Best CD, MM Rates & Bank Special Deals Thread 2022 - Please post updates here

[brucethebroker]

NJHowie, if you buy a discounted CD that matures in 12 months or longer, is the capital gains part eligible for the same capital gains treatment as stocks, investment real estate, etc.?

 

[stevelb]

ETA2: My 3.3-3.5% T-BILLS from early September - early October aren't looking so hot now. The good news is that some of these are starting to roll off in the next month to two months.Quote

Why not sell the T-Bills early?

 

[audreyh1]

ETA2: My 3.3-3.5% T-BILLS from early September - early October aren't looking so hot now. The good news is that some of these are starting to roll off in the next month to two months.

Why not sell the T-Bills early?

You don’t gain anything.

 

[stevelb]

You don’t gain anything.

Sell and reinvest at the now higher rates.

 

[audreyh1]

Sell and reinvest at the now higher rates.

You will have to sell at a discount and that will essentially wipe out any gain from the higher rate.

The secondary market is not going to magically pay you more for a lower coupon treasury. It will get discounted to current rates for the duration remaining.

 

[copyright1997reloaded]

Sell and reinvest at the now higher rates.

The market price on the old T-bill will essentially have the same YTM as a new T-bill with the same remaining days to maturity.

For example, I own CUSIP 912796T33 bought (settlement) on 8/25/22 that was a 26-week T-BILL (maturity 2/23/23). The purchase price was $98.4277 (per hundred $ maturity) resulting in an approximately 3.221% return.

As of 12/15/22 that CUSIP was priced at $99.21896, so I have a "gain" on it. But let's figure out the YTM given 70 days till maturity: 4.2%. The most recent 8-week auction (earlier this week) went out at 4.143%, so the 4.2% (given it is slightly longer) is just about spot on.

Thus there is no advantage to selling if I were to go for a similar duration. I can *only* capture a higher rate by picking a longer maturity.

Also note my return (if I sold) will be lower than the 3.221%. Since I've held it 112 days, the annualized return is 2.620%.

You can calculate these using a spreadsheet or an on-line tool such as: https://goodcalculators.com/treasury-bills-calculator/

If what I stated above doesn't make sense, ask away and I (or someone else) will further clarify.

 

[stevelb]

Thank you. Learn something every day here. Actually I was thinking along the lines of buying a higher yield corporate or maybe treasury. Nevertheless I guess you always have to do the math. Again, thanks.

 

[pb4uski]

Thank you. Learn something every day here. Actually I was thinking along the lines of buying a higher yield corporate or maybe treasury. Nevertheless I guess you always have to do the math. Again, thanks.

Yes in order to have a swap like that benefit you you have to reinvest at a higher rate than the current yield on what you are selling.. NOT your purchase yield.

So if you sell an buy the same bond and let's say that it is totally frictionless, then nothing changes... the combination of your actual yield on the first part and your yield on the repurchase are the same as if you had just kept the bond to maturity.

Now if you end up with a higher yield than the yield to maturity on your sale, by reducing quality or whatever, then you can come out ahead but you are also assuming more risk.

 

[audreyh1]

It is 4.1%.

Here you go: https://institutional.fidelity.com/app/funds-and-products/2738/fidelity-money-market-fund-premium-class-fzdxx.html

Maybe I should update my spreadsheet to use 1-day rates to make my numbers look better! (At least while it is rising.)

It jumped to 4.24% tonight.

FWIW, I was talking with my Fidelity guy this morning and he said their money market, FZDXX, should be around 4.25% next week. It's about 3.8% now, so that's interesting.

This week even, looking at the 1-day rates.

 

[jldavid47]

You will have to sell at a discount and that will essentially wipe out any gain from the higher rate.

The secondary market is not going to magically pay you more for a lower coupon treasury. It will get discounted to current rates for the duration remaining.

