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The other day I noted 1 & 2 month Jumbo CD rates were in the 2% range , while 3 month & up had more than double the rates of 1 & 2 month CD's. Can someone answer why ? Info was in WSJ. Thanks , Derf
I don’t understand your comment. When I check the CD rates at Fidelity, the yields range from about 4.9 to 5.15% through the entire 1-month to 5-year range. The yield curve has flattened some, but the highest rates are still in the short term range — which makes sense because you can still buy Treasuries in the 1-6 month range yielding more than 5%.
@Derf- OK, sorry I missed that above re the WSJ. But here's something to keep in mind- individual banks will offer, locally through their branches, CDs of various types ("jumbo", "special", etc) that may have rates that differ significantly from rates offered through brokers.
Why? Simple- they are looking for locals who may not be comfortable buying CDs through a brokerage. It's a pretty good bet that those people won't really know or understand the big picture on rates, either. Those people will feel comfortable at the local bank or S&L because they "know" the people there, and trust them.
I've actually seen banks offering "special" CD rates at one number locally, while at the very same time offering CDs through the brokerages at a rate several points higher.
About the only thing that Reagan ever said that I believe was "trust, but verify".
Of course, rates have done a U-Turn over the past 30 days or so - first falling rapidly and then suddenly reversing course late last week and rising sharply. Might have created some unusual temporary abnormalities among CD offerings.
I think @Old_Joe has it right. However, I don’t understand why some would buy a jumbo CD requiring a deposit of $100,000 or more when they could buy a brokered CD (fully insured) that yields much more. Makes no sense to me.
My experience over the last month is that I can find much better rates on CDs directly from Banks, than if they are offered through Brokerages. I have bought 12 month CDs from Capital One at 5.25%, but brokerage CDs through Schwab are under 5%. I only used Capital One because that is where I do my personal banking, and there are CDs even higher directly from other Banks than at Capital One. I am actually a bit frustrated with Brokerage offered CDs because they are so much lower than what is offered directly from banks. Go to depositaccounts.com or bankrate.com and you can find multiple bank offerings higher than what I can get through Schwab
It's not just the past month. My impression is that this has been going on for the better part of a year. I may have even commented on this before - it seems that people here look primarily at brokered CDs perhaps because they are already using a broker, while most people* don't have investment accounts outside of work and are more familiar with banks.
* "According to Statista, there are over 63 million brokerage accounts in the US. Additionally, 47% of adults have a brokerage account and this number is even higher among millennials at 60%." https://gitnux.org/brokerage-account-statistics
There are many varying components, regarding the CDs that fit your personal situation, whether you are talking about CDs for taxable assets vs. retirement assets, what kind of termination fee components work for you, etc. etc. I prefer Bank CDs for my taxable assets, where liquidity is not as impacted by early termination fees, and where taxable accounting can easily be spread across multiple bank accounts. With my IRA assets, liquidity and early termination fee components are not as relevant, and it makes my life "simpler" by having all retirement investments in one brokerage--easy end of year accounting with one brokerage, that provides instant RMD and "taxable consequences" for account withdrawals. I am willing to invest in lower yielding CDs in my IRA brokerage account, where I use more of a laddering system of CD selection, and not concerned as much about liquidity and early termination.
I can appreciate the simplicity of having all T-IRAs in one place if one is of a "certain age" I'm not, but I have likewise moved my T-IRA to one house.
Though that's largely because after having done Roth conversions for 15 years (income restrictions were lifted in 2010), there's not so much left in the T-IRA.
I started buying brokered CDs at Fidelity because the yields are higher, they are easy to purchase, and it’s a convenient way to build and maintain a ladder. My credit union used to offer very competitive rates but has not kept pace over the past couple of years. They are finally offering one-year CDs yielding 5.1%, but their longer term issues are running 1-2% lower than Fidelity’s offerings. Their money market account is still paying a pitiful 1.5%, so I moved nearly all of our cash holdings to Fidelity.
I have a financial link between my Schwab Taxable Account and my Capital One Bank Account. I will transfer money back and forth, between these two financial institutions, depending on where the best CD rates are available--very fast and simple. For liquidity purposes, I do maintain a significant investment in SWVXX Money Market Account, which continues to pay well over 5%.
SNOXX will likely be fully state-taxable to you, because (at least at as of Sept 30th) only 10% of its portfolio is in Treasuries. The rest consists of repurchase agreements which makes the entire fund state-taxable for a few states (and mostly state-taxable for everyone else). It is currently yielding 5.03%.
