Request advice regarding my CD situation

[jazz4cash]

Don’t forget you are also losing the interest on the penalty. That is what made the switch negligible to me. I never tried to factor what rates will be when these mature.

 

[luckydude]

I am probably in the minority in terms of my view, but I think trying to forecast what's going to happen in Nov in terms of the interest rate is the same is trying to forecast what the market will be doing in November. Nobody knows and nobody can predict the future. It's a futile exercise and you're just playing a guessing game.

I maintain a large cash position, half of which are in CD ladders. I used to play this game, anticipating where the interest might be going and trying to figure out the "optimal" duration to take advantage of my "guesses". Let's just say that I guessed wrong a couple of times over the years, thinking the interest rate was going up when I could've locked in higher rates, and rates ended up going down and staying there. I left money on the table, so to speak, because I guessed wrong.

Now I don't play the guessing game anymore. I do my CD ladder based on the prevailing interest rate. If it goes up, great. If it goes down, I don't stress it, because at the end of the day, an extra half a percent or one or two percent on my CD one way or another just doesn't make a difference to my FIRE lifestyle, and I suspect it's the same for most of the forum members. Yes, it would be wonderful to be able to always maximize returns on our investments, but that requires perfect timing and perfect knowledge, and nobody can do that, not even Warren Buffett.

 

[Spock]

...

Now I don't play the guessing game anymore. I do my CD ladder based on the prevailing interest rate. If it goes up, great. If it goes down, I don't stress it, because at the end of the day, an extra half a percent or one or two percent on my CD one way or another just doesn't make a difference to my FIRE lifestyle, and I suspect it's the same for most of the forum members. ...

I seem to be atypical, but the extra "one or two percent on my CD" makes a 16% difference what I can spend each year. And that's not including offsetting inflation rates.

 

[COcheesehead]

One of the lessons from this thread is to ladder.

 

[audreyh1]

I am probably in the minority in terms of my view, but I think trying to forecast what's going to happen in Nov in terms of the interest rate is the same is trying to forecast what the market will be doing in November. Nobody knows and nobody can predict the future. It's a futile exercise and you're just playing a guessing game.

+1

 

[Earl E Retyre]

I seem to be atypical, but the extra "one or two percent on my CD" makes a 16% difference what I can spend each year. And that's not including offsetting inflation rates.

Yes, 2% makes a big difference. For every million invested, that's $20k a year additional income. So the difference between 3.01% and 5.01% is fairly significant.

I just reran the numbers using pb4uski's method above, and assuming I can get 6 mos penalty (as opposed to 12 mos), it comes out to 4.92% as the breakeven point for a 5 year CD.

I believe for an 18-mos CD that you can get today on Vanguard at 5.35%, I am better off breaking the CD if it is only 6 mos penalty.

So, I think the ladder is the way to go. Break all 3 CDs and invest some in the 18-mos CD on up to 5 year CDs.

 

[rk911]

Since you’re asking for opinions, I’ll share what I do. I’ve created 4 separate 5 year CD ladders. Every 3 months I have a CD maturing. I can spend it, reinvest in another 5 year CD, or buy a stock or ETF. This gives me a good average return on my CD and allows me to enjoy my retirement without worrying about every nickel and dime.

+1. we have a 5-yr CD ladder and a 5-yr muni bond ladder. we're holding all to maturity. the plan is to re-purchasea 5-yr CD or muni bond as they currently mature assuming rates are at least stable or growing.

 

[youbet]

+1. we have a 5-yr CD ladder and a 5-yr muni bond ladder. we're holding all to maturity. the plan is to re-purchasea 5-yr CD or muni bond as they currently mature assuming rates are at least stable or growing.

I'm curious about this strategy as it really isn't a "laddering" strategy. Are you saying that when your next CD matures you'll replace it with a 5 yr CD to keep the ladder intact only if rates are at least stable or growing? What will you do if 5 yr rates have recently dropped a bit and your opinion is that they may drop some more? That is, rates are not stable or growing.

I thought with laddering you'd replace the maturing CD with a fresh one at current rates on the long end, regardless of what rates are doing.

 

[jazz4cash]

Thanks, jazz4cash!! I just found and checked my original paperwork and indeed it says it should be only 6 months of interest!