+1

I have a "Current Yield" column in my tracking spreadsheet so that I know what the effect of the current discount is on my T-Bills. I can reinforce that there is no advantage to selling early in the current market environment. Now, if the yield curve were to suddenly stop inverting there could be an advantage to selling early then lengthening maturity, but that world does not exist at the moment.

 

[copyright1997reloaded]

It jumped to 4.24% tonight.


This week even, looking at the 1-day rates.

Awesome.

Schwab's SWVXX also jumped, now 4.04% (7-day) and SNAXX (for the rich folk like SchockWaveRider ) the 7-day yield is now 4.19%. (I don't know how to find Schwab funds 1-day yield.)

 

[Graybeard]

It jumped to 4.24% tonight.


This week even, looking at the 1-day rates.

Why do I see 2 different 7 day yields?

Using https://institutional.fidelity.com/app/funds-and-products/2738/fidelity-money-market-fund-premium-class-fzdxx.html it is 3.91% but using https://fundresearch.fidelity.com/mutual-funds/summary/31617H805?type=o-NavBar it is 3.82%.

VMFXX 7 day SEC yield is 3.99%.

 

[audreyh1]

Why do I see 2 different 7 day yields?

Using https://institutional.fidelity.com/app/funds-and-products/2738/fidelity-money-market-fund-premium-class-fzdxx.html it is 3.91% but using https://fundresearch.fidelity.com/mutual-funds/summary/31617H805?type=o-NavBar it is 3.82%.

VMFXX 7 day SEC yield is 3.99%.

You have to pay attention to the date associated with the yield.

On your first link the 7-day yield of 3.91% is as of 12/16/22.
On your second link the 7-day yield of 3.82% is as of 11/30/22.

People often get tripped up on these date discrepancies.

There is a really important lesson here. You have to pay attention to details with this fixed income stuff, especially when making comparisons.

 

[mebden]

Am I missing something here why would you people tie your money up for 12 or 24 months in a CD and to get 3.85% return? when I can leave my money in my online savings account and get 4.0% return and I can take my money out any time without any fee?

 

[Ready]

Am I missing something here why would you people tie your money up for 12 or 24 months in a CD and to get 3.85% return? when I can leave my money in my online savings account and get 4.0% return and I can take my money out any time without any fee?

You wouldn’t. Utah First is at 5% for a 22 month CD so there is no reason to buy anything at a lower rate than that. Not all banks have adjusted their rates so you have to shop around for the best deal.

Where are you getting 4% for online savings?

 

[audreyh1]

You wouldn’t. Utah First is at 5% for a 22 month CD so there is no reason to buy anything at a lower rate than that. Not all banks have adjusted their rates so you have to shop around for the best deal.

Where are you getting 4% for online savings?

Some money market funds are crossing 4% now.

Online high yield savings will be playing catch up over the next month, and I wouldn't be surprised so see some cross 4% during that time as some were paying 3.5%+ before the latest rate hike.

 

[mebden]

You wouldn’t. Utah First is at 5% for a 22 month CD so there is no reason to buy anything at a lower rate than that. Not all banks have adjusted their rates so you have to shop around for the best deal.

Where are you getting 4% for online savings?

Bask Bank its been posted on this thread a few times

 

[Chuckanut]

Am I missing something here why would you people tie your money up for 12 or 24 months in a CD and to get 3.85% return? when I can leave my money in my online savings account and get 4.0% return and I can take my money out any time without any fee?

12 to 24 months is well over 4%. And if rates go down I would still get the higher rate until maturity while the savings account would go down. It’s that simple.

 

[JoeWras]

Some money market funds are crossing 4% now.

Online high yield savings will be playing catch up over the next month, and I wouldn't be surprised so see some cross 4% during that time as some were paying 3.5%+ before the latest rate hike.

Yep. It is enough for me to finally start breathing and lay off buying T-Bills left and right.

 

[mebden]

12 to 24 months is well over 4%. And if rates go down I would still get the higher rate until maturity while the savings account would go down. It’s that simple.

