Ridiculous CD rates - where now

[OldShooter]

Come on guys/gals.... if your not learning anything from this then I'm waisting my time here...

True enough, so you might as well leave. Spend your time instead studying common homonym and other spelling errors.

 

[pb4uski]

The background info I’ve come across states that MYGA rates are “always” higher than CDs, but I couldn’t find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time I’m ready I’ll be wishing I could get today’s rates. A 5yr @ 3.45 from an outfit I’ve never heard of. Why not?

I don't think they MYGA rates are "always" higher than CDs if you take credit risk into account... compare CD rates to similar term MYGA rates from highly rated carriers like NYL, Guardian, etc. ... 5 year is currently 1.35-1.40%. Navy Federal 5 year CD is 1.25%.... so same ball park. But I concede that right now that MYGA rates have an edge over similar credit quality and term CDs but in my experience it isn't always that way.

 

[jazz4cash]

That’s a reasonable assessment. It’s the same ballpark, but better seats. I’m simply repeating what I’ve read many times. Here’s an example excerpt albeit’s 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but I’m not sure I trust their analysis....

https://www.marketwatch.com/story/comparing-cds-and-annuities-for-savers-2014-03-28

 

[Dtail]

That’s a reasonable assessment. It’s the same ballpark, but better seats. I’m simply repeating what I’ve read many times. Here’s an example excerpt albeit’s 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but I’m not sure I trust their analysis....

https://www.marketwatch.com/story/comparing-cds-and-annuities-for-savers-2014-03-28

If one is managing their income for ACA purposes, then a MYGA in a taxable account with deferred interest could come into play.

 

[pb4uski]

That’s a reasonable assessment. It’s the same ballpark, but better seats. I’m simply repeating what I’ve read many times. Here’s an example excerpt albeit’s 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but I’m not sure I trust their analysis....

https://www.marketwatch.com/story/comparing-cds-and-annuities-for-savers-2014-03-28

The bulk of the $1,747 advantage in the article arise from the difference in interest rates (2.25% for the CD vs 2.45% for the MYGA)... if the interest rates were the same at 2.35% the benefit of tax deferral is only $441 (at 28%, lower for lower tax marginal tax rates).

	CD			MYGA
	Interest @ 2.35%	Taxes at 28%	Balance	Interest @ 2.35%	Taxes at 28%	Balance
			250,000			250,000
0	5,875	-1,645	254,230	5,875	0	255,875
1	5,974	-1,673	258,532	6,013	0	261,888
2	6,075	-1,701	262,906	6,154	0	268,042
3	6,178	-1,730	267,354	6,299	0	274,341
4	6,283	-1,759	271,878	6,447	0	280,788
5	6,389	-1,789	276,478	6,599	-10,468	276,919
	36,775	-10,297		37,387	-10,468
				612	-171	441

The one disadvantage is that annuity withdrawals are interest first and then principal and that the interest being taxed in one year might push one into a higher tax bracket if they are close to the top of a tax bracket to begin with.

 

[dixter]

whats every ones thoughts on XOM hitting the 10% dividend payout good buy or not ??

 

[OldShooter]

Moody's, S&P and Fitch all offer financial strength ratings for the major annuity writers that are an assessment of the issuer's ability to pay claims that would be appropriate for the MYGA's issued. These are usually a notch or two better than their bond ratings since claims-based products rank ahead of debt in the event of insolvency ...

Thank you. Helpful as usual.

I am no expert on bond ratings but even stupider on AM Best ratings. You're a pretty conservative guy I think. What AM Best rating would you consider to be an acceptable risk level for a 5 year MYGA?

 

[pb4uski]

I personally think that there is little credit risk with most MYGAs from well-rated insurers given regulatory constraints and risk-based capital requirements.... especially over a short 5 year term. While I personally would probably be ok with A or better, as a fiduciary I'd probably shoot for A+ or better.

If you're comparing to CDs that have no credit risk, then only A++.

 

[Rosedala]

Is that same as MYGA (multi year guaranteed annuity)? I will consider these products when the time comes to replace my maturing CDs.

i think this is what's known as CD type annuities and they are good depending on the insurance that sells them. So what's important is the reliability of the insurance co. so it takes some time to find a good one. I'm going to see if I can find a good one for no more than 5 years.

