Best CD & MM Rates Thread 2019 - Please post updates here

[dvalley]

The thing is, you know what a money market fund is paying NOW. You don’t know what it will be paying 6 months from now, or 1 year from now, or 5 years from now.

You know that the current iBond will be paying 0.5% above inflation every six months for the next 30 years. It will pay 2.83% for the next six months, then 1.90% for the following six months. This ~2.36% average over 12 months does beat a lot of MM funds today.

I have never redeemed before 5 years so I’ve never paid the 3 month penalty.

It’s just a diversification play. I own some IBonds as well as MM funds, short-term CDs, and intermediate CDs and sometimes treasuries. My initial IBond purchase from 2003 is paying 1.1% plus inflation so currently paying 3.32%. I’m definitely holding onto that one until 2033.

There have been periods where IBonds paid more than money markets and short-term CDs.

I am just buying more to replace older IBonds that are paying a lower fixed rate (0.2%), currently 2.52%. When the rate on those older ones drop I may redeem them and redeploy into short-term CDs.

If it’s not a clear win for you I would recommend not to buy IBonds.

1) No state taxes on savings bond interest.
2) iBond interest is tax-deferred for up to 30 years
2) one year does not a lifetime make. The iBond will return 0.50% real over the life of the investment. (Well, somewhat of a lie in that federal taxes still need to be paid.)

A long long time ago there was a period where TIPS and iBonds had a near 4% REAL (plus inflation) return. I was smart enough to buy some of these, but not smart enough to buy a sh*t load of them.

Thanks. I think it makes sense especially for the education purpose I have in mind which will allow the appreciation to be 100% tax free...hopefully.

 

[Big_Hitter]

The thing is, you know what a money market fund is paying NOW. You don’t know what it will be paying 6 months from now, or 1 year from now, or 5 years from now.

you can make a very educated guess using implied forward rates

 

[pb4uski]

you can make a very educated guess using implied forward rates

If the Fed is allegedly trying to manage the money supply to a 2% inflation target... wouldn't the expected rate be ~2.5%? (2% inflation + 0.5% real return)

 

[Big_Hitter]

If the Fed is allegedly trying to manage the money supply to a 2% inflation target... wouldn't the expected rate be ~2.5%? (2% inflation + 0.55 real return)

I'm not sure. I haven't thought about it too much. I just got the 3% CD cause it sounded like a good deal.

This is how I remember doing the analysis.

"The usefulness of bootstrapping is that using only a few carefully selected zero-coupon products, it becomes possible to derive par swap rates (forward and spot) for all maturities given the solved curve."

for example, using bootstrapping, one can derive the implied future rate of return on 1 year tbills 5 years from now, etc.

https://en.wikipedia.org/wiki/Bootstrapping_(finance)

 

[njhowie]

If the Fed is allegedly trying to manage the money supply to a 2% inflation target... wouldn't the expected rate be ~2.5%? (2% inflation + 0.5% real return)

Exactly!

And if you believe that the Fed can do that, the implication is that any long term CD yielding above 2.5% (plus state taxes) will beat out the equivalent maturity iBond/TIP.

Now, inflation has been running below the 2% target for some time, and now it is right about 2%. Words from the Fed over the past year have indicated they are willing to let the economy "run hot" with inflation slightly above 2%.

I personally do not believe that the Fed is capable of managing inflation so tightly. I also don't believe that we're likely to see runaway inflation as we did in the 1970s. However, in a low interest rate environment, the iBond/TIP provides a reasonable insurance policy just in case it happens.

 

[Big_Hitter]

year x implied inflation can be gleaned by taking the difference in the x-year treasury yield minus the x-year tips yield

 

[audreyh1]

Apparently inflation is falling behind that 2% target again. That usually makes the Fed nervous.

Dec 2018 CPI 1.9% Year-over-year
Jan 2019 CPI 1.6% YOY
Feb 2019 CPI 1.5% YOY
March 2019 CPI 1.9% YOY

which is precisely why the inflation component for IBonds is dropping so dramatically.

 

[njhowie]

year x implied inflation can be gleaned by taking the difference in the x-year treasury yield minus the x-year tips yield

That and 5 bucks will get you a month of Burger King coffee.

 

[Big_Hitter]

That and 5 bucks will get you a month of Burger King coffee.

actually, stuff like that is used quite often in setting assumptions for financial modeling (which is the topic of this thread btw) - and you can make way more than a cup of coffee if you are well versed in it

 

[audreyh1]

I personally do not believe that the Fed is capable of managing inflation so tightly. I also don't believe that we're likely to see runaway inflation as we did in the 1970s. However, in a low interest rate environment, the iBond/TIP provides a reasonable insurance policy just in case it happens.

That is a good point, and why I initially bought some iBonds in 2003 when interest rates dropped so much on money markets and savings accounts. And again in 2013 and 2014 for the same reason. It's those 2013 and 2014 purchases that I have been upgrading to the higher fixed rate of 0.5%.

For me it's just one of several "cash equivalent" type assets that I own.