VUSXX - current SEC yield 5.30%. Vanguard used to keep this fund 100% in Treasuries. Last year it changed its practice and seemed to hover for a time around the magic 50% mark (below which all dividends would be taxable to you). Since then it seems to be holding around 98% Treasuries.
The final "score" for 2023 was 80.06% state tax-exempt, well above 50%, though that still means 1/5 of the divs are state taxable for everyone.
FSIXX - current SEC yield 5.21%. Pure Treasury. The imperfection here is that access to this share class is via Merrill Edge ($1K min), and Merrill is abysmal when it comes to handling pennies. Its system thinks in terms of whole shares, which for MMFs is whole dollars. Otherwise, Merrill seems easy to work with - definitely easy to move money in and out of.
Besides CDs at major national banks, I still keep most of my cash in TFLO (iShares Treasury Floating rate Bond ETF) which currently has a 30 Day SEC Yield of 5.40%. The dividends are 99.9% tax exempt in my state. So far, so good.
FSIXX has a minimum of $1M. FRSXX is the Institutional class of the Treasury Only MM fund and pays slightly higher than FSIXX. FRSXX does not seem to say what the minimum required is but I presume it is not accessible to retail clients. Is that right? I invest in FDLXX, another Treasury Only, has a 4.97% (vs 5.25% for FRSXX) (7 day) yield as of 1/19 and does not have a minimum. Why does Fidelity make it less advantageous to keep money at Fidelity, rather than move to Merrill Edge? Is it record keeping costs and convenience that Merrill offers to Fidelity?
@Fred495, if I am correct, treasury bonds/ ETFs are federal tax-exempt, not state exempt. TFLO invests in floating rate treasury similar to that of USFR, WisdomTree treasury floating rate ETF.
Edits: @fred495 is correct that TFLO is exempt from state and local income taxes, not federal tax.
@Fred495, if I am correct, treasury bonds/ ETFs are federal tax-exempt, not state exempt. TFLO invests in floating rate treasury similar to that of USFR, WisdomTree treasury floating rate ETF.
@Fred495, if I am correct, treasury bonds/ ETFs are federal tax-exempt, not state exempt. TFLO invests in floating rate treasury similar to that of USFR, WisdomTree treasury floating rate ETF.
Sven, as far as I know, interest on US Treasury bonds is taxable at the federal level, but exempt from state and local income taxes.
TFLO currently invests 99.98% in Treasuries, hence only 99.98% of the fund's interest is tax exempt at the state and local level.
FSIXX has a minimum of $1M. FRSXX is the Institutional class of the Treasury Only MM fund and pays slightly higher than FSIXX.
To be clear, both share classes are institutional classes; one is labeled "I", while the other is labeled "Institutional". Sort of like Vanguard offering multiple institutional share classes with labels "Institutional" and "Institutional Plus", such as VINIX and VIIIX.
As far as being open to retail investors, Fidelity generally seems amenable to retail investors so long as you meet the requirements for investing. (For example, JLPSX is open to retail customers at Fidelity, but while Schwab lowers the min to $100K it limits access to only institutional customers.) I suspect that VHNW individuals would be allowed open a position in FRSXX.
Why does Fidelity make it less advantageous to keep money at Fidelity, rather than move to Merrill Edge? Is it record keeping costs and convenience that Merrill offers to Fidelity?
Does the reason matter? Many fund families let third party brokerages sell their institutional shares with much lower minimums than when the shares are sold directly. For example, Schwab offers PIMIX with a $2.5K min rather than the $1M stated in the prospectus. It seems that Merrill likewise offers easier access to institutional share classes of funds. But at Merrill that improved access is largely limited to MMFs.
If it bothers you enough, let Fidelity know. If enough people clamor for something, it might have an effect. Three days ago when speaking with a Fidelity rep (on a three way call as a favor to a friend), I was asked what Fidelity could do to make it more attractive. Making some of their cheaper share class funds available at a more reasonable min was one of my suggestions.
@fed495, I apologize and stand correct as @JD_co and BaluBalu noted above too. For a moment, I confuse muni bonds with US treasuries. I correct the above comment.
Similar with at least a couple of curious quirks. One is that there is virtually no correlation (R² of 1%) between the two. That's likely due to the fact that these are extremely steady funds and so correlation measures primarily small random zigs vs. zags that are meaningless.
The other is that on Dec 19, 2014, TFLO dropped 4½%, opening at 50.06 and closing at 47.83. It fully recovered at the next open, but what happened? Data glitch?
Comments
@Derf - but where did you note this ???
On the website of some bank or at a brokerage??
