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Well, when tricked as such, customers can cash out of bank CDs with 3-mo penalty in most cases.
Brokerages that offer auto-roll for brokered CDs (Fido, Schwab, etc), they will look for decent options.
"For a maturing CD, the Auto Roll Service will search Fidelity inventory for the highest yielding new issue CD meeting criteria you set at the time of the search, with a settlement date within twelve calendar days following stated maturity date of the Maturing Position, and with sufficient quantity available to complete your instructions." https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Auto-Roll-Subscriber-Agreement.pdf
Hmm... Sorry, but that did not explain anything to me.
Right now there are so many options which are more flexible and pay the same or more, including over similar time frames: MM funds, Tres., HYS, Bank promo rates, etc. CDs don't even have the advantage of simplicity w auto-renewals and m.b. the need for laddering... So, what am I missing?
@yugo. “ to each his own, it’s all unknown.” Bob Dylan. While the future in unknown I am thinking that MM and HYS rates will decline over the next twelve months. I am overweight in both. Lots of space to fill in the non equity side of our portfolio. Good investing to all.
I get that, @yogibearbull. It's just that the question of why there was such a huge spike of people putting money into CDs these days has puzzled me for a while.
So, when I saw in the article that,
"Americans poured more than $2 trillion into CDs [...]",
and
"Historically, CDs have represented a small share of all deposits. Banks haven't paid much attention to them because their customers didn't, so the recent surge in demand caught many banks flat-footed [...]".
It brought the question back to my mind: What am I missing about CDs that makes them so attractive?
(I suppose I could have started a new thread along the lines of "Why invest in CDs?" but figured that a "CD" thread was as good as any to address that.)
@yugo. “ to each his own, it’s all unknown.” Bob Dylan. While the future in unknown I am thinking that MM and HYS rates will decline over the next twelve months. I am overweight in both. Lots of space to fill in the non equity side of our portfolio. Good investing to all.
BTW, If you are an optimist and believe that MM / HYS rates will decline that significantly over the next 12 mo, next time you may want to look into various promos as well, which banks are running on savings accounts w locked-in 6- to 12-mo rates (state-dependent, of course)... plus they give you bonuses based on deposit amounts. Tres are also an option and are, by-and-large, more liquid than CDs.
I don’t ever buy CDs with automatic rollover. When they mature, I either reinvest in CDs with the highest rates, Treasuries or short-term to intermediate bond funds. I also have set up several CD ladders extending out 5 years, with yields averaging more than 5%. If yields drop, I’ll continue to get good yields from my ladders.
Look at it this way, I don’t own or track a single bond fund that has returned 5% over the past 10 years. My CD ladders will provide me a guaranteed yield of 5%. What’s not to like about that?
I don’t ever buy CDs with automatic rollover. When they mature, I either reinvest in CDs with the highest rates, Treasuries or short-term to intermediate bond funds. I also have set up several CD ladders extending out 5 years, with yields averaging more than 5%. If yields drop, I’ll continue to get good yields from my ladders.
Look at it this way, I don’t own or track a single bond fund that has returned 5% over the past 10 years. My CD ladders will provide me a guaranteed yield of 5%. What’s not to like about that?
Could I ask what are the yields on the the 5-year legs of your CD ladders? Are these callable?
@yugo - The yields on my 5-year CDs are 5.0-5.1%, all non-callable. I bought them when rates peaked in 2023, so they have 4+ years left until maturity. Some of the shorter term CDs will start maturing in May, and I doubt if I’ll be able to buy new 5-years with yields that high. I may buy some federal agency bonds that are still yielding more than 5%, but they are callable. Or I might start investing in intermediate bond funds again if it looks like rates are stabilizing.
Yes, gotcha. I am just looking at the 5-year performance. It lands in the top 7% of category, but at +1.89%, it doesn't seem worth the trouble, eh? Of course, the Covid-put is a big piece of that picture. ...Going back FIFTEEN years, it's up by 4.2%, in the top 21 percent of category. That sounds much more worth our time. It does not own junk.
Understood. As for me, no CDs. One big reason is that one of our CUs puts a severely low limit on the amount of cash you can give them in order to get that 5%.
And the other CU? ridiculously low offered rates. Unless the bottom falls out, my chosen bond funds are working very nicely.
@Crash - Why not buy brokered CDs? I can easily search for and buy the highest yielding CDs at Fidelity, and I assume Schwab has similar offerings. They are all FDIC protected.