 

[njhowie]

actually, stuff like that is used quite often in setting assumptions for financial modeling (which is the topic of this thread btw) - and you can make way more than a cup of coffee if you are well versed in it

You can model inflation in any year you like. We can all do it by just saying 2%.

With a basically flat yield curve what is the difference in the x-year treasury yield minus the x-year tips yield telling you today about inflation 10, 20, and 30 years from now? Is it believable? Will it be accurate? Doubtful.

I thought the topic of the thread was Best CD & MM Rates.

 

[Big_Hitter]

You can model inflation in any year you like. We can all do it by just saying 2%.

With a basically flat yield curve what is the difference in the x-year treasury yield minus the x-year tips yield telling you today about inflation 10, 20, and 30 years from now? Is it believable? Will it be accurate? Doubtful.

I thought the topic of the thread was Best CD & MM Rates.

They tell you how the market has priced inflation over those periods. We can all cavalierly use a 2% assumption but it is nice to be able to tie that to a forward looking best estimate.

 

[audreyh1]

The market changes it's mind often. Occasionally very suddenly.

 

[Golden sunsets]

Best CD & MM Rates Thread 2019 - Please post updates here

Thanks. I think it makes sense especially for the education purpose I have in mind which will allow the appreciation to be 100% tax free...hopefully.

I Bond interest is tax free if used for education purposes? I did not know that? I knew that was true for savings bonds but didn’t realize it was also available for I bonds. I presume it has to be used for the educational expenses of the owner of the I bond as opposed to a child or a grandchild?

 

[njhowie]

I Bond interest is tax free if used for education purposes? I did not know that? I knew that was true for savings bonds but didn’t realize it was also available for I bonds. I presume it has to be used for the educational expenses of the owner of the I bond as opposed to a child or a grandchild?

Be sure to understand all the requirements:
https://www.treasurydirect.gov/indiv/planning/plan_education.htm

The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.

 

[Golden sunsets]

It’s just a diversification play. I own some IBonds as well as MM funds, short-term CDs, and intermediate CDs and sometimes treasuries. My initial IBond purchase from 2003 is paying 1.1% plus inflation so currently paying 3.32%. I’m definitely holding onto that one until 2033.

.

Audrey are you sure about your current yield? We have a slug that we purchased in 2005 with a FR of 1% and our current yield is 3.3316%. Your yield should be higher according to my math.

 

[audreyh1]

Audrey are you sure about your current yield? We have a slug that we purchased in 2005 with a FR of 1% and our current yield is 3.3316%. Your yield should be higher according to my math.

Should be 3.43%. Thanks.

 

[homestead]

I Bond interest is tax free if used for education purposes? I did not know that? I knew that was true for savings bonds but didn’t realize it was also available for I bonds. I presume it has to be used for the educational expenses of the owner of the I bond as opposed to a child or a grandchild?

Looked this up for our situation.

The tax exclusion on Series EE and I savings bonds doesn’t apply unless the grandchild is your dependent

 

[audreyh1]

1 year CD rates at credit unions and banks are quite a bit higher than the brokered CDs offered through Fidelity and I assume other brokerages.

Currently you can get around 1 year CDs in the 2.80% - 2.86% APR range. Andrews still has an 8 month 2.86% APR CD available - limit one per customer. Ally is offering a 15 month 2.80% CD special - although you may have to hunt for it. Synchrony is offering a standard 12 month 2.80% CD. Interestingly, at several of these institutions the 12 month rate exceeds longer maturities.

Meanwhile, the 9 month to 18 month CDs offered through Fidelity are stuck at 2.4%.

 

[ShokWaveRider]

Meanwhile, the 9 month to 18 month CDs offered through Fidelity are stuck at 2.4%.

MM Rates basically.

 

[njhowie]

MM Rates basically.

A batch of 9 month CDs at 2.45% popped up a few days ago on Fidelity and Merrill. I picked up a few in my Merrill account. The Fidelity ones were gone by the next morning. Then another batch showed up yesterday late afternoon - they were all taken within an hour. There were still some of these left at Merrill at the market close yesterday.

I have to be proactive early this week and look to sell some of my longer term municipal bonds as the prices have gotten out of hand - yield to maturity on them has gotten too low and so I have to sell and take profits instead of the yield over the remaining life. Long term rates may have gotten too low relative to how the economy is performing. Fed may have no choice but to raise rates come September or December.

 

[MJ]

University FCU certificate

One of my short term CDs matured yesterday so I wired it (for free) right away to open a 5 year certificate at University Federal CU at 3.40% APY. While I am disappointed with the lower rates of the past 2 months, I wanted to lock this money with a decent rate. They do have a decent EWP of 6 months for their long term certificates. They have easy membership for all.

 

[Spanky]

Navy Federal CU CD
6 months - 3.0 APY
17 months - 3.25%

it might be worthwhile to open an IRA account with them.

 

[Carpediem]

Navy Federal CU CD
6 months - 3.0 APY
17 months - 3.25%

Does Navy Federal have a membership option for non-military folks? I didn't see anything on their website.

 

[ShokWaveRider]

Does Navy Federal have a membership option for non-military folks? I didn't see anything on their website.

Nope!