Brokered CDS within an IRA

[LXEX55]

I will be retiring end of March and 30 days later plan to move my money to Vanguard. Can someone please explain to me in extremely simple terms (read that as I do not have a head for investing) about purchasing brokered CDs within an IRA. For example, let’s say, I purchase an 18 month CD with money in a Vanguard money market account. Once the 18 months are up, where does the principal and interest go if I do not want it renewed? I know it must stay within the IRA. Any clarification would be appreciated.

 

[njhowie]

Goes into your cash/sweep account...or whatever fund (inside your IRA) that is tied to with your broker. Likely the same money market fund you are initially taking the cash from to purchase the CD.

 

[OldShooter]

At Schwab my bond guy emails and calls just prior to maturity and asks what I want to do. If I do nothing it gets swept.

 

[24601NoMore]

I don't believe you can "reinvest" income in a brokered CD - at least at Vanguard. Dividends are paid per the term of the CD (eg: every month, every 6 months, etc) and deposited into your cash settlement fund.

Far as I know, VG brokerage requires the cash settlement fund to be Vanguard Federal Money Market. You can also open up another (eg: Vanguard Prime MM) and do sell/buy between them, but the "principal" amount of your CD will wind up back in your Federal Money Market account at maturity, with dividends being paid into Fed Money Market on the schedule called for by the CD..

Hope that helps..

 

[24601NoMore]

PS - brokered CD rates at Vanguard are not great at the moment. There are much better deals to be had at some of the popular Credit Unions mentioned frequently here (eg: NASA, Andrews, Navy). Navy, for instance, has a 3.75% (!) 40-month IRA CD available. It's a bit tougher to qualify (must be military, a veteran or have a family member who is - including deceased family members like father) but best rate I know of at the moment. Compare that to 2.85% for 36 months which is the highest brokered CD I saw yesterday at VG..

CU CDs are insured via the NCUA..very similar to FDIC with similar insurance amounts. Brokered CDs are typically FDIC insured. No real net difference IMHO..

 

[GravitySucks]

As others said: Your sweep account. I do not believe you will have an option to automatically renew, but if you want another CD buy a new one with the redemption money's.