 

[Rosedala]

The background info I’ve come across states that MYGA rates are “always” higher than CDs, but I couldn’t find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time I’m ready I’ll be wishing I could get today’s rates. A 5yr @ 3.45 from an outfit I’ve never heard of. Why not?

Many years ago I had a few CD type annuities at great interest. I'm ready, like you, for more but I'm afraid that my money availability now is not enough for these?: around $29K? Anyway another reason I didn't do it yet is I lost my nerve and can't decide which insurance rate to get. Have you found a good one? If so would you maybe let me know which? In December 1 I'll have a CD maturity of $40K and wonder if I should wait and find a MYGA for Dec.?Thank you in anticipation.

 

[OldShooter]

Many years ago I had a few CD type annuities at great interest. I'm ready, like you, for more but I'm afraid that my money availability now is not enough for these?: around $29K? Anyway another reason I didn't do it yet is I lost my nerve and can't decide which insurance rate to get. Have you found a good one? If so would you maybe let me know which? In December 1 I'll have a CD maturity of $40K and wonder if I should wait and find a MYGA for Dec.?Thank you in anticipation.

FWIW I was in a quarterly review meeting with one non-profit's FA on Tuesday and we were talking about trying these. FA said that in their checking/past week or so, the MYGA rates quoted for over $100K started to decline vs smaller amounts. (!) I have not checked this out personally but it probably says that careful reading is important. We/nonprofit may buy a couple at $100K and see how things go. The state insurance guarantee funds are a definite plus when looking at an unfamiliar asset. DW and I have some TIPS maturing in January and I think we are headed the MYGA route too, probably also $100K. We'll see.

 

[jazz4cash]

Many years ago I had a few CD type annuities at great interest. I'm ready, like you, for more but I'm afraid that my money availability now is not enough for these?: around $29K? Anyway another reason I didn't do it yet is I lost my nerve and can't decide which insurance rate to get. Have you found a good one? If so would you maybe let me know which? In December 1 I'll have a CD maturity of $40K and wonder if I should wait and find a MYGA for Dec.?Thank you in anticipation.

Yup, the MYGA products are also sometimes called CD-type annuities. I expect to be trying one of these products early next year. My comfort level is B rating or better for a fairly tiny allocation. The three sites I track are Blueprint Income, Stan The Annuity Man ( Annuity Steakhouse) and immediate annuities.com. Another direct distributor is Gainbridge which is a division of Guggenheim. After signing up with some sites, I get advance notice before rates decline sometimes. With regard to Old Shooter's comment, I seem to recall some products are only offered to individuals and not institutions. Blueprint Income is esp. informative. There are many options with minimums less than 29k.

 

[Rosedala]

That’s a reasonable assessment. It’s the same ballpark, but better seats. I’m simply repeating what I’ve read many times. Here’s an example excerpt albeit’s 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but I’m not sure I trust their analysis....

https://www.marketwatch.com/story/comparing-cds-and-annuities-for-savers-2014-03-28

The CD-type annuities are very simple, just the same as a CD. The only thing one has to worry about is the reliability of the insurance issuing it. I didn't have a chance yet to explore them at this time, but hopefully I will soon and if I'm lucky to find the right insurance I'll probably get one.

 

[Rosedala]

Yup, the MYGA products are also sometimes called CD-type annuities. I expect to be trying one of these products early next year. My comfort level is B rating or better for a fairly tiny allocation. The three sites I track are Blueprint Income, Stan The Annuity Man ( Annuity Steakhouse) and immediate annuities.com. Another direct distributor is Gainbridge which is a division of Guggenheim. After signing up with some sites, I get advance notice before rates decline sometimes. With regard to Old Shooter's comment, I seem to recall some products are only offered to individuals and not institutions. Blueprint Income is esp. informative. There are many options with minimums less than 29k.

Thanks so much for your suggestions which I'll try soon.

 

[Rosedala]

Yes. Good points wrt lack of FDIC and being familiar with individual state guarantee association limits. I don’t worry much about limits or credit ratings since I just have fairly small sums at risk in this type of product. I will diversify, ladder, and stay short/intermediate to mitigate risk.

As far as verifying if a particular investment is part of a pool, I’d be surprised if one could get any benefit of protection from the state guaranty assoc without being in the pool. In that case the provider’s credit rating would be critical.

