Who Knew? Schwab 3rd party CD's

[Newventurer]

Just found out tonight that Schwab sells other companies CD's through their website. They hold the paper, all institutions are FDIC insured. Got a 13 month CD from Wells Fargo at 2% (can't get anything close to this on Wells website). At the end of the term the proceeds are put back into your Schwab account along with the interest. Very Convenient, and competitive.

 

[GalaxyBoy]

Schwab's website says they charge $1 per $1,000 for secondary-market CDs ($10 minimum, $250 maximum). Online banks such as Ally are offering 12-month CDs at 2% with a $25k deposit, with no additional fee.

 

[OldShooter]

Sure. Just talk to the bond guys.They have lots of options for you, including brokered CD s. It is a mystery to me why people are so willing to pay bond fund fees.

 

[Another Reader]

Schwab's website says they charge $1 per $1,000 for secondary-market CDs ($10 minimum, $250 maximum). Online banks such as Ally are offering 12-month CDs at 2% with a $25k deposit, with no additional fee.

That's the secondary market. New issues CD's do not have fees.

Fidelity offers similar CD's and I have an easier time shopping on their website vs Schwab or Vanguard. Wells Fargo offers 2.4 percent for two years at Fidelity. I suspect the banks shave a basis point or 5 to pay Fido and Chuck to carry their products.

 

[audreyh1]

Sure. Just talk to the bond guys.They have lots of options for you, including brokered CD s. It is a mystery to me why people are so willing to pay bond fund fees.

I’m confused about the bond fund fees. If you are paying 0.04% expense ratio for your bond fund, how can buying individual bonds possibly beat that (except for buying ibonds or treasuries directly from the US government).

I also don’t understand why someone would buy a brokered CD when they can buy one directly from a bank.

 

[audreyh1]

That's the secondary market. New issues CD's do not have fees.

Fidelity offers similar CD's and I have an easier time shopping on their website vs Schwab or Vanguard. Wells Fargo offers 2.4 percent for two years at Fidelity. I suspect the banks shave a basis point or 5 to pay Fido and Chuck to carry their products.

Really? No fees on new issue CDs? Then you just have to make sure the offers stack up against what can buy directly.

2.4% is slightly above what depositaccounts.com shows as best current 2 year CD rates. But it’s a bit weird because Wells Fargo does not offer anything above 1% directly for 24 months. Why would they offer a much higher rate through Fidelity and Schwab?

Our experience buying treasuries once long ago through Fidelity is they were busy trying to sell you secondary market treasuries rather than new issue.

 

[Dtail]

Really? No fees on new issue CDs? Then you just have to make sure the offers stack up against what can buy directly.

2.4% is slightly above what depositaccounts.com shows as best current 2 year CD rates. But it’s a bit weird because Wells Fargo does not offer anything above 1% directly for 24 months. Why would they offer a much higher rate through Fidelity and Schwab?

Our experience buying treasuries once long ago through Fidelity is they were busy trying to sell you secondary market treasuries rather than new issue.

+1
I just set up a CD Ladder for my parents at Fidelity. No fees for new issues. WF at 2.4% and Ally at 2.35% for 2 years, plus many other choices. Since they will hold to maturity, no trading risk.

 

[njhowie]

I also don’t understand why someone would buy a brokered CD when they can buy one directly from a bank.

1. Because the rates on brokered CDs are generally higher. If I walk in to my local bank and look at the rate board, they are laughable...still under 1%.

2. Because buying through your brokerage account is as easy as clicking a few buttons. If you buy directly from a bank, it's generally more involved. Do it in person, there's paperwork and it can take 30 minutes. Do it online with a bank where you don't already have an account and it takes time.

3. Because you have enormously more options as far as the maturity date, and the type of CD (callable/non-callable, step, even zero coupon).

4. With brokered CDs, you have hundreds of banks you could buy through on one screen. It's easy to spread your money across many banks with minimal effort. If you have a large account, this comes in handy so as not to breech FDIC limits at any one bank.

5. If you want to buy CDs in your IRA or other brokerage account obviously it will be easier and/or required to do it through the brokerage.

6. If you buy secondary market CDs, rates are not fixed, it's what someone is willing to sell for. On any particular day I can find CDs yielding 0.1% to 0.25% over the equivalent maturity new issue, even after commission. Additionally, there are a couple thousand CDs available through secondary market at any point in time, so there is much more choice.

7. With secondary market CDs rates are updated in real-time. When you buy from a bank, their CD rates are updated maybe weekly at best. Most times it's less frequently.

 

[Newventurer]

Schwab's website says they charge $1 per $1,000 for secondary-market CDs ($10 minimum, $250 maximum). Online banks such as Ally are offering 12-month CDs at 2% with a $25k deposit, with no additional fee.