Why? Simple- they are looking for locals who may not be comfortable buying CDs through a brokerage. It's a pretty good bet that those people won't really know or understand the big picture on rates, either. Those people will feel comfortable at the local bank or S&L because they "know" the people there, and trust them.
I've actually seen banks offering "special" CD rates at one number locally, while at the very same time offering CDs through the brokerages at a rate several points higher.
About the only thing that Reagan ever said that I believe was "trust, but verify".
* "According to Statista, there are over 63 million brokerage accounts in the US. Additionally, 47% of adults have a brokerage account and this number is even higher among millennials at 60%."
https://gitnux.org/brokerage-account-statistics
Though that's largely because after having done Roth conversions for 15 years (income restrictions were lifted in 2010), there's not so much left in the T-IRA.
https://www.schwabassetmanagement.com/resource/snoxx-scoxx-fact-sheet
A couple of imperfect alternatives are:
VUSXX - current SEC yield 5.30%. Vanguard used to keep this fund 100% in Treasuries. Last year it changed its practice and seemed to hover for a time around the magic 50% mark (below which all dividends would be taxable to you). Since then it seems to be holding around 98% Treasuries.
The final "score" for 2023 was 80.06% state tax-exempt, well above 50%, though that still means 1/5 of the divs are state taxable for everyone.
https://investor.vanguard.com/investment-products/mutual-funds/profile/vusxx
https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf
FSIXX - current SEC yield 5.21%. Pure Treasury. The imperfection here is that access to this share class is via Merrill Edge ($1K min), and Merrill is abysmal when it comes to handling pennies. Its system thinks in terms of whole shares, which for MMFs is whole dollars. Otherwise, Merrill seems easy to work with - definitely easy to move money in and out of.
https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/ICCRateSheet.pdf
https://fundresearch.fidelity.com/mutual-funds/summary/233809300
https://www.schwab.com/money-market-funds
FSIXX has a minimum of $1M. FRSXX is the Institutional class of the Treasury Only MM fund and pays slightly higher than FSIXX. FRSXX does not seem to say what the minimum required is but I presume it is not accessible to retail clients. Is that right? I invest in FDLXX, another Treasury Only, has a 4.97% (vs 5.25% for FRSXX) (7 day) yield as of 1/19 and does not have a minimum. Why does Fidelity make it less advantageous to keep money at Fidelity, rather than move to Merrill Edge? Is it record keeping costs and convenience that Merrill offers to Fidelity?
Edits: @fred495 is correct that TFLO is exempt from state and local income taxes, not federal tax.
Not Federal tax exempt.
Sven, as far as I know, interest on US Treasury bonds is taxable at the federal level, but exempt from state and local income taxes.
TFLO currently invests 99.98% in Treasuries, hence only 99.98% of the fund's interest is tax exempt at the state and local level.
U.S. Treasury bonds interest is typically taxable at the federal level - only exempt from state and local income taxes, as mentioned prior.
"This fund has a minimum initial individual, IRA, and Group Investment of $10,000,000."
https://fundresearch.fidelity.com/mutual-funds/summary/31607A802
As far as being open to retail investors, Fidelity generally seems amenable to retail investors so long as you meet the requirements for investing. (For example, JLPSX is open to retail customers at Fidelity, but while Schwab lowers the min to $100K it limits access to only institutional customers.) I suspect that VHNW individuals would be allowed open a position in FRSXX. Does the reason matter? Many fund families let third party brokerages sell their institutional shares with much lower minimums than when the shares are sold directly. For example, Schwab offers PIMIX with a $2.5K min rather than the $1M stated in the prospectus. It seems that Merrill likewise offers easier access to institutional share classes of funds. But at Merrill that improved access is largely limited to MMFs.
If it bothers you enough, let Fidelity know. If enough people clamor for something, it might have an effect. Three days ago when speaking with a Fidelity rep (on a three way call as a favor to a friend), I was asked what Fidelity could do to make it more attractive. Making some of their cheaper share class funds available at a more reasonable min was one of my suggestions.
https://portfolioslab.com/tools/stock-comparison/TFLO/USFR
Similar with at least a couple of curious quirks. One is that there is virtually no correlation (R² of 1%) between the two. That's likely due to the fact that these are extremely steady funds and so correlation measures primarily small random zigs vs. zags that are meaningless.
The other is that on Dec 19, 2014, TFLO dropped 4½%, opening at 50.06 and closing at 47.83. It fully recovered at the next open, but what happened? Data glitch?
I forgot and thanks for the reminder that Fidelity Institutional MM funds show the minimum required in a different place on the fund page.