Who Knew? Schwab 3rd party CD's

[audreyh1]

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Originally Posted by jazz4cash Yep, the Andrews special is what I was buying when the Fido rep was promoting their brokered CD's. I'm spread thin enough that early withdrawal is very unlikely to be much benefit.

Yeah, Jan 2017 I was loading up on the Andrews 3% 5yr CD.

I don’t know about Vanguard Prime MM, but the Fidelity MM funds are yielding around 1% unless you move to the kind that are allowed to vary from $1 and those are paying ~1.45%. Synchrony high yield saving is now paying 1.5% interest, so I keep my brokerage cash there.

[Another Reader]

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Originally Posted by audreyh1 Yeah, Jan 2017 I was loading up on the Andrews 3% 5yr CD. I don’t know about Vanguard Prime MM, but the Fidelity MM funds are yielding around 1% unless you move to the kind that are allowed to vary from $1 and those are paying ~1.45%. Synchrony high yield saving is now paying 1.5% interest, so I keep my brokerage cash there.

Vanguard Prime MM is paying 1.46 percent and their Federal MM is paying 1.29 percent. Because of high expense ratios, Fidelity MM is paying 1.28 percent with a 0.42 percent expense ratio and the Government MM is paying 0.98 percent, also with a 0.42 percent expense ratio.

Not much incentive to hold cash at Fidelity.

[audreyh1]

Quote:

Originally Posted by Another Reader Vanguard Prime MM is paying 1.46 percent and their Federal MM is paying 1.29 percent. Because of high expense ratios, Fidelity MM is paying 1.28 percent with a 0.42 percent expense ratio and the Government MM is paying 0.98 percent, also with a 0.42 percent expense ratio. Not much incentive to hold cash at Fidelity.

That's an institutional class Fidelity treasury only MM paying 1.28%. Out of my league ($10M initial investment required).

Government MM is paying 0.99% and Fidelity government cash reserves 1%. Fidelity Treasury MM fund - 0.98%. Those are the MMs usually used as core for brokerage accounts.

My Synchrony/Fidelity Brokerage system has worked very well. Transfers are initiated same day and recognized as received the next. I have FDIC insured cash something never available from the MM funds.

[foxfirev5]

FWIW Fidelity money market SPRXX has a 7 day yield of 1.28% with a $2500 min. I don't worry about a couple of tenths yield since it doesn't stay there very long.

[audreyh1]

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Originally Posted by foxfirev5 FWIW Fidelity money market SPRXX has a 7 day yield of 1.28% with a $2500 min. I don't worry about a couple of tenths yield since it doesn't stay there very long.

OK - that one is the class of MM funds allowed to deviate from $1. It's not guaranteed steady like the core bond funds are. So you get higher yield - it's a little riskier. And it's not available as a core bond fund so you have to buy and sell from it.

I guess the Vanguard Prime MM funds is in the same class?

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Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors.

Personally I'll take the 1.5% FDIC insured savings account from Synchrony.

[Another Reader]

The default core fund for my Fidelity accounts is SPAXX. If that one is allowed to deviate from the $1 price, I will have to chat with Fidelity. How can you tell which ones are allowed to deviate? I have a chunk of cash sitting in the Treasury MM fund as the RMD reserves. Probably time to switch that if only because of the expense ratio.

I do not take out the RMD at the beginning of the year. I do it monthly. Sounds like I should reconsider that as well.

[foxfirev5]

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Originally Posted by audreyh1 OK - that one is the class of MM funds allowed to deviate from $1. It's not guaranteed steady like the core bond funds are. So you get higher yield - it's a little riskier. And it's not available as a core bond fund so you have to buy and sell from it. I guess the Vanguard Prime MM funds is in the same class? Personally I'll take the 1.5% FDIC insured savings account from Synchrony.

Good point. For any large amount or length of time I send the cash to the online bank. Since I'm living off the interest this is not a frequent occurrence.

[jazz4cash]

Thanks for including ticker symbols for the MM funds. I have 5 different MM funds in 3 Fido accounts since the Gov't funds mandate rolled out and Fido transitioned the core accounts. I have to figure out which ones to keep and which ones to dump.