Not sure where you get this information - no fees as noted here:

Competitive rates and no fees
Schwab CD OneSource offers you a virtual one-stop marketplace for CDs, giving you access to some of the highest rates in the country—which you can easily compare by maturity and institution. Also, there are no hidden fees. For most CDs, there is no charge when you buy from Schwab. This is because the deposit institution itself pays Schwab a fee for distributing its CDs.

Of course they are making something on the back end from the provider, but 2% is 2%, and no additional forms to fill out and no wrestling my money back into my account after maturity.

 

[njhowie]

Fidelity offers similar CD's and I have an easier time shopping on their website vs Schwab or Vanguard. Wells Fargo offers 2.4 percent for two years at Fidelity. I suspect the banks shave a basis point or 5 to pay Fido and Chuck to carry their products.

I saw that 2.4% two year Wells CD yesterday and bought some from Fidelity, E-Trade, and Merrill Edge.

Merrill indicates on their confirmations how much they get paid by the issuer.

CD WELLS FARGO BANK NA SIOUX FALLS, SD 02.400% FEB 28 2020 WHEN ISSUED ISSUER HAS PAID ML A FEE OF 0.116 %

 

[njhowie]

Newventurer - I'm sure Schwab is the same as others...new issue has no fees. Fees are always applicable on secondary market purchases...because the issuer is not "distributing" the CDs - it is a trade.

 

[Newventurer]

Newventurer - I'm sure Schwab is the same as others...new issue has no fees. Fees are always applicable on secondary market purchases...because the issuer is not "distributing" the CDs - it is a trade.

Sorry, not sure I understand your post. Are you saying you think there are fees (that I am paying) even though it says there are not?

 

[njhowie]

Sorry, not sure I understand your post. Are you saying you think there are fees (that I am paying) even though it says there are not?

I think you may not understand the difference between new issue and secondary market.

Schwab OneSource is new issue.

 

[Newventurer]

Thanks to njhowie for the nudge to expand my understanding (well sort of) found this helpful from the Vanguard site when searching for info to understand the difference:

https://investor.vanguard.com/investing/online-trading/primary-secondary-market

 

[njhowie]

I was just as excited as you when I first found the brokered new issue CDs. As I then learned about secondary market it took things to another level.

Best regards.

 

[Another Reader]

Really? No fees on new issue CDs? Then you just have to make sure the offers stack up against what can buy directly.

2.4% is slightly above what depositaccounts.com shows as best current 2 year CD rates. But it’s a bit weird because Wells Fargo does not offer anything above 1% directly for 24 months. Why would they offer a much higher rate through Fidelity and Schwab?

Our experience buying treasuries once long ago through Fidelity is they were busy trying to sell you secondary market treasuries rather than new issue.

I buy these through Fidelity to hold cash for RMD's in an inherited IRA. I keep about four years in cash. Fidelity charges very high ER's on their money market accounts and these are a better alternative. The bank pays a distribution fee to the broker.

I have no idea why rates are higher at the brokers than at the bank. Paperwork might be part of the problem. Also lack of competition at bricks and mortar banks.

For taxable accounts, I buy CD's from the highest rate banks, usually on-line.

 

[brucethebroker]

1. Because the rates on brokered CDs are generally higher. If I walk in to my local bank and look at the rate board, they are laughable...still under 1%.

2. Because buying through your brokerage account is as easy as clicking a few buttons. If you buy directly from a bank, it's generally more involved. Do it in person, there's paperwork and it can take 30 minutes. Do it online with a bank where you don't already have an account and it takes time.

3. Because you have enormously more options as far as the maturity date, and the type of CD (callable/non-callable, step, even zero coupon).

4. With brokered CDs, you have hundreds of banks you could buy through on one screen. It's easy to spread your money across many banks with minimal effort. If you have a large account, this comes in handy so as not to breech FDIC limits at any one bank.

5. If you want to buy CDs in your IRA or other brokerage account obviously it will be easier and/or required to do it through the brokerage.

6. If you buy secondary market CDs, rates are not fixed, it's what someone is willing to sell for. On any particular day I can find CDs yielding 0.1% to 0.25% over the equivalent maturity new issue, even after commission. Additionally, there are a couple thousand CDs available through secondary market at any point in time, so there is much more choice.

7. With secondary market CDs rates are updated in real-time. When you buy from a bank, their CD rates are updated maybe weekly at best. Most times it's less frequently.

+1. Love the Schwab CD's-sooo easy to track maturity dates.

 

[foxfirev5]

Over the last two years I have built a 5 year CD ladder at Fidelity. No fees and better rates. My current average maturity is 2.6 years and 2.5% yield. As the first one's mature I roll them into higher yielding new issues. Rapidly approaching 10k in annual income.
Since I have CD's maturing on a regular basis I don't need to worry about early redemptions and have the flexibility to roll them or use them as required.
My online bank CD's are not nearly as competitive other than an occasional special deal like Ally's 2% 1 year last month.

