Vanguard CD's?

[Midpack]

Still sitting on more cash in VMMXX than I'd like, wonder if anyone has bought CD's from Vanguard, to improve on miniscule VMMXX "returns?" Yes I know I have some duration to deal with. The only CD's I ever hear about here are Pen Fed.

https://personal.vanguard.com/us/whatweoffer/stocksbondscds/buying-cds

 

[brewer12345]

I like CDs bought from a bank or credit union better. What Vanguard will sell you are brokered CDs, which are very much like bonds. If you want to cash out, you have to sell them for what the market will bear, just like any bond. In contrast, CDs bought directly from a bank may be surrendered early for just the surrender penalty. That means that if rates spike you are still only out the 6 months worth of interest (or whatever the penalty is) and not whatever the mark to market hit really is.

 

[KB]

I bought a 2 year CD from Vanguard last year; the money was funded from my Prime MM. About 4 months after purchasing the CD the bank failed, and the money was returned to my Prime MM within a couple of weeks of the notice that the bank failed.

I would buy more CDs at Vanguard depending on the rates. I initially wanted to keep my funds in the same place so not to have $$ in a number of banks. Since then, I opened an account at Ally and have some CD there.

 

[FIREd]

I agree with Brewer, brokered CDs are too much like bonds. Even though I would love to have all my money at Vanguard for simplicity sake, I buy my CDs from PenFed and USAA.

 

[Corporate ORphan]

We were wondering the same thing. We looked into it for a little while but didn't do it because they seemed kinda of "sleezy" compared to the credit union/bank cds. The rates were lower and they cost money to redeem early if you needed to. At the time a lot of the banks they were from were foreign.

Of course, we are really conservative with our cds. We don't even like going out of the city for them.

We are thinking about it again though but were hoping the interest rates would go up....

 

[LOL!]

I have not bought CDs at Vanguard, but have bought CDs in my IRA at TDAmeritrade without any problems whatsoever. It was very easy as well.

I want to point out a difference with others on CDs from brokers. They are bought just like you would buy them from your bank. At the broker, you can see which bank is offering them. I did not buy CDs in the "secondary market" which was practically implied in the other responses. I bought new issue CDs. New issues appear all the time, so you have to look often to see what's coming up.

I held them to maturity. You do not redeem them early. If you redeem a CD from your local bank early, there is a penalty. I don't think you call those banks "sleazy."

They are not like bonds. They are CDs. They are FDIC-insured. You do not buy/sell them like bonds. Yes, banks can go bankrupt, but you could buy a CD from a local bank that goes bankrupt as well.

 

[Midpack]

I initially wanted to keep my funds in the same place so not to have $$ in a number of banks. Since then, I opened an account at Ally and have some CD there.

My stumbling block too, I was perfectly happy with my cash in VMMXX, but not at next to zero return. Guess I'll have to buy some CD's until Money Market recovers in the next several years...

Thanks for the other insights...

 

[DRiP Guy]

I would offer the following tidbit, that probably is already obvious, but then again, perhaps not....


As a credit union, PenFed has a primary interest in obtaining and then utilizing funds from it's members in order to make loans to other members (or those same members). Therefore, their trade in CDs is what I would consider a primary and direct interest.

Contrast that to Vanguard whose focus is Investing and Advising. Without a large market of folks needing auto loans, mortgages, and other traditional banking functions, they have no direct need for funds to loan out. Therefore they are by their very nature not primarily interested in the CD business. They provided access to CDs because people want them, not because Vanguard has a direct interest in the process to fund their other activities. Thus their offering of the brokered product, sourced from elsewhere which, IMHO, can just about never be as good as going to a 'primary' source. Any time there is a middle man, they have to take their cut, besides the fact the very nature of the brokered product is different.

When I need fuel, I go to a gas station. When I am hungry, I go to a restaurant. The fact that you *can* get some food, some times, at some gas stations, is not a compelling reason to make it a plan to buy your food there regularly, IMHO.

