CD advice

[Earl E Retyre]

Until recently, there were a bunch of 5 year new CD offerings at Vanguard for 3.56%. While that met my needs, I held off on buying these thinking that rates were going to hit 4% sometime this year due to the anticipation of the Fed raising rates. And I really wanted 4%. Now it appears that there are no 5 year offerings at all on Vanguard. No 2 or 3 year either. I did not expect all the CD offerings to disappear. There are some on Fidelity but only 3%.

My plan was to become more tax efficient by selling stock in my IRA account and buying brokered CDs with the proceeds and then using cash in my taxable account (that were in CDs) to buy stock. Essentially swapping my CD/stock allocations between taxable/IRA.

My options now include:
(a) waiting to see if 5 year offerings reappear at a reasonable rate and in the mean time be happy with the 2.31% that the money is earning in the VMFXX settlement fund.
(b) there is a local credit union that is offering 3.5% 5 year CD. If I choose this option then I am thinking of not hassling with making it an IRA account. And would then stick with holding CDs in my taxable account. The credit union did not get stellar reviews for customer service but it is insured by NCUA and they have a couple brick and mortar branches nearby.

I know no one has a crystal ball … but, what do you think CD rates are going to do over the next year? Based on the recent purchase of all the available Vanguard CDs and rates seemingly going down and not up, I am leaning towards option b.

Thoughts?
Thanks,
Earl

 

[Ready]

We are all in the same situation and wondering what to expect in the future regarding rates. Who knows? What I would do in your situation is go with the best 5 year CD rate you can find that has a maximum early termination penalty of 6 months interest. That way if rates really go up a lot you can pay the fee and reinvest. The difference between 3.5% and 4% in actual dollars is not really that much.

 

[brewer12345]

We are all in the same situation and wondering what to expect in the future regarding rates. Who knows? What I would do in your situation is go with the best 5 year CD rate you can find that has a maximum early termination penalty of 6 months interest. That way if rates really go up a lot you can pay the fee and reinvest. The difference between 3.5% and 4% in actual dollars is not really that much.

+1.

 

[COcheesehead]

I am an individual bond buyer, not CD's, but I learned from a few folks on here to always buy a few issues maybe a little further out than you think. I took a shot at some bonds in the 10 year range earlier last year and now I am glad I did. We may not see those higher rates for awhile.

 

[Earl E Retyre]

We are all in the same situation and wondering what to expect in the future regarding rates. Who knows? What I would do in your situation is go with the best 5 year CD rate you can find that has a maximum early termination penalty of 6 months interest. That way if rates really go up a lot you can pay the fee and reinvest. The difference between 3.5% and 4% in actual dollars is not really that much.

I agree with your advice and is what I have done in the past. Problem is that I cannot find 6 month early termination offerings on 3+% rates anymore. The one I found at 3.5% has a 2.5 year termination penalty - so, I would go into that knowing I would not early terminate. But I still think it may make sense to get a bird in the hand at 3.5%. Back in the Penfed 3.0% days we would have loved 3.5%. Maybe I am just getting greedy.

 

[brewer12345]

I agree with your advice and is what I have done in the past. Problem is that I cannot find 6 month early termination offerings on 3+% rates anymore. The one I found at 3.5% has a 2.5 year termination penalty - so, I would go into that knowing I would not early terminate. But I still think it may make sense to get a bird in the hand at 3.5%. Back in the Penfed 3.0% days we would have loved 3.5%. Maybe I am just getting greedy.

Have a look at www.depositaccounts.com. The blog is particularly helpful in highlighting attractive options.

 

[Earl E Retyre]

Have a look at www.depositaccounts.com. The blog is particularly helpful in highlighting attractive options.

OK, thanks for the link.

After perusing the options, I decided to open CDs with Penfed. Ironically, I just transferred money out of Penfed into Vangaurd. But now that good rates are no longer available there, I am going to transfer back to Penfed.

While the early withdrawal penalty is not the best, at least it is a known bank that I have been doing business with the past 5 years. Now I need to wait several days for the money to transfer back and hope the rates stay the same.

 

[almost there]

Lots of us in the same boat it seems.
Been a busy couple months / last few weeks & days over here.
Roth IRA CD's /IRA CD's / cash CD's etc.
I also opened a PenFed account today. With a 5 yr in mind.
Was looking for / expecting a 4% 5 yr. as well in 2019.
Watching the 10 yr, 30 day etc.. seemed to rattle everyone though.
Could still hit 4%. Just not as sure as I would like to be.........
So I opened up a couple 2.7% 1 yr @ Ch Sch, & 2.75% at Ally,
40 month 3.75% IRA at Navy Fed. / 150k max.
Bumped my one time bump 5 yr. CD's at Mountain America to 3.51% with 3 yrs to go.
Just need a new 5 yr. And PenFed seems a good way to go.
Just so you know / your not alone on this. lol lol
Got my average over 3%. 1st time in a long time.......
* added* brokered CD's are popping up again today. Not top rates, but well off late last weeks bottom / sold out status...

 

[brewer12345]

Note that US Senate FCU has extremely easy membership requirements and a 3.69% 5 year CD rate. Don't know what the early withdrawal penalty is.

 

[Earl E Retyre]

Note that US Senate FCU has extremely easy membership requirements and a 3.69% 5 year CD rate. Don't know what the early withdrawal penalty is.

Yeah, I saw US Senate FCU had the best rate but I looked at the negative reviews and comments online. While 3.69% is better than 3.5%, Penfed is a known entity to me and I have no real complaints.

