CD advice

[audreyh1]

Ah, there's my problem. The Vanguard website page with the CD info didn't state that they were 'brokered', or I just missed it!

By definition as you are buying through a brokerage. You can buy new issue CDs through some brokerages with no fees. But you are restricted to selling them (secondary market) if you can’t wait for them to mature.

 

[OldShooter]

10 basis points is $10/year pretax on $10,000. Just sayin'

 

[wolf]

OK, thanks for the link.

After perusing the options, I decided to open CDs with Penfed. Ironically, I just transferred money out of Penfed into Vangaurd. But now that good rates are no longer available there, I am going to transfer back to Penfed.

While the early withdrawal penalty is not the best, at least it is a known bank that I have been doing business with the past 5 years. Now I need to wait several days for the money to transfer back and hope the rates stay the same.

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.

 

[jazz4cash]

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.

Before splitting your CD purchase into several smaller pieces, check to see if partial withdrawals are permitted and verify that the penalty will only apply to the amount withdrawn early. In that case there is no reason to break the investment into smaller pieces. This is the policy at PenFed.

 

[John Galt III]

Before splitting your CD purchase into several smaller pieces, check to see if partial withdrawals are permitted and verify that the penalty will only apply to the amount withdrawn early. In that case there is no reason to break the investment into smaller pieces. This is the policy at PenFed.

Arrgggghhh! I just opened 11 cds at Penfed, and told the rep I was doing so, instead of one big cd, so I could minimize the penalty if I ever wanted to withdraw some of the total dollars invested. The rep said nothing about the 'only get penalized on the withdrawn amount' policy, and spent ten minutes setting up all eleven cds. I did not ask him specifically about partial withdrawals.

 

[almost there]

Agree with smaller CD's. No real % advantage with jumbos these days. Most places anyway...

 

[jazz4cash]

Arrgggghhh! I just opened 11 cds at Penfed, and told the rep I was doing so, instead of one big cd, so I could minimize the penalty if I ever wanted to withdraw some of the total dollars invested. The rep said nothing about the 'only get penalized on the withdrawn amount' policy, and spent ten minutes setting up all eleven cds. I did not ask him specifically about partial withdrawals.

I was going to say give them a call to see if you could consolidate the CDs you just opened, but it's probably not worth it. I just looked at the disclosures for IRA and taxable CD's on their website and it is quite vague. That's not unusual. Their policy has changed several times over the years but the IRA withdrawal policies are not too bad at all. There is a lot of griping here about their withdrawal policies without specifying taxable vs. IRA. Due to vague wording in the CD disclosures at some of these credit unions, I have actually requested a statement in writing to confirm the withdrawal policy and filed the statement in case I need it.

Edit: I took a closer look at the Penfed CD disclosure document and partial withdrawals are NOT permitted from taxable CDs. I found the info in a section called "transaction limitations" and not in the "early withdrawal" section as I expected. OTOH, I think IRA CDs permit partial withdrawals penalty free if you are >59.5.

 

[John Galt III]

I was going to say give them a call to see if you could consolidate the CDs you just opened, but it's probably not worth it. I just looked at the disclosures for IRA and taxable CD's on their website and it is quite vague. That's not unusual. Their policy has changed several times over the years but the IRA withdrawal policies are not too bad at all. There is a lot of griping here about their withdrawal policies without specifying taxable vs. IRA. Due to vague wording in the CD disclosures at some of these credit unions, I have actually requested a statement in writing to confirm the withdrawal policy and filed the statement in case I need it.

Edit: I took a closer look at the Penfed CD disclosure document and partial withdrawals are NOT permitted from taxable CDs. I found the info in a section called "transaction limitations" and not in the "early withdrawal" section as I expected. OTOH, I think IRA CDs permit partial withdrawals penalty free if you are >59.5.

Jazz4cash, Thanks for the update. I agree, too much vague wording out there.

 

[jazz4cash]

Too bad you missed the bottom

 

[wolf]

Before splitting your CD purchase into several smaller pieces, check to see if partial withdrawals are permitted and verify that the penalty will only apply to the amount withdrawn early. In that case there is no reason to break the investment into smaller pieces. This is the policy at PenFed.

Just read your "correction". If partial withdrawals were allowed on CD's,
then Penfed's EWP would be meaningless. ie. $100K 5yr CD. Interest rates go up. I partial withdrawal $ 99,000, and move my $ else where to get higher
paying CD. Leave $1K. in Penfed 5yr CD.

IRA CD's. Most allow partial withdrawals. RMD's etc. Just watch age requirements to avoid penalties.

 

[jazz4cash]

Just read your "correction". If partial withdrawals were allowed on CD's,

then Penfed's EWP would be meaningless. ie. $100K 5yr CD. Interest rates go up. I partial withdrawal $ 99,000, and move my $ else where to get higher

paying CD. Leave $1K. in Penfed 5yr CD.



IRA CD's. Most allow partial withdrawals. RMD's etc. Just watch age requirements to avoid penalties.

I may have made the whole thing more confusing with the original statement and correction.
I don’t follow your logic on the EWP being meaningless. Let’s say I have 100k CD and a 20k emergency arises. If partial withdrawals are permitted I could withdraw just enough to pay for the emergency and only pay a penalty on 20k. Checking the policy on partial withdrawals is just part of my routine before I invest. I was aware PenFed had raised EWP from when I originally checked their policy but didn’t realize partial withdrawals were not allowed.

 

[OAG]

Arrgggghhh! I just opened 11 cds at Penfed, and told the rep I was doing so, instead of one big cd, so I could minimize the penalty if I ever wanted to withdraw some of the total dollars invested. The rep said nothing about the 'only get penalized on the withdrawn amount' policy, and spent ten minutes setting up all eleven cds. I did not ask him specifically about partial withdrawals.

That may be because they do not allow partial withdrawals of non IRA CD's.

 

[Brat]

hmmm … their website says:
Eligibility

• Live or work in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Have a family member who lives or works in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Businesses who have a company located in or have more than half of its owners or employees live or work in Washington State, or the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.

So, I do not think anyone can join.

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).

 

[Brat]

Fidelity has an interesting CD ladder tool. I used it last week but didn't notice that the opening date of the CDs varied so it has taken longer than I expected to fund the CDs I selected. My solution to the off-ramp issue is to keep maturities short (which actually was where the best returns were found) and not select auto re-investment.

 

[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.

 

[John Galt III]

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]

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]

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]

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]

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.