 

[Dtail]

Over the last two years I have built a 5 year CD ladder at Fidelity. No fees and better rates. My current average maturity is 2.6 years and 2.5% yield. As the first one's mature I roll them into higher yielding new issues. Rapidly approaching 10k in annual income.
Since I have CD's maturing on a regular basis I don't need to worry about early redemptions and have the flexibility to roll them or use them as required.
My online bank CD's are not nearly as competitive other than an occasional special deal like Ally's 2% 1 year last month.

foxfirev5 - do you use this ladder as a bond substitute in this current environment or your cash portion?

 

[audreyh1]

1. Because the rates on brokered CDs are generally higher. If I walk in to my local bank and look at the rate board, they are laughable...still under 1%.

2. Because buying through your brokerage account is as easy as clicking a few buttons. If you buy directly from a bank, it's generally more involved. Do it in person, there's paperwork and it can take 30 minutes. Do it online with a bank where you don't already have an account and it takes time.

3. Because you have enormously more options as far as the maturity date, and the type of CD (callable/non-callable, step, even zero coupon).

4. With brokered CDs, you have hundreds of banks you could buy through on one screen. It's easy to spread your money across many banks with minimal effort. If you have a large account, this comes in handy so as not to breech FDIC limits at any one bank.

5. If you want to buy CDs in your IRA or other bokerage account obviously it will be easier and/or required to do it through the brokerage.

6. If you buy secondary market CDs, rates are not fixed, it's what someone is willing to sell for. On any particular day I can find CDs yielding 0.1% to 0.25% over the equivalent maturity new issue, even after commission. Additionally, there are a couple thousand CDs available through secondary market at any point in time, so there is much more choice.

7. With secondary market CDs rates are updated in real-time. When you buy from a bank, their CD rates are updated maybe weekly at best. Most times it's less frequently.

Thanks for the details. I read that if you buy secondary market CDs you get no compounding of interest? I guess the interest is just immediately paid out to you instead? Is compounding usually an option on new issue CDs?

 

[foxfirev5]

foxfirev5 - do you use this ladder as a bond substitute in this current environment or your cash portion?

I have transitioned from total bond market funds (AGG, BND) to the CD ladder. Similar yield with lower duration. To complete my fixed holdings I also use corporate bond funds LQD and VCIT. For a little more risk I also have held DBLTX and PIMIX for several years. However the majority of my fixed holdings are in the CD's.

 

[audreyh1]

I was just as excited as you when I first found the brokered new issue CDs. As I then learned about secondary market it took things to another level.

Best regards.

I had looked in the past and not seen offers that matched what I found directly. I guess this changes off and on.

How do you find out what fees are involved in the secondary market. Or is comparing yield to maturity all that matters?

It is true that the paperwork/online forms involved in buying a CD is a pain. And now that we’ve frozen our credit buying from a new bank wil involve more hoops plus some expense.

 

[foxfirev5]

Thanks for the details. I read that if you buy secondary market CDs you get no compounding of interest? I guess the interest is just immediately paid out to you instead? Is compounding usually an option on new issue CDs?

Yeah, there's no compounding of interest in either case. The interest is deposited in your sweep or mm account. You have various options of monthly, semi, or annual payments depending on the terms. At least the Vanguard MM and Fido MM are paying something between 1.3- 1.5%.

 

[Dawg52]

1. Because the rates on brokered CDs are generally higher. If I walk in to my local bank and look at the rate board, they are laughable...still under 1%.

2. Because buying through your brokerage account is as easy as clicking a few buttons. If you buy directly from a bank, it's generally more involved. Do it in person, there's paperwork and it can take 30 minutes. Do it online with a bank where you don't already have an account and it takes time.

3. Because you have enormously more options as far as the maturity date, and the type of CD (callable/non-callable, step, even zero coupon).

4. With brokered CDs, you have hundreds of banks you could buy through on one screen. It's easy to spread your money across many banks with minimal effort. If you have a large account, this comes in handy so as not to breech FDIC limits at any one bank.

5. If you want to buy CDs in your IRA or other brokerage account obviously it will be easier and/or required to do it through the brokerage.

6. If you buy secondary market CDs, rates are not fixed, it's what someone is willing to sell for. On any particular day I can find CDs yielding 0.1% to 0.25% over the equivalent maturity new issue, even after commission. Additionally, there are a couple thousand CDs available through secondary market at any point in time, so there is much more choice.

7. With secondary market CDs rates are updated in real-time. When you buy from a bank, their CD rates are updated maybe weekly at best. Most times it's less frequently.

In a nutshell it's simply more convenient. I don't like having multiple online bank accts to keep up with. I do have one additional acct with PenFed, but that's it. All my other cd's are through Fidelity.

 

[Onward]

Last time I looked at brokered CDs (maybe ten yrs ago), many/most of them were callable. That really put me off.

What's it look like now?