@Crash - Why not buy brokered CDs? I can easily search for and buy the highest yielding CDs at Fidelity, and I assume Schwab has similar offerings. They are all FDIC protected.
Hello! I have looked into that prospect, just briefly. What I saw scared me away. I could of course try to find a brokered CD that's not callable. Does such a beast actually exist? At any rate, when I saw that fees are involved, for the privilege of buying one of those critters, I steered all the way around and out the other side. (I was looking in the TRP website, at that time.)
Sure, my bond funds all carry an E.R., too. I own 3. The ERs range from 0.81 down to 0.25. Better than a 2% up-front fee. Smells awfully like a front-load fund, eh? No way, Jose. That's what I recall, but my memory is hazy by now. I enjoy the steady bond fund monthly dividend payments as they arrive.
Almost all of the brokered CDs I’ve bought are non-callable. There are no additional fees, unless you cash out early— which is the same for almost any CD.
@Crash, brokered CDs are expensive for the banks to raise money. They have to pay brokerage platform fees to be listed (25-50 bps), and then offer competitive rates. But banks can raise deposit money through this channel quickly, without tying up their branch staff for days/weeks. Despite high costs to the banks, they find this a lucrative channel so much so that banks in trouble keep tapping this channel way past their time. The Fed knows this too, so keeps an eye on banks that top the lists of brokered CDs repeatedly. Big banks are mostly on/off those Top CD lists, or offer unusual maturities so as not to be on the top CD lists - ever wonder what's the big deal about 11-mo or 14-mo CD?
Anyway, the good news is that you as a consumer don't have to pay any extra fees for brokered CDs. Just make sure that they are FDIC insured - Fido, Schwab, etc offer only FDIC insured CDs, but small brokerages may also offer higher rate non-FDIC insured CDs (not worth the headache). You also have to get used to their fluctuating values, but they will pay 100% on maturity (principal & interest).
Keep in mind that brokered CDs aren't very liquid, so if there is even a small chance that you may need money before maturity, stick to very liquid T-Bills/Notes.
Crash. At Schwab as of 30 seconds ago they have one year call protected, FDIC insured CD’s from 8 different banks paying 5%. And when the interest is paid the share price doesn’t go down. For part of your portfolio it’s a no brainer. But as others have pointed out it’s for money you will not need for the full term. Oh. The minimum purchase is generally one grand.
@Crash- to amplify what larryB said: • Open Schwab to Accounts: Summary • On top line, next to "Summary", click "Trade" • On "Trade" window click "CDs"
That brings up a simple page with a list of ten or so one-year CDs. • Select one. • Click "Buy"... • That gives you to an info page showing everything that you need to know about that CD. • Click "Review Order" and proceed from there.
Also notice on that first CD page the "Visit Find CDs for a detailed CD search experience" link. If you click on Find CDs you can enter any parameter that you want, such as "non-callable" or a longer maturity.
This is "scary" ???
Frankly Crash, we had to beat you up just to try Schwab. Now that you're there it's a little disappointing that you haven't taken the initiative to do a little exploring on your own. You seem to have plenty of time to do in-depth exploration of "March Madness" but no time to do the same with your financial broker.
Additionally Mr crash you can sometime pick how often interest is distributed. Monthly, semi annual or at maturity if that is important to you. The golden age of risk free income isn’t over yet but it’s coming. Check it out today. Nothing scary.
OK, I'm at the lovely webpage at Schwab showing featured CDs. I haven't used the search function yet. Where do they hide the notation which tells me that a particular CD is non-callable? Everything you might need to know is hidden, on the Schwab site.... ORK. I'll figure it out soon enough, if I judge it to be worth my time to go digging for the info. Your encouragement, everyone, is appreciated. OK. "Find CDs."
Comments
Perhaps, someone can explain to me why anyone is investing in CDs these days?
Brokerages that offer auto-roll for brokered CDs (Fido, Schwab, etc), they will look for decent options.
"For a maturing CD, the Auto Roll Service will search Fidelity inventory for the highest yielding new issue CD meeting criteria you set at the time of the search, with a settlement date within twelve calendar days following stated maturity date of the Maturing Position, and with sufficient quantity available to complete your instructions."
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Auto-Roll-Subscriber-Agreement.pdf
Similar for Schwab, https://www.schwab.com/fixed-income/cd-treasury-rollover
Hmm... Sorry, but that did not explain anything to me.
