Callable Certificate of Deposit (CD)

[almost there]

Anyone here ever have a "Callable CD"?

Just curious how often they actually end early?
No idea if its common for them to end early? very uncommon? etc.

They mention risk, but it seems like the only risk is not being able to re-invest at the same rate at the time of the call.

Thanks in advance!

 

[jazz4cash]

If rates drop significantly from the certificate rate the issuer has an opportunity to lower borrowing costs, but that is offset by some costs associated with executing the call. They also need to have funds on hand but if the CD proceeds have been deployed that’s an obstacle also. Since rates seem destined to rise awhile the risk of a call seems slight for the next 3-5(?) years. Someone here used the analogy of a mortgage refi. It only makes sense if rates have dropped by enough to make it worth the hassle.

 

[Freedom56]

I had one a while ago from Wachovia Bank that was called after Wells Fargo took over assets the bank after the 2008 debacle. At the time of the call, current CD yields were about 1% lower.

 

[npage]

I had one a while ago from Wachovia Bank that was called after Wells Fargo took over assets the bank after the 2008 debacle. At the time of the call, current CD yields were about 1% lower.

Would be interesting to see if one could pool all that data to come to a general conclusion at what amount it becomes worthwhile to a bank to bother calling these. I get no one answer, but is it closer to 10bps, 20bps, 50bps, in your case 100bps etc. Would be an interesting data point to have in determining the likelihood of call.

I noticed all the callable 4% 10 yr. brokered CD's at Vanguard dried up today. I am sure more will post over next week, will be curious if at 4.0% or something else.

 

[euro]

As Jazz pointed out, it will be very unlikely for any CDs to be called in the current environment. If they do get called, you'll probably be able to buy new ones at better rates, so no harm done.

 

[npage]

4% callable 7 yr and 10 yr were best I have seen recently. We shall see what the next round is. I'd like to see 4% non callable. 3.45% right now at 5 year. Anything 7 and 10 year was callable.

 

[almost there]

4% callable 7 yr and 10 yr were best I have seen recently. We shall see what the next round is. I'd like to see 4% non callable. 3.45% right now at 5 year. Anything 7 and 10 year was callable.

Same, got a non callable 5 yr at 3.5% yesterday. But they sell out in a few hours. Last couple trading days anyway. Wanted to lock a chunk up, as Its been sitting out for 2-3 months now.
Was 3.35, now 3.45% with 3 offerings as we speak. So it is trending up.

Looking at a callable 7 year at 4%. But will hold off for now.
Am not so sure a longer term callable is all that safe, as many think the fed will start cutting rates at the 1st whiff of a recession. 2023/2024?
Its anyone's guess.
Will be happy if I can get a brokered 5 year non callable at 4% next week / next month. Thats all I am looking for. Good enough for me!


Side note, have some 3.5% CD's maturing Jan. 2023 and Jan. 2024. I cant even begin to guess what rates might be then?
Back to historic normal rates? Or back to artificially low rates? Crazy times..

 

[aja8888]

I got a 3.5% 5 year callable CD at Schwab this afternoon. Pays monthly too. I went back into my account to see if more were available, but the CD was not listed any longer. Maybe they sold out?

 

[almost there]

I got a 3.5% 5 year callable CD at Schwab this afternoon. Pays monthly too. I went back into my account to see if more were available, but the CD was not listed any longer. Maybe they sold out?

I have been checking there a few times a day for the past several weeks.
The best rates seem to sell out in just a few hours.

 

[aja8888]

I have been checking there a few times a day for the past several weeks.
The best rates seem to sell out in just a few hours.

Looks like I timed it just right because they were apparently gone right after I bought $25 K worth.

 

[frayne]

It happens and is no big deal.

 

[Freedom56]

Can you really blame people for buying up these 3.5%+ risk free CDs and earning 4-5 times more than short duration bond funds that will continue to lose money as rates rise?

 

[npage]

Can you really blame people for buying up these 3.5%+ risk free CDs and earning 4-5 times more than short duration bond funds that will continue to lose money as rates rise?

I can't. I wish I knew how high they will go or not. The treasury curve seems to imply not much more but who knows.

Even an extra 50bps will matter. I am trying to build a ladder with maturities beginning in 2025 for 7 years. I tend to think waiting a few years we may not see these rates again so I don't mind locking longer term but my gut says wait a few more months at least. IE, give up a few months interest to lock in a better 10 year. We shall see.

 

[aja8888]

I can't. I wish I knew how high they will go or not. The treasury curve seems to imply not much more but who knows.