 

[John Galt III]

Yeah, I saw US Senate FCU had the best rate but I looked at the negative reviews and comments online. While 3.69% is better than 3.5%, Penfed is a known entity to me and I have no real complaints.

I was on the Vanguard website today around 3 PM and saw a 5 year new CD at 3.4 %, I think. But they are hiding the early termination info somewhere.

 

[Willers]

I went with the Ally 14-mo CD's at 2.85% with about 1/2 my CD cash and I plan to leave the rest in my Vanguard MM and keep an eye out for a good deal or two.

 

[imoldernu]

Being one of the few here who believe in IBonds, they have worked out for us. Bought in the early 2000's, they have served us well, because of the inflation (CPI) factor. It depends on how the monies are to be used. For us, it was safety at a time when we weren't sure. Our annualized return has been 5.1, while the S&P annualized return for the same period was 4.1.

The current IBond rate is 2.83%, and is adjusted biannually for inflation. We looked at this as a long term safe haven.

At the time we bought, each person could buy $30K/yr in bonds. today that is limited to $10K/yr.

 

[almost there]

"Yeah, I saw US Senate FCU had the best rate but I looked at the negative reviews and comments online."

I did the same a while back......... No fun moving IRA's around. Even less fun with an institution with questionable customer service.......

 

[brewer12345]

Yeah, I saw US Senate FCU had the best rate but I looked at the negative reviews and comments online. While 3.69% is better than 3.5%, Penfed is a known entity to me and I have no real complaints.

Understood. I guess I just can't stomach the draconian early withdrawal language.

Navy Fed has just started offering a 17 month 3.25% CD that allows additional deposits. Believe it is limited to 50k, but may be attractive to those who want a shorter maturity. Navy is a lot more persnickety about membership.

BTW, Pen Fed acquired an antique credit union charter that allows them to offer membership freely to anyone. No idea what this means for rates, but it will be interesting to watch.

 

[njhowie]

I am an individual bond buyer, not CD's, but I learned from a few folks on here to always buy a few issues maybe a little further out than you think. I took a shot at some bonds in the 10 year range earlier last year and now I am glad I did. We may not see those higher rates for awhile.

Exactly!

 

[mn54]

you might want to look at columbia cu. they have a 2.5 yr cd at 3.6%. easy to join, $5 one time fee like penfed. filled out the paperwork on sat. and they notified me today that it was all done.

 

[Earl E Retyre]

you might want to look at columbia cu. they have a 2.5 yr cd at 3.6%. easy to join, $5 one time fee like penfed. filled out the paperwork on sat. and they notified me today that it was all done.

hmmm … their website says:
Eligibility

• Live or work in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Have a family member who lives or works in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Businesses who have a company located in or have more than half of its owners or employees live or work in Washington State, or the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.

So, I do not think anyone can join.

 

[Earl E Retyre]

I was on the Vanguard website today around 3 PM and saw a 5 year new CD at 3.4 %, I think. But they are hiding the early termination info somewhere.

Thanks! Funny how these change so often. I saw new issue at 3.3% but I just bought a CD on Vanguard secondary market at 3.423%. Thanks so much.

 

[pb4uski]

OK, thanks for the link.

After perusing the options, I decided to open CDs with Penfed. Ironically, I just transferred money out of Penfed into Vangaurd. But now that good rates are no longer available there, I am going to transfer back to Penfed.

While the early withdrawal penalty is not the best, at least it is a known bank that I have been doing business with the past 5 years. Now I need to wait several days for the money to transfer back and hope the rates stay the same.

Vanguard is showing 3.3% 5 year brokered CDs from Goldman Sachs Bank right now.

 

[pb4uski]

I was on the Vanguard website today around 3 PM and saw a 5 year new CD at 3.4 %, I think. But they are hiding the early termination info somewhere.

There is no early termination info on brokered CDs.... the only way to terminate early is to sell them on the open market.... depending on how interest rates have changed since you bought them you may end up selling at a gain or at a loss that may be more or less than what a termination penalty with a bank CD would have been.

 

[foxfirev5]

Last month I bought all the 7-10 year CD's I could in the 3.6 -3.65% range. However now my 5 year rung on my ladder is a little light. I'm hoping the rates will creep back up by the time my next slug matures in June. In any event the CD's still are maintaining a decent spread over treasuries.

Regarding the recent lack of brokered CD's, this has been happening in late December into January at least the last few years. I've tried to move my purchases up to early December by borrowing from my withdrawal stash. Also I'm spreading them out over the year by purchasing on the secondary market to match other points on the calendar. However like the new issues, the secondary market is pretty well dried up.

 

[mn54]

hmmm … their website says:
Eligibility

• Live or work in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Have a family member who lives or works in Washington State the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.
• Businesses who have a company located in or have more than half of its owners or employees live or work in Washington State, or the Oregon community of Clackamas, Marion, Multnomah or Washington Counties.

So, I do not think anyone can join.[/QUOTE

I said i have a family member who lives in washington.

 

[audreyh1]

I was on the Vanguard website today around 3 PM and saw a 5 year new CD at 3.4 %, I think. But they are hiding the early termination info somewhere.

You won’t find any early termination options on a CD you buy through a brokerage. You have to sell the CD on the secondary market.

 

[John Galt III]

You won’t find any early termination options on a CD you buy through a brokerage. You have to sell the CD on the secondary market.

Ah, there's my problem. The Vanguard website page with the CD info didn't state that they were 'brokered', or I just missed it!