Right now there are so many options which are more flexible and pay the same or more, including over similar time frames: MM funds, Tres., HYS, Bank promo rates, etc. CDs don't even have the advantage of simplicity w auto-renewals and m.b. the need for laddering... So, what am I missing?
This wasn't about recommending CDs.
Many were rolling T-Bills & T-Notes with comparable rates. But even that time may be past.
So, when I saw in the article that,
"Americans poured more than $2 trillion into CDs [...]",
and
"Historically, CDs have represented a small share of all deposits. Banks haven't paid much attention to them because their customers didn't, so the recent surge in demand caught many banks flat-footed [...]".
It brought the question back to my mind: What am I missing about CDs that makes them so attractive?
(I suppose I could have started a new thread along the lines of "Why invest in CDs?" but figured that a "CD" thread was as good as any to address that.)
BTW, If you are an optimist and believe that MM / HYS rates will decline that significantly over the next 12 mo, next time you may want to look into various promos as well, which banks are running on savings accounts w locked-in 6- to 12-mo rates (state-dependent, of course)... plus they give you bonuses based on deposit amounts. Tres are also an option and are, by-and-large, more liquid than CDs.
Look at it this way, I don’t own or track a single bond fund that has returned 5% over the past 10 years. My CD ladders will provide me a guaranteed yield of 5%. What’s not to like about that?
current SEC rates, per M*:
DODIX 4.06%
SCHZ 4.41
AGG 4.33
CMBS 3.98
SPAB 4.45
GBF 4.6
Stock Rover shows YTD DODIX -0.3%.
Bloomberg shows DODIX YTD -0.78%.
Understood. As for me, no CDs. One big reason is that one of our CUs puts a severely low limit on the amount of cash you can give them in order to get that 5%.
And the other CU? ridiculously low offered rates.
Unless the bottom falls out, my chosen bond funds are working very nicely.
I have looked into that prospect, just briefly. What I saw scared me away. I could of course try to find a brokered CD that's not callable. Does such a beast actually exist? At any rate, when I saw that fees are involved, for the privilege of buying one of those critters, I steered all the way around and out the other side. (I was looking in the TRP website, at that time.)
Sure, my bond funds all carry an E.R., too. I own 3. The ERs range from 0.81 down to 0.25. Better than a 2% up-front fee. Smells awfully like a front-load fund, eh? No way, Jose. That's what I recall, but my memory is hazy by now. I enjoy the steady bond fund monthly dividend payments as they arrive.
@Crash, brokered CDs are expensive for the banks to raise money. They have to pay brokerage platform fees to be listed (25-50 bps), and then offer competitive rates. But banks can raise deposit money through this channel quickly, without tying up their branch staff for days/weeks. Despite high costs to the banks, they find this a lucrative channel so much so that banks in trouble keep tapping this channel way past their time. The Fed knows this too, so keeps an eye on banks that top the lists of brokered CDs repeatedly. Big banks are mostly on/off those Top CD lists, or offer unusual maturities so as not to be on the top CD lists - ever wonder what's the big deal about 11-mo or 14-mo CD?
Anyway, the good news is that you as a consumer don't have to pay any extra fees for brokered CDs. Just make sure that they are FDIC insured - Fido, Schwab, etc offer only FDIC insured CDs, but small brokerages may also offer higher rate non-FDIC insured CDs (not worth the headache). You also have to get used to their fluctuating values, but they will pay 100% on maturity (principal & interest).
Keep in mind that brokered CDs aren't very liquid, so if there is even a small chance that you may need money before maturity, stick to very liquid T-Bills/Notes.
@Crash- to amplify what larryB said:
• Open Schwab to Accounts: Summary
• On top line, next to "Summary", click "Trade"
• On "Trade" window click "CDs"
That brings up a simple page with a list of ten or so one-year CDs.
• Select one.
• Click "Buy"...
• That gives you to an info page showing everything that you need to know about that CD.
• Click "Review Order" and proceed from there.
Also notice on that first CD page the "Visit Find CDs for a detailed CD search experience" link. If you click on Find CDs you can enter any parameter that you want, such as "non-callable" or a longer maturity.
This is "scary" ???
Frankly Crash, we had to beat you up just to try Schwab. Now that you're there it's a little disappointing that you haven't taken the initiative to do a little exploring on your own. You seem to have plenty of time to do in-depth exploration of "March Madness" but no time to do the same with your financial broker.
Which is more important?
OK. "Find CDs."
...Quoted Price: 100.000
Does that mean $100.00?
...Then why is the minimum $1,000.00?