loss. Of course once you get the interest you can move it to a short term bond fund etc as desired.
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Old 04-14-2018, 06:05 AM   #27
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Now that several credit unions are offering a 3% 5 year CD with a 6 month early termination penalty, brokered CDs are going to have to be more competitive than they've been in the past couple of years. I have yet to find any on Fidelity or Vanguard's websites that are more attractive than the 3% deals at the credit unions. Has anyone else found any?
I can purchase 3 year 10 month brokered CDs from Fidelity yielding 3%. For 5 years I can get 3.2%.

Secondary market rates provide whatever a seller is willing to give them to you for.

See the attachment.
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Old 04-14-2018, 06:10 AM   #28
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I can purchase 3 year 10 month brokered CDs from Fidelity yielding 3%. For 5 years I can get 3.2%.

Secondary market rates provide whatever a seller is willing to give them to you for.

See the attachment.
Does the quote above include the commission? I believe Vanguard's YTM quote does not include the commission for secondary CDs. You need to click to the end to see the YTM that takes into account the commission.
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Old 04-14-2018, 06:14 AM   #29
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Does the quote above include the commission? I believe Vanguard's YTM quote does not include the commission for secondary CDs. You need to click to the end to see the YTM that takes into account the commission.
Fidelity charges $1/CD commission for secondary market trades.

Take the $1 out and you're at 2.986% in the example I provided.

3.2% for 5 years after commission would be 3.18%.
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Old 04-14-2018, 10:15 AM   #30
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With respect, you guys kind of crack me up.

I wonder if you are even making minimum wage for the time you spend calculating all these tiny differences. Everybody needs a hobby, though, so if that's your thing, more power to you.
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Old 04-14-2018, 10:27 AM   #31
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Originally Posted by jazz4cash View Post
So when you say the funds automatically appear in your settlement account at maturity, are you referring to the principle or interest and principle? I see some brokered CDs pay monthly and others pay annually and I assumed the interest payment goes into another account which could be a high yield savings to offset some of the loss incurred by not compounding.

I hate the way Ally compounds monthly but the interest doesn't get credited until year end. At least I thing that's what they do.
Can't you tell Ally to deposit the interest monthly into your savings account ?
If you have enough CD's, a few months later, you can buy another small CD
And repeat.
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Old 04-14-2018, 11:10 AM   #32
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Can't you tell Ally to deposit the interest monthly into your savings account ?
If you have enough CD's, a few months later, you can buy another small CD
And repeat.


At the risk of wasting my time calculating tiny percentages, I think the interest compounds at the CD rate which is higher than the savings rate. The monthly interest increases every period so that tells me it is compounding. It's just that they show it as a separate item (accrued interest) rather than adding it to the CD balance as it's earned. At the end of the year it does get rolled into the balance ( I think).
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