Ease of Building a CD Ladder at Fidelity?

[pb4uski]

^^^ Based on my recent experience building a 10-rung, 5-year CD ladder for a friend at Schwab, I would suggest that you NOT use their ladder builder tool. Do a search for CD's for each maturity that you are looking for or +/- a month or two. I think that you will find better yields. And include both new issue and secondary issues or even US Treasuries if they offer a better yield.

 

[Trooper]

^^^ Based on my recent experience building a 10-rung, 5-year CD ladder for a friend at Schwab, I would suggest that you NOT use their ladder builder tool. Do a search for CD's for each maturity that you are looking for or +/- a month or two. I think that you will find better yields. And include both new issue and secondary issues or even US Treasuries if they offer a better yield.

Thanks pb. This ladder is for an HOA that I am the treasurer for (volunteer), and I am trying to minimize my workload, as well as make it easier for a potential successor. Also, our by-laws restrict us from Treasuries (only FDIC insured vehicles).

Given this is a three month ladder (designed for liquidity) I'm not sure I want to be monitoring it every three months, but not sure.

 

[pb4uski]

I was previously our Condo Association Treasurer and we interpereted our document as allowing us to invest in FDIC insured CDs or US Treasuries.

The depository of the Association in which the funds of the Association shall be deposited, shall be financial institutions authorized to do business in Florida which carry FDIC insurance or equivalent private insurance such as insurance placed through the Society Investor Protection Corporation (SIPC), as shall be designated by the Board of Directors. Altematively, the Association may deposit funds with brokerage houses or institutions which are members of the National Association of Securities Dealers, Inc. and insured by SIPC or equivalent industry insurance. Principal of association funds, whether reserves or operating funds, may not be piaced at risk for investment purposes. ...

Your documents may be different. And it is the Securities Investor Protection Corporation, not Society.

But I think you can just look for new or secondary CDs with remaining terms of 3/6/9 and 12 months.

 

[Al18]

Trooper,
In your screenshot above, you show a 9 month CD from JP Morgan Chase and wonder why it’s not listed as available in your CD ladder. The reason is the 9 month CD is not call protected. A CD that is not call protected may be canceled early by the bank without notice. I do not purchased CD’s that are not call protected for this reason.

 

[Trooper]

Trooper,
The reason is the 9 month CD is not call protected.

Thank you, I did not notice that! The laddering algorithm must ignore callable CDs which is good because I do not want callable CDs as well.

 

[pb4uski]

I don't know that I would fret very much about a 9 month callable CD as it seems unlikely that rates will decline so quickly that it is advantageous to the issuer to call the CD. Just my 2c.

But from a quick look on Schwab, the highest yield is a 9-month callable CD from JPM (46656MYD7) yielding 5.25% and the second is a 9-month non-callable CD from Zion BanCorp (02007GYZ0) yielding 5.162% so with those facts I would take the non-callable rather than the extra 0.088%.

 

[Trooper]

Thanks pb. The 1st CUSIP is not offered by Fidelity and the second one is a secondary CD. I just don't feel seasoned enough right now to play in the secondary market, especially with HOA money. I'm sure it's pretty straightforward once you know how, but maybe someday.

Why doesn't Fidelity have any new 9 month CDs currently? Is there a point in the month when they increase their inventory?

 

[Al18]

It’s been my observation that new CD’s have been selling out at Fidelity for the month of December. The best non-callable 1 year CD I saw today was paying just 4.85%. 3 months ago there were plenty at 5.25% or higher. I’m hopeful we’ll see more CD’s available in January, after the Fed signaled the rate hikes were over a few days ago.

 

[pb4uski]

Thanks pb. The 1st CUSIP is not offered by Fidelity and the second one is a secondary CD. I just don't feel seasoned enough right now to play in the secondary market, especially with HOA money. I'm sure it's pretty straightforward once you know how, but maybe someday.

Why doesn't Fidelity have any new 9 month CDs currently? Is there a point in the month when they increase their inventory?

They have two new issue CDs maturing in late Sept/early Oct 2024 that are callable but are call protected for 6 of the 9 months so not a lot of call risk there IMO.

That said, I don't understand the concern about buying a secondary issue. It is just a "used" CD that matures when you want it to, so if it is the last 9-months of a 5-year CD or the last 9-months of a 2-year CD it doesn't matter... as long as it is FDIC insured and the yield is acceptable to you. Just place a limit order for the price that results in an acceptable yield to you and you are all set. If the order is filled then you'll get that yield or better.

 

[Trooper]

That said, I don't understand the concern about buying a secondary issue. It is just a "used" CD that matures when you want it to, so if it is the last 9-months of a 5-year CD or the last 9-months of a 2-year CD it doesn't matter...

Well, when you put it that way I just want to be sure I know the terminology associated with secondaries, like YTM, Yield to Worst, Asked Price vs Bid Price etc. I know it's pretty straightforward, but just want to be sure in my first gig with OPM.

 

[Trooper]

CD Term?

Today I asked for a 1 year, 4-rung ladder. This CD was listed for the 3 month rung. For the life of me I can't figure out why:

ETA: I did not search for secondary CDs.

 

[Al18]

Looks like a 2 month CD to me. Maybe there were no 3 month CDs.

Given a choice, I would hold off on the CD ladder until January. Your funds will stay in the Money Market fund, which is paying 5% until then.

 

[Surewhitey]

Good info on this thread. My experience is they do not recommend callables. We've been doing ladders early on to understand them. Now we do mostly non-callable, but did a few callables. One had a 2 year waiting period to call the 10 yr... Based on the rates most will be called. Again, just testing & learning about how it works.

 

[Qs Laptop]

I just built my first CD ladder. I built a 3, 6, 9, 12 month ladder with $25K per rung, auto roll enabled.

I was surprised that the inventory goes fairly quickly. While I was perusing the offerings and making my selections, when I went to Submit the completed ladder it turns out the first rung inventory of 5.35% CD's ran out of stock! Couldn't have been more than 10 minutes.

It was a fairly easy process. It seems that Fidelity selects the highest paying CD's by default to fill each rung of the ladder.

 

[Car-Guy]

I'm about two years into this "CD Laddering Thing". I have settled into a rolling 18 mo ladder with a CD maturing about once a month (on average). I like CD's that pay interest monthly since I can take that money and invest it in a MM fund "immediately" thereby creating my own way of compounding the CD's interest. When I get "enough" in the MM, I'll buy another CD. When CD's mature, I'll buy another. Rinse and repeat.

I spend about 60 minutes a week managing these CD's and MM's and keeping up with where rates are going and why. Far, far, far less time than when I was juggling/day trading equities. Financial stress level down ~99% too.

 

[Surewhitey]

I'm about two years into this "CD Laddering Thing". I have settled into a rolling 18 mo ladder with a CD maturing about once a month (on average). I like CD's that pay interest monthly since I can take that money and invest it in a MM fund "immediately" thereby creating my own way of compounding the CD's interest. When I get "enough" in the MM, I'll buy another CD. When CD's mature, I'll buy another. Rinse and repeat.

I spend about 60 minutes a week managing these CD's and MM's and keeping up with where rates are going and why. Far, far, far less time than when I was juggling/day trading equities. Financial stress level down ~99% too.

Agreed with the stress lowered. I find myself reducing the # of CD's and focus on having the 5-7 years with a couple maturing every year in case we want to blow some dough... I stopped the auto renewal of ladders and diy it.