Using Vanguard for CD ladder

[meierlde]

So when you say the funds automatically appear in your settlement account at maturity, are you referring to the principle or interest and principle? I see some brokered CDs pay monthly and others pay annually and I assumed the interest payment goes into another account which could be a high yield savings to offset some of the loss incurred by not compounding.

I hate the way Ally compounds monthly but the interest doesn't get credited until year end. At least I thing that's what they do.

At Vanguard the interest goes to you settlement account, federal money market fund, as does the principal when the security matures. You get a 1099b when the fund matures showing the distribution, but you just offset it against the basis and there is no gain or loss. Of course once you get the interest you can move it to a short term bond fund etc as desired.

 

[njhowie]

Now that several credit unions are offering a 3% 5 year CD with a 6 month early termination penalty, brokered CDs are going to have to be more competitive than they've been in the past couple of years. I have yet to find any on Fidelity or Vanguard's websites that are more attractive than the 3% deals at the credit unions. Has anyone else found any?

I can purchase 3 year 10 month brokered CDs from Fidelity yielding 3%. For 5 years I can get 3.2%.

Secondary market rates provide whatever a seller is willing to give them to you for.

See the attachment.

 

[catotx]

I can purchase 3 year 10 month brokered CDs from Fidelity yielding 3%. For 5 years I can get 3.2%.

Secondary market rates provide whatever a seller is willing to give them to you for.

See the attachment.

Does the quote above include the commission? I believe Vanguard's YTM quote does not include the commission for secondary CDs. You need to click to the end to see the YTM that takes into account the commission.

 

[njhowie]

Does the quote above include the commission? I believe Vanguard's YTM quote does not include the commission for secondary CDs. You need to click to the end to see the YTM that takes into account the commission.

Fidelity charges $1/CD commission for secondary market trades.

Take the $1 out and you're at 2.986% in the example I provided.

3.2% for 5 years after commission would be 3.18%.

 

[OldShooter]

With respect, you guys kind of crack me up.

I wonder if you are even making minimum wage for the time you spend calculating all these tiny differences. Everybody needs a hobby, though, so if that's your thing, more power to you.

 

[Sunset]

So when you say the funds automatically appear in your settlement account at maturity, are you referring to the principle or interest and principle? I see some brokered CDs pay monthly and others pay annually and I assumed the interest payment goes into another account which could be a high yield savings to offset some of the loss incurred by not compounding.

I hate the way Ally compounds monthly but the interest doesn't get credited until year end. At least I thing that's what they do.

Can't you tell Ally to deposit the interest monthly into your savings account ?
If you have enough CD's, a few months later, you can buy another small CD
And repeat.

 

[jazz4cash]

Can't you tell Ally to deposit the interest monthly into your savings account ?
If you have enough CD's, a few months later, you can buy another small CD
And repeat.

At the risk of wasting my time calculating tiny percentages, I think the interest compounds at the CD rate which is higher than the savings rate. The monthly interest increases every period so that tells me it is compounding. It's just that they show it as a separate item (accrued interest) rather than adding it to the CD balance as it's earned. At the end of the year it does get rolled into the balance ( I think).