I am fairly sure when I called and asked AFCU, they told me it was 12 months. I will have to call again on Monday and ask again (and let them know I have original paperwork indicating 6 months if they tell me otherwise).



.

Sadly, I am not surprised they gave incorrect info. I wonder if they even bothered to check your specific CD, misread the terms, or just answered off the cuff.

In any event let us know how they handle the request to terminate early. I’m going to ride it out because mine are IRA CDs and I am terrified of initiating a transfer.

 

[rk911]

...I thought with laddering you'd replace the maturing CD with a fresh one at current rates on the long end, regardless of what rates are doing.

Exactly. We purchased 5-CD's...a 1-yr, 2-yr, 3-yr, 4-yr, 5-yr. when the 1-yr CD matures we'll use that cash to purchase another 5-yr. etc. etc. or, if rates have tumbled, we'll seek out other secure investment opportunities for that cash. It may be that CDs offer the best rates and if that's the case then so be it. but if rates have increased, we'll likely purchase additional 5-yr CDs.

 

[audreyh1]

I think I will look into withdrawing my accrued interest (dividends). It’s substantial.

 

[RetiredAndLovingIt]

Sadly, I am not surprised they gave incorrect info. I wonder if they even bothered to check your specific CD, misread the terms, or just answered off the cuff.

In any event let us know how they handle the request to terminate early. I’m going to ride it out because mine are IRA CDs and I am terrified of initiating a transfer.

Alaska charged me 365 days EWP on a partial withdrawal after they would not allow me to pull the accumulated interest. At the time I was to lazy to pull my paperwork to verify even though I was fairly sure it was only 180 days so entirely my fault. I won't ever make that mistake again.
It was about a month later before I dug out the paperwork to find I was right and they were wrong. They blew me off when I called even though I insisted on escalation up the customer service ladder to 2 different reps and they closed the case without any more communication when I had speciically requested a callback from their operations department supervisor.
I ended up going into a branch where they uploaded my docs, reopened the case as a prority and it still took over a month to get a refund.
I will be out of that CD next month and I will never use AlaskaUSA again.
They are now in process of changing their name to Global Credit Union.

 

[youbet]

Exactly. We purchased 5-CD's...a 1-yr, 2-yr, 3-yr, 4-yr, 5-yr. when the 1-yr CD matures we'll use that cash to purchase another 5-yr. etc. etc. or, if rates have tumbled, we'll seek out other secure investment opportunities for that cash. It may be that CDs offer the best rates and if that's the case then so be it. but if rates have increased, we'll likely purchase additional 5-yr CDs.

So, sort of a modified CD laddering scheme? If CD rates are steady or rising, you maintain the ladder. If not, you allow a one year hole in the ladder to develop and look for other places to put the money.

 

[jazz4cash]

I think I will look into withdrawing my accrued interest (dividends). It’s substantial.

It’s the right thing to do!

 

[Earl E Retyre]

OP here. So, I called Andrews on Monday to inquire about the CD withdrawal terms and they informed my that my savings account (which only has $2 in it) went dormant since I have not used it since I opened it 6 years ago. Therefore, they could not help me with CD questions. The 800 number said the main branch would call me back within 2 days. I just got a call back and they informed me I just needed to make a $1 transfer 1x per year to keep the account from going dormant. And if I did a $1 transfer today it would fix it. So, that is FYI for all you Andrews people out there that do not touch your savings account.

Anyway, getting to the main point of the thread ... I went ahead and withdrew all my dividends/interest and there was no penalty. I submitted a wire for a fee of $25 to get the funds sent to my bank. They also confirmed the early withdrawal penalty for closing a CD is indeed only 6 months (not the year I thought). I have not pulled the trigger on canceling any CDs today, as I was waiting to see what the Fed decision was today. Pulling out the dividends was an obvious decision since it added up to almost $80k that was only earning 3.1% and I could get 5% on that as soon as the wire is complete.

 

[audreyh1]

Weird. I haven’t run into that problem. I bought their 5% CD several months ago, but to do so I transferred the funds into savings first. I supposed that fixed any problem.