[adrift]

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Originally Posted by Gotadimple Compounding - they all compound, but the terms of distribution differ based on the issuer. So some distribute quarterly, others semi-annually. The distribution terms are clearly disclosed on the OneSource listings. Like at the other big brokerages, you can select CD term, and distribution for a listing of available brokered CDs. - Rita

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Originally Posted by audreyh1 So they compound daily until the interest is paid out each period? Then start over?

I think that is not technically correct. Here's my non-expert understanding. First, consider the PenFed CDs we both own. They have a yield of 3%. They compound daily. They have an APY of 3.04%.

Now, consider a new issue brokered CD with a yield of 3% and a semi-annual payout. I stole the following and modified it to make it 3%:

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Yield to Maturity Since the bond pays you interest on a regular basis and that interest is not reinvested, you could say the bond pays simple interest and does not compound. You do, however, gain a slight advantage by receiving your coupons more than once a year. If the return on your $1,000 bond is 3.0 percent and your coupons are paid every six months, your $15 interest payments are in fact equivalent to a 1.5 percent interest rate every six months. You can calculate an equivalent annual rate of return on your investment by calculating how 1.5 percent every six months translates to an annual rate. Use (1+i/n)^n - 1, where i is the bond return and n is your coupon frequency (2 for semiannual, 12 for monthly). So your 1.5 percent interest every six months translates to an annual rate of return of 1.015^2 - 1, or 3.0225 percent. That rate of return is called the yield to maturity and uses the effects of compounding your interest payments during a period of one year.

[audreyh1]

Quote:

Originally Posted by Another Reader The default core fund for my Fidelity accounts is SPAXX. If that one is allowed to deviate from the $1 price, I will have to chat with Fidelity. How can you tell which ones are allowed to deviate? I have a chunk of cash sitting in the Treasury MM fund as the RMD reserves. Probably time to switch that if only because of the expense ratio. I do not take out the RMD at the beginning of the year. I do it monthly. Sounds like I should reconsider that as well.

SPAXX is fine. It's a government money market fund that is in the safest retail category. It's SPRXX that's a little riskier and pays ~0.3% higher yield.

The funds labeled "government" or "treasury" are the safest as they don't hold commercial paper.

Here Fidelity explains its fund categories:
https://www.fidelity.com/fixed-incom...y-market-funds

[audreyh1]

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Originally Posted by foxfirev5 Good point. For any large amount or length of time I send the cash to the online bank. Since I'm living off the interest this is not a frequent occurrence.

I have dividends/distributions coming into my brokerage account during the year, and especially near the end of the year. So I'm sending cash over at least quarterly as it accumulates. Sometimes more often.

[audreyh1]

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Originally Posted by jazz4cash Thanks for including ticker symbols for the MM funds. I have 5 different MM funds in 3 Fido accounts since the Gov't funds mandate rolled out and Fido transitioned the core accounts. I have to figure out which ones to keep and which ones to dump.

Maybe this link will help you. Click on the "daily pricing" link in italics to see a complete list of Fidelity MM funds in each category.
https://www.fidelity.com/fixed-incom...y-market-funds.

[jazz4cash]

Thanks, Audrey. That does help. Thats a long list!

[MBSC]

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Originally Posted by audreyh1 Quote: Originally Posted by foxfirev5 FWIW Fidelity money market SPRXX has a 7 day yield of 1.28% with a $2500 min. I don't worry about a couple of tenths yield since it doesn't stay there very long. OK - that one is the class of MM funds allowed to deviate from $1. It's not guaranteed steady... I guess the Vanguard Prime MM funds is in the same class?

No money market mutual fund can guarantee that it will maintain $1. All contain a disclaimer that it might break the buck. I believe you may be confusing this with the recent SEC rule changes.

Those rule changes allow an institutional MM fund's NAV to float but people invest in "retail" funds which are exempt. The rule change that applies to people are the liquidity restrictions on non-government (prime) money market funds.