Even an extra 50bps will matter. I am trying to build a ladder with maturities beginning in 2025 for 7 years. I tend to think waiting a few years we may not see these rates again so I don't mind locking longer term but my gut says wait a few more months at least. IE, give up a few months interest to lock in a better 10 year. We shall see.

Waiting to see where rates are three years from now is not a good plan, IMHO. My plan, certainly not the best, I am sure, is to gradually, over the next several months, move into fixed income on a sliding scale using bonds, CD's, T Bills, I bonds. It at least gets me good income over the next few years.

Who knows where things will be three or more years from now?

 

[npage]

Right, I was not clear. I want to lock maturities from 2025 thru say 2033. I will not wait years to do that. I am deciding how much to lock now vs. 3 to 12 months is what I mean.

Let's say I have $100K for instance. I am actually thinking say of doing $10G in a 3, 5, 7, 10 year CD shortly. And then in 6 months repeating give or take to fill the $100K. Something like that, give or take. But it will likely be a mixture of CD, Treasury and maybe Muni/Agency. I consider it all my bond/cash like bucket allocation. I don't need to optimize for every tenth. I like decent rates being offered and risk free.

 

[aja8888]

Right, I was not clear. I want to lock maturities from 2025 thru say 2033. I will not wait years to do that. I am deciding how much to lock now vs. 3 to 12 months is what I mean.

Let's say I have $100K for instance. I am actually thinking say of doing $10G in a 3, 5, 7, 10 year CD shortly. And then in 6 months repeating give or take to fill the $100K. Something like that, give or take. But it will likely be a mixture of CD, Treasury and maybe Muni/Agency. I consider it all my bond/cash like bucket allocation. I don't need to optimize for every tenth. I like decent rates being offered and risk free.

I see. Well, corporate bonds can fill that gap easily, and some CDs.

 

[npage]

Agreed, what I will be building, X dollars maturing each year beginning in 2025 for 7 to 10 years. I actually have a large CD maturing in 2024 paying 3%, I've been looking lately at maybe early selling that bur so far the rate difference is not all that big to bother. I am looking for this chunk to be fairly risk free to meet some life timing goals.

 

[Chuckanut]

Waiting to see where rates are three years from now is not a good plan, IMHO.

+1

I plan on frequently turning over my CD ladder as long as rates are still heading uphill. If they flatten or indications are that rates will flatten and my AA is balanced where I want it, then I will go out longer.

Who knows I may be able to buy another 10 year treasury bill for double digit rates like I did when I was a wet-behind-the-ears 20-something just out of college.

 

[npage]

It's interesting how flat to declining the 10 year yield curve has been. It leaves me suspect of double digit returns but we can hope. The Fed has been pretty clear where rates are heading and who knows what is or is not priced in. But that comes up over and over and we shall see. In hindsight we will all know.

 

[Freedom56]

I can't. I wish I knew how high they will go or not. The treasury curve seems to imply not much more but who knows.

Even an extra 50bps will matter. I am trying to build a ladder with maturities beginning in 2025 for 7 years. I tend to think waiting a few years we may not see these rates again so I don't mind locking longer term but my gut says wait a few more months at least. IE, give up a few months interest to lock in a better 10 year. We shall see.

My ladder before this years buying binge had maturities (CDs, Corporate Notes) in:

2023, 2024, 2028, and 2031.

I added corporate notes maturing in

2023, 2025, 2026 so far.

I'm not going longer that 5 years out at this point and my buying is heavily dependent on low ball limit orders being filled as funds continue their liquidation. As long as investors focus on higher yielding CDs, treasuries, and high grade corporate notes that are coming to market with much higher coupons, the fund liquidation will continue. I never go beyond 10 years with corporate notes mainly due to the reality that I don't know where a corporation will end up beyond 10 years. I never go beyond 5 years with a CD primarily because the yield premium beyond 5 years is rarely worthwhile. In the end it's all about generating income and preserving capital. I want to save some cash for tax loss selling season and hopefully pick up some extreme bargains.

 

[npage]

My ladder before this years buying binge had maturities (CDs, Corporate Notes) I never go beyond 5 years with a CD primarily because the yield premium beyond 5 years is rarely worthwhile.

I totally get this. For me I am trying to bridge "relatively" safely until access to IRA funds about 12 years. During that time I would like the pile to be secure and get as much as possible.

The 1st withdrawal comes when DW stops working between 3 and 5 years from now so not comfortable with too much of that money in mkt. What I am worried about as such say if I did not go longer than 5 years, at 5 years it all matures and I need to do something for the next 7 years with the funds and these are the best rates we see for a decade again?