Inflation-indexed CDs--Anybody actually seen one?

[samclem]

I've heard tell of the existence of inflation indexed CDs (or "inflation-linked CDs", aka "CDIPs" or "IFCDs"), but I've never actually seen one in the wild. Anybody know if they are an actual product a retail investor could buy, and where?


They'd probably be yielding a very low (real) amount right now--maybe zero. But for an investor wanting some insurance in case >maybe< the present consensus (inflation will not exceed 2% per year--forever) is wrong, these could be useful. Extra handy if they were available in long terms and could be sold on the secondary market, but even bought-from-the-bank-and-no selling-on the secondary-market would be handy and would be a way to get around the purchase limits on I-bonds (which are currently yielding 0.5% real, which isn't too bad overall compared to some other risk-free investments, and considering the flexibility of I-bonds).
I suspect they'd be slightly more convenient for the average investor than TIPS are.

 

[njhowie]

I suspect they'd be slightly more convenient for the average investor than TIPS are.

Not if they're impossible to find.

 

[OldShooter]

... I suspect they'd be slightly more convenient for the average investor than TIPS are.

Why? Buying TIPS from your broker as agent or on the auction is as easy as buying a brokered CD. If a person needed to chase around with his/her CD money, certainly opening and funding an account at some new bank would be much less convenient than buying TIPS in a brokerage account.

Really, buying bonds is no hassle, no mystery. I really don't understand why people often seem to be afraid of the process.

 

[samclem]

Really, buying bonds is no hassle, no mystery. I really don't understand why people often seem to be afraid of the process.

I agree, it's not difficult. But it is unfamiliar to most people. I'd bet 80% of Americans know what a CD is and where they could buy one. I'd guess about 5% know what a CUSIP is. And maybe 10% can explain the relationship between interest rate movements, bond prices, and duration.

One reason I asked about inflation-indexed CDs is I'm interested in seeing the rules--terms and conditions. It might be different enough from a Treasury to be interesting. For example, conventional CDs purchased from the issuer can be "broken" at any time just by paying the early withdrawal penalty (EWP). The price of getting out is knowable in advance to the penny. How does the EWP work for a an inflation-indexed CD with a nominal rate that varies with inflation? And if, say, it is equal to the last 12 months of interest, that could be a lot less of a penalty than trying to get out of a Treasury by selling on the secondary market if interest rates have gone through the roof.

The EWP on a 5 year CD is about 150 days. If I could buy a 10 year (double the term) inflation-linked CD with a 300 day interest penalty (double the penalty)--that might be attractive. It doesn't take much of a rate climb from today's very low rates to make it worth jumping ship.
OTOH--if the product doesn't even exist anymore, there's no use wondering about it.

 

[njhowie]

Having thought about this, I thought I remembered someone that did post about getting one. Having searched the 2018 CD thread for it, I found it - but it wasn't adjusting for inflation - it was a variable rate CD that increased/decreased whenever Fed moves, but never going below the base rate. Which may ultimately accomplish the same thing - if inflation heads upward, the Fed would likely raise rates:

Best CD & MM Rates Thread 2018 Archive - Page 10 - Early Retirement & Financial Independence Community

A regional bank [LA/TX] is offering a new FDIC insured "variable CD" with a base rate and the possibility that rate will increase with an increase in the federal fund rate. But it never goes down below the initial base rate.

For example, a 5 year CD's base rate is 3% [based on a 2% fed fund rate.]

Any comments positive or negative about this kind of CD ??

https://www.fgb.net/variable-cd

 

[NW-Bound]

I have been parking cash in a Black Rock money market fund offered by my brokerage. They invest in short-term T Notes and US Treasury Repurchase Agreements (?) with an average maturity of 28 days. Yet, the yield is 2.10%.

I can pick up another 0.5% perhaps using different MM funds, but the money in the above fund can be used to back cash-covered puts that I want to be able to sell when the occasion arises. These puts can bring me a bit more money than the 0.5% that I forego.