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Buying a CD at Vanguard in my RO IRA (1st time doing this)
Old 03-14-2023, 02:26 PM   #1
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Buying a CD at Vanguard in my RO IRA (1st time doing this)

Rather than put this in the thread about CDs and cluttering it, I wanted to ask these questions here.

With T bill yields dropping over the past few days (at 1 pm ET the 2 yr T note was up 35 bp from yesterday but the drop yesterday was major) so I thought I'd look at CDs. I never bought CDs at Vanguard before but it looks a lot like buying T bills which I am familiar with.

I looked at 1st issue CDs and wanted to buy something short term for the 1st time to see how this works. I found one that will mature in 30 or 31 days (4/17, settlement is 3/17). The CUSIP is 05465DAY4. There are 40,898 *1,000 CDs (or is that dollars?) and with a yield of 4.95% why haven't these been taken? I always read how CDs with good yields disappear fast. Granted it is just 1 month but a 4 week T bill indictive yield is 4.23 and a 17 week is 4.93 IIRC.

There are a lot of 5%+ CDs is you go out 3, 6+ months. Am I not understanding something? Buying these in my RO IRA will have no tax consequences at maturity. I was thinking of buying $100,000 to start.

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Old 03-14-2023, 03:44 PM   #2
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You are correct that buying a brokered CD at Vanguard is very similar to buying Treasuries. I’ve done both. You even start from the same screen. If you can get 4.95% for a month that’s fine. Why are they available? There may not be a lot of people looking for 1-month CDs. Who knows. As long as the bank is FDIC insured you should be fine.
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Old 03-14-2023, 04:02 PM   #3
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I looked at 1st issue CDs and wanted to buy something short term for the 1st time to see how this works. I found one that will mature in 30 or 31 days (4/17, settlement is 3/17). The CUSIP is 05465DAY4. There are 40,898 *1,000 CDs (or is that dollars?) and with a yield of 4.95% why haven't these been taken? I always read how CDs with good yields disappear fast. Granted it is just 1 month but a 4 week T bill indictive yield is 4.23 and a 17 week is 4.93 IIRC.
They haven't been taken quickly because the maturity is too short and the yield is not far enough above cash funds that anyone wants to lock up their money for 30 days vs having instant access.

For example, SPAXX (I'm sure Vanguard has an equivalent) is yielding 4.22%. The difference to 4.95% is 0.73%...for one month. For $100,000 we're looking at a difference of 0.06% or about $60.
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Old 03-14-2023, 04:25 PM   #4
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They haven't been taken quickly because the maturity is too short and the yield is not far enough above cash funds that anyone wants to lock up their money for 30 days vs having instant access.

For example, SPAXX (I'm sure Vanguard has an equivalent) is yielding 4.22%. The difference to 4.95% is 0.73%...for one month. For $100,000 we're looking at a difference of 0.06% or about $60.
I think this is part of the reason. I do not buy anything that short-term - CDs or Treasuries - for those reasons. IME with the Vanguard CDs, the CDs that disappear quickly are not the very short-term ones. Other CDs are disappearing now. I went to buy a non-callable 4 or 5-year Discover CD today, but they disappeared before I could buy any. Then an American Express CD disappeared.

There also happen to be more CDs available in general right now. At the beginning of the year, there were not very many CDs available at Vanguard. A Vanguard representative told me that there are times of the year when banks tend to raise funds and that there likely would be more CDs offered later in the quarter, which has turned out to be true, especially for non-callable CDs.
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Old 03-14-2023, 04:28 PM   #5
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They haven't been taken quickly because the maturity is too short and the yield is not far enough above cash funds that anyone wants to lock up their money for 30 days vs having instant access.

For example, SPAXX (I'm sure Vanguard has an equivalent) is yielding 4.22%. The difference to 4.95% is 0.73%...for one month. For $100,000 we're looking at a difference of 0.06% or about $60.
The Settlement Fund is 4.52%. For 30 days that is $371.50 while at 4.95% it is $406.85 so while $35 isn't huge it is better. As when I bought the first few T bills, I went short term just to see how it works and what the monthly statement looks like. As I mentioned, there's a slew of CDs at 5% and above, 5.25% IIRC was the highest I saw but there may have been even higher rates. The alternative of 5% CDs is an interesting option should T bills stay in the lower to mid 4 range.
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Old 03-14-2023, 04:59 PM   #6
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There's a whole dynamic about guessing future rates. Some want to lock in longer term, predicting rates will start dropping. Others might not want to lock in for even 30 days, in case rates climb before then. Keeping it in the settlement fund may be good enough to have flexibility.

For the same reason, banks don't want to lend for too long of a term at a high rate unless it is callable. That's why we are seeing highest noncallable rates in the 12-18 month range.

Nothing wrong with a month at 4.95%, just to try it out. But that rate may not be available at any term in 30 days. Or they might be higher.

I'd try to give more advice but my strategy is based partly on when I expect to need this cash over the next 0-10 years, and partly guessing on what rate/term looks most attractive, and I may be very wrong. I'm not a ladder builder, but don't see anything wrong with it.
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Old 03-14-2023, 06:58 PM   #7
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Thanks. I have not built a ladder. I have a number of different T bills that are 3, 6 and 1 12 months. I really don't want to go beyond a year. I have no immediate use for the money other than it may be used for an RMD but I'd prefer to use the Total Stock Market Index and put the after tax funds in the same mutual fund in my taxable account. I would like to lower the taxable holdings that spin off interest and shift them to the Total Stock and Total International MFs in my taxable account as they are very tax efficient.