Would you kindly explain to me what this "pool" is about? Though I used to have a few CD type annuities I never heard this word. Does it mean that some states may not cover some insurance companies in case of bankruptcy or something? Anticipating my thanks.

 

[Rosedala]

I added $100K to my PenFed 5 year cd's in 2019, so I have 3.5 % until 2024. Woohoo !

Hi, do you mean you are allowed to add money to a CD already in place? That's wonderful! What did you have to do in order to add the money? I'd love to do it with some CDs I have now.....

 

[pb4uski]

Add-on CDs are pretty rare for obvious reasons... the only ones that I know of currently issued are the Navy Federal EasyStart CDs... you give up a little rate... currently 0.1%... compared to a non-add-on CD but to me the add-on feature is well worth it (I got in late so mine is only 1.35%).

A lot of us got in on some 5-year 3% GTE Financial CDs in 2019 but those are no longer offered.

 

[calmloki]

Add-on CDs are pretty rare for obvious reasons... the only ones that I know of currently issued are the Navy Federal EasyStart CDs... you give up a little rate... currently 0.1%... compared to a non-add-on CD but to me the add-on feature is well worth it (I got in late so mine is only 1.35%).

A lot of us got in on some 5-year 3% GTE Financial CDs in 2019 but those are no longer offered.

And thank you again for opening my eyes to the addon CDs at NFCU. Called GTE a while ago and they claim one can go past the 250k on that addon (assuming you have an account that you feel lucky on or have more than $250 in NFCU insurance because of titling).

 

[upset264]

The system is broken and the Federal Reserve is the root cause.

Bingo! We have a winner. The savers, especially the elderly, are being punished to prop up the "economy" corporations and stock market speculators. As well as the governments runaway borrowing at all levels.

Grandma used to get a nice little extra income from her CD's at the bank. Her savings were used to finance home building and businesses in the community. Now it's all turned on its head.

It's all going to come undone one day.

 

[jazz4cash]

Would you kindly explain to me what this "pool" is about? Though I used to have a few CD type annuities I never heard this word. Does it mean that some states may not cover some insurance companies in case of bankruptcy or something? Anticipating my thanks.

Another poster used the term “pool” which I assumed to be a reference to the State Guaranty Association. This works as a substitute for FDIC coverage.

From Investopedia.....

A state guaranty fund is administered by a U.S. state to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent. The fund only protects beneficiaries of insurance companies that are licensed to sell insurance products in that state.Jan 13, 2020
www.investopedia.com › terms › sta...
State Guaranty Fund Definition - Investopedia

 

[jazz4cash]

Add-on CDs are pretty rare for obvious reasons... the only ones that I know of currently issued are the Navy Federal EasyStart CDs... you give up a little rate... currently 0.1%... compared to a non-add-on CD but to me the add-on feature is well worth it (I got in late so mine is only 1.35%).

A lot of us got in on some 5-year 3% GTE Financial CDs in 2019 but those are no longer offered.

Yeah Add-on feature is sweet and way under appreciated. FWIW Navy Federal used to open up many of their CDs for add-on around the first quarter of the year. It was generally not advertised. Sometimes an add-on option will appear on their website on the CD Summary list but other times I just call and ask.

 

[Car-Guy]

I've given up on CD's... My local bank had some of the best rates I could find anywhere until the last year or so... Now their 48 mo CD's are down to 1.05%.... Not enough to bother with so I moved it all to my brokerage accounts... When it's not invested in "something" I sweep it into short term (overnight) bond funds which is better than nothing (but not by much)

Still getting 3.25% on fixed income investments from my 401k money with my old employer...... Not bad, IMO, for today's markets. Make enough on that to pay most of my living expenses year to year.

 

[pb4uski]

Yeah Add-on feature is sweet and way under appreciated. FWIW Navy Federal used to open up many of their CDs for add-on around the first quarter of the year. It was generally not advertised. Sometimes an add-on option will appear on their website on the CD Summary list but other times I just call and ask.

Good point... I took advantage of that once... I just happened to call and ask if my CD was an add on and while it was not, there was a short window where they were allowing add ons. Ca-ching!

 

[bobbee25]

bonds

How safe are short and intermediate bonds, when it looks like the interest rates may go up, sell them ?

 

[pb4uski]

How safe are short and intermediate bonds, when it looks like the interest rates may go up, sell them ?

If you plan to hold them to maturity, then no worries.