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All retail money market funds will also maintain a stable $1.00 share price. In order to be considered a retail fund, the fund must have policies and procedures reasonably designed to limit beneficial ownership to natural persons (for example, accounts associated with social security numbers), including individual beneficiaries of certain trusts and participants in certain tax-deferred accounts, such as defined contribution plans. The new regulations make a distinction between institutional and retail money market funds. Prime and municipal/tax-exempt money market funds whose investors are institutions are required to move from a fixed $1.00 share price to a floating NAV. Liquidity fees and redemption gates will apply to both retail and institutional prime and municipal/tax-exempt money market funds. U.S. government money market funds are permitted, but not required, to impose fees and gates. Reference: https://personal.vanguard.com/pdf/VGMMR.pdf

[Mr._Graybeard]

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Originally Posted by audreyh1 I assume this is for new issue CDs. I was asking about how to see the fees in terms of hit to yield to maturity on a secondary market CD. The issuer is not involved in that case.

Yes, new issue.

I took a look at the secondary market on the Schwab site. It does refer to markup (without being too specific) and profiting from the bid/ask spread. A market depth chart is available that shows the difference between the bid and ask prices, which varies depending on the market depth of the CD and the size of the transaction. A $66,000 2.05% Sallie Mae Bank CD maturing in August 2019 is has an ask price of 99.899, yielding 2.120. The market depth chart shows a bid price on a similar (but smaller) CD at about 99.3. Smaller and more thinly-traded CDs have a broader spread.

[audreyh1]

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Originally Posted by MBSC No money market mutual fund can guarantee that it will maintain $1. All contain a disclaimer that it might break the buck. I believe you may be confusing this with the recent SEC rule changes. Those rule changes allow an institutional MM fund's NAV to float but people invest in "retail" funds which are exempt. The rule change that applies to people are the liquidity restrictions on non-government (prime) money market funds.

Right, thanks, it’s not a floating NAV for retail funds, the distinction is the liquidity restrictions and whether a fund can disallow folks from withdrawing funds during times of stress or impose a redemption fee (from Fidelity):

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Specifically, if a fund’s weekly liquid assets were to fall below 30%, the board of directors of a prime (general purpose) fund or a municipal fund may either charge a liquidity fee of up to 2% on shareholder redemptions or impose a halt on all shareholder redemptions (known as a “gate”) for no longer than 10 days. Additionally, if weekly liquid assets were to fall below 10%, a prime or municipal fund must impose a liquidity fee of 1%, unless the fund’s board determines that such a fee is not in the fund’s best interests. These liquidity fee and redemption gate requirements apply to both retail and institutional funds. Government and U.S. Treasury money market mutual funds will not be subject to liquidity fees or redemption gates.

I was referring to the latest SEC changes and that there was a material difference between the two classes of MM funds available to the retail investor, and when comparing yields the difference should be noted. I just forgot that the floating NAV was confined to non-retail MMs.

[Chuckanut]

I want to thank the OP and those who have contributed to this discussion.

It has opened my eyes and I have purchased a few short term CD's and upped the interest I will earn this year. It's just pizza and beer money, but I do like good pizza and good beer.

[Gotadimple]

Audrey,
Re: compounding - my error. Here is Schwab's statement regarding compounding:

"Interest on CDs is not compounded. Interest on CDs in the primary
market is calculated on the basis of the actual number of days elapsed
over a 365-day year."

This snippet came from the disclosures statement in the CDs & Money Markets section.

- Rita

[retired1]

I think most large brokerages buy/sell CDs in the secondary market. Rates are good. As long as you hold till maturity, it's a good deal (I think)

[audreyh1]

Quote:

Originally Posted by Gotadimple Audrey, Re: compounding - my error. Here is Schwab's statement regarding compounding: "Interest on CDs is not compounded. Interest on CDs in the primary market is calculated on the basis of the actual number of days elapsed over a 365-day year." This snippet came from the disclosures statement in the CDs & Money Markets section. - Rita

OK - so they really are paying simple interest.

And thanks adrift for the detailed explanation and example. I had missed that earlier.