 

[jazz4cash]

Thanks for the heads up. Glad you got the divvies out. I had an account at a local community bank go dormant so I initiated monthly deposits but they never mentioned I had to go to s branch to get off the naughty list. I do have small deposits set up monthly/quarterly for most of my obscure accounts.

 

[Earl E Retyre]

Weird. I haven’t run into that problem. I bought their 5% CD several months ago, but to do so I transferred the funds into savings first. I supposed that fixed any problem.

Yes, that should set you for 1 year before it would go dormant.

 

[sengsational]

Every Valentine's Day, my credit union puts a few bucks into my savings account as a customer appreciation kickback. When I had my mortgage there, it was a decent few bucks. I wonder if that kept the dormant wolf from the door, since I never transacted in that account, and also never had dormancy issues over 30+ years.

 

[audreyh1]

Yes, that should set you for 1 year before it would go dormant.

I don’t think I ran into trouble regardless - I’m sure I’ve gone more than a year with no savings account activity. But if the account is there when I transfer funds in to buy something, that works for me most of the time.

 

[Surewhitey]

Just picked up a 3 & 5 yr @ 4.95% & 4.75% this morning. I'm guessing they're going to hold & see how things go for the time being...

 

[Earl E Retyre]

Just FYI ... it takes a few days to receive funds from a wire from Andrews. I withdrew my dividends on Wednesday morning, Thursday morning someone called me to confirm who I am before they would release the funds (which is normal), they told me the wire would be released that day likely by noon (yesterday) so I checked today and no funds received. I called and they said they are not going to release it until midnight tonight so it will appear in my account Saturday. They said that was their normal process for large wires. My wire was $80k (not that large). So the whole process from request to withdraw to receipt of a wire takes 3 full days.

 

[Spock]

Just FYI ... it takes a few days to receive funds from a wire from Andrews. I withdrew my dividends on Wednesday morning, Thursday morning someone called me to confirm who I am before they would release the funds (which is normal), they told me the wire would be released that day likely by noon (yesterday) so I checked today and no funds received. I called and they said they are not going to release it until midnight tonight so it will appear in my account Saturday. They said that was their normal process for large wires. My wire was $80k (not that large). So the whole process from request to withdraw to receipt of a wire takes 3 full days.

Normally wires happen "now" or at least same day.
Your's is taking 4 IF its shows up on a Saturday.
A CU's definition of "large" amazes me... I couldn't deposit a paycheck at a CU without the teller getting manager approval.

 

[Retfree17]

Just FYI ... it takes a few days to receive funds from a wire from Andrews. I withdrew my dividends on Wednesday morning, Thursday morning someone called me to confirm who I am before they would release the funds (which is normal), they told me the wire would be released that day likely by noon (yesterday) so I checked today and no funds received. I called and they said they are not going to release it until midnight tonight so it will appear in my account Saturday. They said that was their normal process for large wires. My wire was $80k (not that large). So the whole process from request to withdraw to receipt of a wire takes 3 full days.

Andrews currently allows to close CDs early without EWP if you open new CD with them with maturity over 24 months. Do it thru chat while logged in to your account. There is extensive blog on Deposit Accounts about this.

https://www.depositaccounts.com/banks/andrews-federal-credit-union.html

 

[maestro]

Along with "what would you do" you also have to ask "are you a pessimist or an optimist"-type stuff to gauge the bias of the responses.
I think rate hikes are done. The Fed has a choice of fight inflation or continue to put stress on the banks. Bank stress went from not being on anybodies radar to boiling over in less than a week. The Fed wants inflation as it's the only way the debt can be reduced.. It wants it as high as possible without triggering torches and pitchforks.



If it were my choice option a) let it ride would be off the table.
To gauge my response, I've been attempting to sell some callable brokered CDs to try to shift to longer dates even at slightly lower rates than the current CDs, so naturally I'm not going to suggest to let it ride.

Nice crystal ball, but mine looks different. I say let it ride, unless OP needs the cash. IMO, Fed will continue to hike rates in '23, so they are not 'done'. I think the 'stress' on banks is knee-jerk, natural reaction to a few instances of 'takeover', and maybe a few spook-the-market more of incompetence in banks. This does not crater the banking industry, at least for now. Something else may do that. I say, trust your gut and have patience and hold on to your initial plan.