 

[Nords]

If you're gonna chase yield then you might as well go where the yield is.

We don't keep any cash at Fidelity anymore. Fidelity's money markets pay next to nothing and their brokered CDs are terrible. Even my credit-card rebates are transferred to a NFCU money-market account or a PenFed CD.

One of the reasons for sticking with PenFed CDs has been the low minimum amounts and low early-redemption penalties, so we can keep our spending cash in a 3-5-year CD ladder for even higher yield while anticipating breaking into a CD only once or twice a decade.

 

[LOL!]

Does PenFed have IRAs? Let me go look ....
Yes, they pay 0.55% on $10K in a money market IRA and 3% APY in a 7-year CD.

 

[brewer12345]

They are not like bonds. They are CDs. They are FDIC-insured. You do not buy/sell them like bonds. Yes, banks can go bankrupt, but you could buy a CD from a local bank that goes bankrupt as well.

They are FDIC-insured CDs, but they are still like bonds. Market sensitive in terms of value, no option to surrender early with a penalty (instead all you can do is sell them on the secondary market), etc.

 

[LOL!]

I just looked at TDAmeritrade. They offer Ally CDs among others.

I wouldn't buy a CD if my intention was to cash in early.

Anyways, I'm not saying that PenFed is not the best deal in town, nor am I saying that going to your local bank is not a bad idea. I'm saying that if you want CDs, that your broker is another place to look.

 

[brewer12345]

Anyways, I'm not saying that PenFed is not the best deal in town, nor am I saying that going to your local bank is not a bad idea. I'm saying that if you want CDs, that your broker is another place to look.

Absolutely. I have bought CDs through Schwab when I was looking for a safe place to stash money and that was the highest yield available.

 

[Gotadimple]

Absolutely. I have bought CDs through Schwab when I was looking for a safe place to stash money and that was the highest yield available.

TO add to this, if you are holding cash in an IRA or Roth, you don't have much choice about where to buy a CD unless you are willing to go out and set up another retirement account.

Outside of these retirement accounts, I have found internet high yield savings to be a better deal than most CDs -- higher yields and you can connect it to your checking or brokerage account.

-- Rita

 

[Lsbcal]

Still sitting on more cash in VMMXX than I'd like, wonder if anyone has bought CD's from Vanguard, to improve on miniscule VMMXX "returns?" ...

I bought some CD's through VG's brokerage but held them to maturity. Was told if you want out you'll have to sell them on the secondary market and take a haircut.

For pure safety you might consider buying 3 to 6 month Treasury's through Vanguard's brokerage. Then continuouly roll them over until ... eventually ... rates rise. They will rise in our lifetime, I predict. William Bernstein has suggested these are a good alternative to cash (see Bogleheads forum).

My solution is (1) buy a little more equity, (2) buy Short Term Investment Grade. You will be taking more risk. So if you have maybe 50% in cash right now you could venture a little wee bit of that into those alternatives.

I personally cannot see holding cash or bonds beyond intermediate right now. The stock market looks good. But that's me.

 

[mickeyd]

I have my cash reserves in two places. About 60% is in a local savings account now as I plan on spending a good part of it within the next year or so. 40% is in the VG STB fund which gets a better yield than many CDs I've seen or at least has no w/d penalty in case I need to spend the cash. Flexibility plays a big role in this part of my finances.

 

[Mike10]

I too wanted to buy CDs from my Vanguard IRA. The money I invest in my Vanguard IRA comes from a SIMPLE IRA account at another vender. I transfer to Vanguard one time a year from the Simple IRA. I thought about opening an IRA account at PenFed (I do have CDs there) but I have other IRA accounts and did not wnat to open another. I know the downside of selling brokered CDs but unless a catastrophe happens I can not foresee cashing them out early. The CDs were bought from the secondary market where the yields are higher. Yes, I was yield chasing somewhat but it fit into my cd ladder.