Yes, I understand that Chuck but right now I don't see that happening anytime soon and I can spend my money when I want to and if you try and spend your CD money you get hit with early termination fees and then you would be no where near the 4% you signed up for.

 

[audreyh1]

People don’t generally put money they expect to spend in the into a CD for longer than the time frame they need it. I think they are investing the money they don’t need for a bit longer looking 1 or 2 years out. I get the benefit of flexibility. Some folks’ expenses are fairly predictable so they invest the rest or rely on interest and dividends for spending money. Lots of different approaches used here.

 

[Car-Guy]

12 to 24 months is well over 4%. And if rates go down I would still get the higher rate until maturity while the savings account would go down. It’s that simple.

Yes, I understand that Chuck but right now I don't see that happening anytime soon and I can spend my money when I want to and if you try and spend your CD money you get hit with early termination fees and then you would be no where near the 4% you signed up for.

I think in this case you may both be right... At least for some/many of us... (like me ) I bought ~20 shorter term CD's (for 6mos to 2yrs) earlier this year. I still had a bunch of dry powder that I was using for "short term trading" so I moved most of that into Schwab's MM fund. Both buckets are paying ~4%... The CD's are locked in "if rates were to drop. And the MM is getting almost as much as the CD's and I can get the money in 24 hours, if I want/need it....

As my shorter term CD's mature, I have the option to add to the MM fund or buy more CD's at the current rates. Tough decision at this time since both keep "ticking up".

(Still not keeping up with inflation, but it's better than what we were getting for the past decade+)

 

[Chuckanut]

I think in this case you may both be right... At least for some/many of us... (like me ) I bought ~20 shorter term CD's (for 6mos to 2yrs) earlier this year. I still had a bunch of dry powder that I was using for "short term trading" so I moved most of that into Schwab's MM fund. Both buckets are paying ~4%... The CD's are locked in "if rates were to drop. And the MM is getting almost as much as the CD's and I can get the money in 24 hours, if I want/need it....

As my shorter term CD's mature, I have the option to add to the MM fund or buy more CD's at the current rates. Tough decision at this time since both keep "ticking up".

(Still not keeping up with inflation, but it's better than what we were getting for the past decade+)

That's why some of us build a ladder. When I started laddering earlier this year, IMO it was reasonable to expect interest rates to continue rising for the foreseeable future (at least into early 2023). So, many of my CD/bonds were shorter term and I kept the longest term at 18 months.

Now, the world is a bit different. I am extending my longest term for most of my maturing CDs towards 3 years. I have also stretched my ladder out to 5 years for the few 5%+ CD/bonds that I found a while back. When we manage to un-invert the yield curve, I may push more towards the 5 year goal.

I think of my strategy as the equivalent of dollar cost averaging into the stock market. It's all about controlling the risk-reward ratio. My 2¢. YMMV.

 

[jazz4cash]

I am extending to 5 yrs and beyond also via laddering….interest rate averaging, if you will. I’m happy about these MM rates for very short term money too but very surprised how many have expressed a preference for rates that can go down as quickly as they have gone up. The market expects rates will be lower beyond 1-2 yrs so locking in some longer term maturities at todays rates makes sense to me. Not betting the farm so if rates continue to rise I’ll lock some of those into my ladder as well.

 

[Chuckanut]

I am extending to 5 yrs and beyond also via laddering….interest rate averaging, if you will. I’m happy about these MM rates for very short term money too but very surprised how many have expressed a preference for rates that can go down as quickly as they have gone up. The market expects rates will be lower beyond 1-2 yrs so locking in some longer term maturities at todays rates makes sense to me. Not betting the farm so if rates continue to rise I’ll lock some of those into my ladder as well.

+1

I would like to add that while bagging a very high interest rate over a long term certainly gives one bragging rights at family get-togethers, golf tournaments and other social events, the goal is to maximize the dollars earned. IMO, this simple strategy has a good chance to maximize the dollars earned while keeping risks acceptable. Time will tell.