You are correct to highlight the difference in how interest payments are handled but all the brokered CDs I've bought were well above comparable direct CDs even with compounding included. Maybe I need to look again.
Post #1149 effectively addresses this point, despite stating that there is no compounding.
Right. And the compounding of regular CDs is included in the advertised APY.
Yes, that is what I have always seen. So a 4% APY in a bank CD is worse than a 4% brokered CD since with the brokered CD I can reinvest the interest as it’s paid out (and create my own compounding as a previous poster pointed out). So the bank CD pays 4% after compounding and the brokered CD pays 4% before compounding. Please correct me if I am wrong.
Doesn’t it depend on whether what you are reinvesting in has a lower or higher rate?
That doesn't seem quite right. Won't the brokered CD pay interest at least annually which can go into a MM account and offset some of the $167 difference? Shorter term like one yr might pay at maturity but not a 5yr CD.
Yes I think you are right. If interest rates rise then brokered is better. If interest rates drop then the bank is better.
No, if they are identical term CDs, for apples to apples comparison, if you reinvest any of the 4% brokered CD's interest payouts at any rate, which could be even letting the the interest sit in a money market fund, it will earn more total interest than the advertised 4% APY CD during the term because the APY figure includes the compounding, but the brokered CD's 4% rate doesn't include the interest paid out earning income in your money market fund, for example.
What was the maturity of that callable 4.75% CD? Was it a new issue or bought on secondary market? TIA
4.2769 % APY according to an online calculator I found based on 4.21 APR with quarterly compounding. The rate tracks 13 week treasury I think.
Of course, I just bought a 3.8% no penalty CD. But, then again, I can close it with no penalty and get 4%. Not as bad as it first looked.
I just converted all mine.
it would be nice if they had a”convert” button that would do the job with one press.
Never known a bank to make it so easy to get a better rate like how they auto roll at maturity. DW has a CD at the credit union that has auto rolled for over 5 yrs. She could get a better promo rate for 15 mos instead of 12 but somehow never sees the maturity notices and does not seem to care.
I motivate myself to at least try to get a better rate. I think of the grands and realize that that extra $14 of interest would be greatly appreciated by a six year old let loose in a dollar store.
