Brokered CD's in a Vanguard Roth IRA?

[mountainsoft]

Somehow I just discovered Vanguard offers brokered CD's. Two year CD's seem to be the sweet spot around 4.9%.

However, while I have purchased CD's in the past, I am naive about how a CD works in a Roth IRA. How does a brokered CD differ from a CD I would buy from a traditional bank? How would a CD show up on Vanguards web site in my Roth IRA account? Since it's in a Roth I assume it would still grow tax free, just like any other investment fund?

I won't need the money for at least a few years, and the CD's seem to be paying much more than my bond funds have in recent years.

Can anyone share their experience with CD's in a Roth? Maybe a screenshot of how it would appear in a Vanguard account if possible?

Other than locking up the money for a year or two, is there any other disadvantage to buying a CD in a Roth account?

We are planning to retire in the next 6 months or so and will be living off our high interest savings (currently 2.75%) for the first 2-3 years. So we shouldn't need to access my Roth account before then.

 

[Earl E Retyre]

Somehow I just discovered Vanguard offers brokered CD's. Two year CD's seem to be the sweet spot around 4.9%.

However, while I have purchased CD's in the past, I am naive about how a CD works in a Roth IRA. How does a brokered CD differ from a CD I would buy from a traditional bank? How would a CD show up on Vanguards web site in my Roth IRA account? Since it's in a Roth I assume it would still grow tax free, just like any other investment fund?

I won't need the money for at least a few years, and the CD's seem to be paying much more than my bond funds have in recent years.

Can anyone share their experience with CD's in a Roth? Maybe a screenshot of how it would appear in a Vanguard account if possible?

Other than locking up the money for a year or two, is there any other disadvantage to buying a CD in a Roth account?

We are planning to retire in the next 6 months or so and will be living off our high interest savings (currently 2.75%) for the first 2-3 years. So we shouldn't need to access my Roth account before then.

I have been buying brokered CDs in my Vanguard accounts (including my IRA accounts). Brokered CDs seem to offer higher rates than buying straight from the banks. Yes, in an IRA, the interest is tax free. I like the simplicity to fund and handle CD maturity. That is, the money just moves from/to your cash account.

A couple ways that they are different than bank CDs.
- a bank CD if canceled prematurely will have an early withdrawal penalty. A brokered CD if you want to cash out early you need to sell on the open market (via Vanguard). And thus, may be taken as a loss or gain depending on what rates do. If you hold to maturity, then ignore this bullet.
- when it shows up on your statements, the CD will show up as valued above or below what you initially paid for it (depending on if interest rates rise or fall). But, again, if you hold to maturity, then this does not really matter. You get the full principal back at maturity.
- interest is moved to your cash account. It does not compound within the CD like most bank CDs do. I kind of like this feature since that means I can live off the interest if I ever wanted.
- FDIC insurance is similar in that it is protected at $250k per type of account. However, I recently learned that if you have Payable On Death (POD) on your Vanguard account then that adds additional FDIC limits. If you are not going over $250k then ignore this bullet.

 

[NomDeER]

We are planning to retire in the next 6 months or so and will be living off our high interest savings (currently 2.75%) for the first 2-3 years. So we shouldn't need to access my Roth account before then.

FYI, Vanguard's money market account, VMFXX (which is usually what your Settlement Fund is in), is yielding 3.34% right now. It was yielding almost nothing at the beginning of the year, so I kept most of my cash in my high-yield savings. Now, I've transferred most of my cash to the Vanguard money market account because VMFXX is yielding more than my high-yield savings account. You may want to consider doing the same thing.

I have brokered CDs in my traditional IRA. They show up in way that is similar to mutual fund and ETF holdings, but there is a heading above them that says "Brokered CDs."

 

[disneysteve]

We are planning to retire in the next 6 months or so and will be living off our high interest savings (currently 2.75%) for the first 2-3 years.

You already got a fine answer to the CD question so allow me to comment on this.


Even though the savings accounts are finally paying decent interest, I'd also suggest looking into brokered CDs and Treasury bills for that money. Right now, you can get between 4.25% and 4.8% for 3-12 month durations. You could ladder your cash to have a chunk mature every month if you'd like and goose those returns over what your high interest savings is paying with zero additional risk. Nothing wrong with getting an extra 1.5 to 2% on that money.

 

[mountainsoft]

Thanks for the info everyone. I appreciate it! I will probably go for the CD.

 

[xlf11]

Just one more thing to consider that Roth is supposed to have more equity for growth and if you happen to have tIRA as well, you could put CD in tIRA to maintain the overall AA by leaving stock in Roth while increasing CD in tIRA. Both types of account can have the same CD at VG.

 

[gravy train]

My vanguard brokered cd just executed for 100.00. Is that a commission? It was for $10000

 

[pb4uski]

My vanguard brokered cd just executed for 100.00. Is that a commission? It was for $10000

$100 is the price. I bought $50,000 in CDs at $100 earlier in the year in Vanguard and it states:

"Buy 50,000.0000 at $100.00 – $50,000.00 "

So you bought 100 units at $100 per unit for $10,000.

 

[jsoscia3]

I just noticed this thread on a search for how to open an IRA CD at Vanguard. When I go into my Roth account there is no option to add a CD, just mutual funds. What am I doing wrong?

 

[disneysteve]

I just noticed this thread on a search for how to open an IRA CD at Vanguard. When I go into my Roth account there is no option to add a CD, just mutual funds. What am I doing wrong?

Log into your account.
Click on What We Offer at the top.
Click on CDs.
Click on Buy a CD.
Select the account you want it for (your Roth in this case).
Hit Continue.
That will bring up the screen to select CDs, Treasuries, and other bonds to purchase.

 

[Out-to-Lunch]

You may have an older, mutual-fund-only account. You need to have a "brokerage account" to buy CDs, I believe. VG has been hounding people to "upgrade" their accounts to brokerage accounts for some time now.

 

[jsoscia3]

I have both brokerage and Roth. I want to put it in the Roth, but there is only a brokerage option.

 

[jsoscia3]

You may have an older, mutual-fund-only account. You need to have a "brokerage account" to buy CDs, I believe. VG has been hounding people to "upgrade" their accounts to brokerage accounts for some time now.

Thank you. I called Vanguard. You are right, I needed to transition the account.