I never did buy anything, a power outage hit mid day. Curious to see how T bills behave tomorrow. I think the Fed will go 25 bp next week and T bills will recover but maybe not back to where they were at the peak. CDs may be a better option.
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Old 03-14-2023, 07:03 PM   #8
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As I mentioned, there's a slew of CDs at 5% and above, 5.25% IIRC was the highest I saw but there may have been even higher rates. The alternative of 5% CDs is an interesting option should T bills stay in the lower to mid 4 range.
I just bought a 2-year CD at Vanguard for 5.25%, non-callable, matures 3/24/25.


I also bought a 3.5-year CD for 4.95%, non-callable, matures 9/30/26.


I figure anything close to 5% is a decent bet. Rates may trend up a bit more but I ladder so if they do, I'll still be able to take advantage of them, and if they don't, or start declining in the next year, I'll at least have some money locked in for a while at the higher rates.
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Old 03-15-2023, 06:55 AM   #9
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Ok, I'll bite... what is an RO IRA?
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Old 03-15-2023, 06:56 AM   #10
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I'm guessing it's a Roth?
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Old 03-15-2023, 06:59 AM   #11
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So I jumped into the pool. I just bought a 1 year CD at Discovery with a 5.35% yield. The process is basically identical to buying a T bill so it was pretty simple. I don't think the Settlement Fund will approach that rate so why leave the money there was my reasoning. I may be buying CDs if T bills don't come up and from where they are that may not happen. Both are safe so I don't really see any difference. No tax concerns in my RO IRA so the free from state tax isn't a consideration.
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Old 03-15-2023, 07:06 AM   #12
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Ok, I'll bite... what is an RO IRA?
Roll Over?
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Old 03-15-2023, 07:32 AM   #13
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Ok, I'll bite... what is an RO IRA?
Rollover I assume
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Old 03-15-2023, 07:50 AM   #14
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So I jumped into the pool. I just bought a 1 year CD at Discovery with a 5.35% yield. The process is basically identical to buying a T bill so it was pretty simple. I don't think the Settlement Fund will approach that rate so why leave the money there was my reasoning. I may be buying CDs if T bills don't come up and from where they are that may not happen. Both are safe so I don't really see any difference. No tax concerns in my RO IRA so the free from state tax isn't a consideration.

I was going to do that one but my 1 year ladder rung is already full! The only difference I can see between CD and T-Bills is the initial settlement date for a CD can be a week or more in the future.
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Old 03-15-2023, 08:05 AM   #15
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I was going to do that one but my 1 year ladder rung is already full! The only difference I can see between CD and T-Bills is the initial settlement date for a CD can be a week or more in the future.
My experience is that on the run CDs settle right away. Delayed settlement for Treasuries or CDs is typically associated with new issues (auctions for Ts) - at least that has been my experience. Have not bought CDs since 2018 though.
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Old 03-15-2023, 08:25 AM   #16
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I'm guessing it's a Roth?
Ah, that's probably it. I guess the OP ws too tired from capitalizing the "O" in "RO" to type "th" in "Roth".
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Old 03-15-2023, 08:28 AM   #17
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Roll Over?
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Rollover I assume
Well if it is that then why bother adding "RO" since the question on CD settlement is no different between a contributory traditional IRA and a rollover traditional IRA. Just adds confusion.
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Old 03-15-2023, 02:58 PM   #18
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Well if it is that then why bother adding "RO" since the question on CD settlement is no different between a contributory traditional IRA and a rollover traditional IRA. Just adds confusion.


The OP admits to being new at this and doesnít know that it makes no difference. The Rollover IRA designation is a subtle distinction. When I moved funds from my 401k Fidelity put them in a Rollover IRA. Supposedly that means I could roll them into another employerís 401k plan but I think many plans donít care. I have also executed direct rollovers from my 401k to tIRAS at credit unions which are not have the Rollover IRA designation. When I have subsequently transferred these funds to Fidelity they go into the same Rollover IRA even though Fidelity does not know if the funds were ever in an employer plan. The key thing for me is to never have any basis in my traditional deferred savings.
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Old 03-15-2023, 03:09 PM   #19
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For the OP's question, I don't think it matters if it's a ROllover traditional IRA or a ROth.
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Old 03-15-2023, 06:46 PM   #20
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The OP admits to being new at this and doesnít know that it makes no difference. The Rollover IRA designation is a subtle distinction. When I moved funds from my 401k Fidelity put them in a Rollover IRA. Supposedly that means I could roll them into another employerís 401k plan but I think many plans donít care. I have also executed direct rollovers from my 401k to tIRAS at credit unions which are not have the Rollover IRA designation. When I have subsequently transferred these funds to Fidelity they go into the same Rollover IRA even though Fidelity does not know if the funds were ever in an employer plan. The key thing for me is to never have any basis in my traditional deferred savings.
Thanks, you saved me a lot of typing!
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