Using CD Investments Like a Self Managed Annuity Question?

[OldShooter]

Why not buy secondary market cd's as long as you don't buy at a premium? They are still FDIC insured? Am I missing something?

Thin markets tend to be inefficient, so I avoid them as a knee-jerk habit. I don't know how I would know whether I was paying too much. I guess with some work I could figure all that out, but it's so easy to buy a new issue that I don't bother.

But it might be worth the effort. Someone is making money investing in used CDs. Maybe you?

 

[GrayHare]

Why not buy secondary market cd's as long as you don't buy at a premium? They are still FDIC insured? Am I missing something?

Because at almost the same risk level you can buy bonds instead, ones that pay more interest than a brokered CD.

 

[OldShooter]

Because at almost the same risk level you can buy bonds instead, ones that pay more interest than a brokered CD.

I had an interesting conversation this morning with Chris, my regional bond guy at Schwab.

My main question to him was verify my thinking that, for money that might be needed early, the liquidity that t-bills provide would make them a better choice than CDs. "Absolutely," he said.

He also rambled a little bit about govvies, CDs, and corporates and commented that in today's market the CDs are yielding about the same as the govvies and that investment-grade corporates yield so little more that it's not worth the risk compared to govvies. That's today, Friday the 4th, not a general comment on markets.

Just FYI.

 

[GrayHare]

On municipal bonds rated A to AAA, for example, I'm seeing rates today from 2.5% to 3.7%, and unlike a CD that's a tax exempt yield.

 

[ShokWaveRider]

Bonds are not FDIC insured though.... are they?

 

[RE2Boys]

A year ago, most of my short term funds were in something like Vanguard Short-Term Investment Grade Corporate Fund ( or online hi-yield savings).
But know that we are in a rising interest rate environment, any bond funds will struggle to much more than break even. Currently buying 6 month T-bills at 2% yield at auction and holding to maturity. I see no point in going into 1 year CDs when can get the same rate in half year T-bills. Buy some every other week or so and if rates go up, as I expect they will, I'll roll them over at a new higher rate.

 

[OldShooter]

... Currently buying 6 month T-bills at 2% yield at auction and holding to maturity. ...

I think people don't realize how easy this is.

 

[Another Reader]

I think people don't realize how easy this is.

Remembering my father going to San Francisco to the actual auction in the 1960's and 70's, I did not realize how easy it was to buy online. Treasury Direct is cumbersome and I wanted to buy some in an inherited IRA, which they can't handle. Buying through Fidelity is very simple. And yeah, the six month is the sweet spot.