If you have a mutual fund Vanguard IRA account you will need to open a brokerage account IRA. You can use the same Prime money market account for both but you should call Vanguard so it gets setup properly. The reason I wanted to use the same money market account is because it is easier to transfer to the Prime Money Market mutual fund from the Simple IRA than it would be to transfer to the brokerage Prime Money Market account. Different paperwork.

 

[youbet]

Absolutely. I have bought CDs through Schwab when I was looking for a safe place to stash money and that was the highest yield available.

DW has a few brokered CD's in her rollover IRA at Schwab. At the time she purchased them, 2 - 3 yrs ago, the rates were attractive vs. what was available at our bank or credit union and she wanted to avoid transfering IRA dollars from one institution to another. If she wanted to sell these CD's in the secondary market now, pre-maturity date, she'd harvest a nice cap gain.

We're satisfied with how the product has worked out and especially the fact that they could be owned inside of her Schwab IRA acct. It would have been a pita to withdraw IRA money form Schwab and open an IRA with, say, Penn Fed.

Today the brokered CD's available from Schwab, at least those I see listed on their web site, don't look attractive in terms of interest rates.

 

[obgyn65]

I buy all my CDs with Edward Jones. I am pleased with their services but their CD rates are not great.

 

[jayc]

If she wanted to sell these CD's in the secondary market now, pre-maturity date, she'd harvest a nice cap gain.

I also have CD's at Schwab. When I asked a broker/rep about the market price of these CD's listed on my monthly statement, they would never commit that I could actually ever get that price. i.e 10K face value CD with a market price of 10,600. Is it also plus accrued interest minus the specific penalty at that bank.

Has anyone here ever sold a CD at Schwab in the secondary market?

 

[73ss454]

I buy all my CDs with Edward Jones. I am pleased with their services but their CD rates are not great.

Are you pleased with their expenses?

 

[youbet]

I also have CD's at Schwab. When I asked a broker/rep about the market price of these CD's listed on my monthly statement, they would never commit that I could actually ever get that price. i.e 10K face value CD with a market price of 10,600. Is it also plus accrued interest minus the specific penalty at that bank.

Has anyone here ever sold a CD at Schwab in the secondary market?

That's true jayc. The price is calculated by the usual bond price formula and varies with interest rates. Whether you can actually get that estimated price, just like selling a bond, depends on whether the market will actually pay it when you put it up for sale.

The Schwab reps were correct to not commit that you could actually get the value calculated on your statement. Until someone actually gives you that amount for it, it's all an estimate. But I'd think it would be close. Right now, while CD's you've held for a while typically have much higher interest rates than new issues, it's a nice advantage to have brokered CD's and collect capital gains when selling instead of penalities. Of course, if interest rates were up vs the rates in place when you bought the CD's you'd take a loss unless you held to maturity.

It seems very much like these brokered CD's are similar to insured bonds. I like brokered CD's if I think interest rates are headed down and bank/CU issued CD's if I think rates are headed up. 2 - 3 years ago I was going with brokered CD's. Right now we're buying them at our CU and keeping maturities short.

Ya pays yer money, ya take yer chance.....

 

[chinaco]

The word that comes to mind is "pathetic"!

Until the Fed is done manipulating rates... this is it. It sounds like they intend to continue the manipulation till summer. But it could end sooner!

New Fed members could end quantitative easing | Marketplace From American Public Media

 

[Corporate ORphan]

We read an article that suggested you are better off getting longer term CD's when the interest rates are low and then redeeming them when interest rates go up than getting shorter term CD's or waiting until the interest rate rise. The new interest would pay the 6 month penalty that most banks/CUs impose for early withdrawal. With the rates as low as they are now for a 5 year CD it won't take much of an increase to make it worth cashing in and getting a new CD with the better rate.

It sounds like it would be harder to take this approach with brokerage CD's.