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Vanguard Brokered CDs
Old 05-15-2020, 03:03 PM   #1
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Vanguard Brokered CDs

I have a lot of cash right now in my Vanguard IRA (actually it is in the Vanguard Prime Money Market Fund). I am sitting out the stock market for now. I see that Vanguard has "brokered CDs" that pay more than I can find elsewhere. I have never purchased a brokered CD. Is there anybody with any experience in Vanguard brokered CDs that can explain them to me and give me some pros and cons? Thanks!
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Old 05-15-2020, 03:16 PM   #2
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Never bought one but they are FDIC insured. Only gotcha is that if you want your money before maturity you have to sell in the open market so they are interest rate sensitive... you can't turn it back into the bank and pay an early withdrawal penalty like bank CDs... so you can think of them as an FDIC insured zero-coupon bond.

ETA: I don't find brokered CD rates at all attractive. Have you shopped CD rates at local credit unions? Those tend to be the best IME. If you qualify for membership, Navy Federal is offering 1.5% on one-year CDs.
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Old 05-15-2020, 03:22 PM   #3
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Originally Posted by pb4uski View Post
Never bought one but they are FDIC insured. Only gotcha is that if you want your money before maturity you have to sell in the open market so they are interest rate sensitive... you can't turn it back into the bank and pay an early withdrawal penalty like bank CDs... so you can think of them as an FDIC insured zero-coupon bond.
That about sums it up. I have bought a few. From what I have seen, when rates are rising, brokered CD's can beat Credit unions. When rates are falling (like now) they tend to be lower. Due to the uncertainty of the sell price, I would never buy a brokered CD that is was not 100% CERTAIN I would not need to tender early.
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Old 05-15-2020, 03:30 PM   #4
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I've bought brokered CDs from VG in the past. As others have mentioned, you cannot renew early and pay an early withdrawal penalty. Instead, you need to go to market and "offer" the CD for sale - and may get more or less (or the same) of the principal amount you invested as the "sale" price. It's essentially a marketable security prior to maturity, and there may not be many buyers depending on the coupon yield.

That said, I've had several VG brokered CDs mature and have had zero issues. Some of them have paid monthly interest..some quarterly. Nice income stream back in the day of high 2 and low 3 percent coupons. Haven't looked lately, but if they're anything like CU Certificate yields, I'm sure they're pretty paltry.
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Old 05-15-2020, 04:43 PM   #5
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Thanks for all the info. I looked at Navy Federal Credit Union and I don't think I can qualify. The brokered CDs are low but better than the prime money market and better than my local credit union.
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Old 05-15-2020, 04:50 PM   #6
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I've bought brokered CDs from Schwab, Fidelity, and TDAmeritrade, but not since they were paying 4% to 6%. I intend to hold until maturity anyway and I like that the money gets put back in the brokerage account when they come due.
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Old 05-15-2020, 05:09 PM   #7
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You might try these. 1.35% for 12-month CD. Beats VMMXX and is guaranteed. You should check other online banks like Ally, DiscoverBank, Capital One, etc.

https://www.marcus.com/us/en/savings...d-cds/cd-rates

Capital One is running a bonus offer... $100 for each $10k of new money... for $50k the bonus and regular 1.5% interest would be 2.5% after a year (the 1.5% isn't guaranteed and may decline).

https://www.capitalone.com/score500/
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Old 05-15-2020, 05:17 PM   #8
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... I would never buy a brokered CD that is was not 100% CERTAIN I would not need to tender early.
This. If there is any chance of having to cash out early, buy t-bills or t-notes. Lots of liquidity in those markets. You may lose if rates rise but you won't get cheated on the bid side of the spread.
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