Help me understand CDs right now.

3,338 Views | 22 Replies | Last: 2 yr ago by gigemhilo
TheBonifaceOption
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12:00p, 9/12/23
I'm looking to park some cash I can't touch for 12 months.

12-mon CDs in my area are at 3-3.1%, however 10-mon CDs are at 4-4.75%. Obviously I'm leaning toward the 4.75%. But I'm not understanding why the offering at 10mon is a 1-1.5% higher.

What am I missing?
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AggieT
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12:24p, 9/12/23
AG
Inverted Yield Curve
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RebAg13
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12:48p, 9/12/23
AG
Those rates are terrible. Look at brokerage CD rates too
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txaggieacct85
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In reply to TheBonifaceOption • 12:50p, 9/12/23
AG
TheBonifaceOption said:
I'm looking to park some cash I can't touch for 12 months.

12-mon CDs in my area are at 3-3.1%, however 10-mon CDs are at 4-4.75%. Obviously I'm leaning toward the 4.75%. But I'm not understanding why the offering at 10mon is a 1-1.5% higher.

What am I missing?
Best CD Rates for September 2023 - Up to 5.61% | Bankrate
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jagvocate
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12:51p, 9/12/23
AG
Any bank advertising too high of rates for "new money" likely needs your money to stay afloat
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Proposition Joe
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In reply to jagvocate • 1:14p, 9/12/23
jagvocate said:
Any bank advertising too high of rates for "new money" likely needs your money to stay afloat

It's FDIC insured up to half a million, so doesn't really matter.
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gougler08
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1:19p, 9/12/23
AG
My Sofi savings account is at 4.5% right now
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JbKing45
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1:23p, 9/12/23
Vanguard MM is very high as well. I think it will stay there for a bit too.
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Red Pear Luke
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1:38p, 9/12/23
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AG
Why wouldn't you explore buying a 3 or 6 month treasury? You can also explore a MMF?

Alternatively - I did just move a portion of our emergency fund from a HYSA to a Brokerage CD
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jagvocate
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In reply to Proposition Joe • 2:04p, 9/12/23
AG
Proposition Joe said:
jagvocate said:
Any bank advertising too high of rates for "new money" likely needs your money to stay afloat

It's FDIC insured up to half a million, so doesn't really matter.
The FDIC only has assets to cover < 2% of US accounts
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txaggie_08
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In reply to TheBonifaceOption • 3:03p, 9/12/23
AG
Those rates are terrible. I have a high yield saving account that's currently at 5% (obviously that could change at any time).

Through Schwab right now, you can get a 1 year CD at 5.45%.

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halfastros81
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4:15p, 9/12/23
AG
The shorter term rates being higher indicate the banks are betting interest rates are going to drop over time .
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Proposition Joe
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In reply to jagvocate • 4:41p, 9/12/23
jagvocate said:
Proposition Joe said:
jagvocate said:
Any bank advertising too high of rates for "new money" likely needs your money to stay afloat

It's FDIC insured up to half a million, so doesn't really matter.
The FDIC only has assets to cover < 2% of US accounts

Which basically means if **** hits the fan it doesn't matter if you have your money in the bank offering 5% or the bank offering 4.5%.
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permabull
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8:48p, 9/12/23
AG
money markets are yielding ~5%. Any bank selling you a CD under 24 months for under 5% is ripping you off. Move you money to a discount broker (Schwab, vanguard, etc) and either leave it in the money market or buy brokered CD's. I am seeing 5.45 - 5.55 for 1 year
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billikenag
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8:26a, 9/13/23
Serious question echoing what Red Pear asked earlier...

Why isn't everybody on this thread talking about CD rates just buying T-bills on treasury direct? Treasuries ARE the risk-free rate (TEOTWAWKIs reading this post please refrain from commenting--I acknowledge your objections about government backed securities and risk) for various durations.

You are virtually guaranteed to get a lower rate on a CD than a t-bill for the same duration so the bank can create NIM. The UST doesn't play ridiculous games where you get a 10 day period to remove money from a CD or the funds will be automatically reinvested at a new rate. You will never pay state or local taxes on T-bill interest.

What am I missing?
A noble spirit embiggens the smallest man.
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LMCane
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9:23a, 9/13/23
I posted this a week ago or two weeks ago:

I just bought JP Morgan CDs for expiration 9/13/2024 at 5.5%

are you finding one year Treasuries at a better rate than that?

also it's easier to just manage the account through my bank of america/merrill lynch than having a seventh different investment/retirement platform to have to use to buy from USG
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f2foxes2001
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10:40a, 9/13/23
AG
I would not go any longer than 90 days. I'm a banker by trade. Brokered cds are sold by out of state banks needing hot money to cover their lending/liquidity exposure. MMAs at brokerage banks are tied to treasuries which is why they are paying in the mid 5s. I would look at 90 day cds with a community bank as those tend to be well managed and relationship oriented.
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Mas89
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In reply to f2foxes2001 • 10:46a, 9/13/23
AG
Why? Let's use Edward Jones as an example. Their brokered cds are fdic insured so why be concerned with which out of state bank they came from. Assuming of course you are not over the limit per bank.
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ATX Advisors
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11:09a, 9/13/23
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Lots of good advice on this thread. CD's < the FDIC limit at a broker are generally a good option unless you may need liquidity before maturity. There also is some increasing scrutiny on banks that use the brokered channel to raise "hot deposits".

If T-bills are paying the same or more than CDs, buying direct obligations give you access to the most liquid market on the planet while eliminating any creditor risk that the bank/FDIC present (albeit very small creditor risk).

Here is snapshot of rates today from Charles Schwab.


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permabull
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In reply to billikenag • 11:10a, 9/13/23
AG
T-bills are a great option right now and many discount brokers allow you to buy them within their account so you don't even need to set up a treasury direct account.

If you live in a state with income tax, your effecive yield will be even higher since the gains are exempt from state income tax.

I know someone who lives in OK basically yielding 5.65% annualized on 8-week t bills net tax savings vs a CD.
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f2foxes2001
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1:37p, 9/13/23
AG
T-bills are great. We do a lot of those. Hard to beat the yield
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gigemhilo
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In reply to AggieT • 2:59p, 9/13/23
AG
AggieT said:
Inverted Yield Curve
this is the answer
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gigemhilo
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In reply to jagvocate • 3:03p, 9/13/23
AG
jagvocate said:
Any bank advertising too high of rates for "new money" likely needs your money to stay afloat
Not neccessarily - there could be many reasons a bank is pushing CDs. Mainly, it gives them a nearly guaranteed deposit base from which they can leverage other forms of investment.
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