I stashed some cash in a 4 month CD last fall in case a buying opportunity arose and didn't want it tied up for long. 4% on around 29K at Prosperity.
It matured 2 weeks ago and rolled over at 2.6%. I know the Fed didn't drop rates 1.4% in that time period. Why the steep drop?

They offered a new money rate for the CD. It's a pretty common marketing tactic, because many people don't pay attention and it just renews at the typical CD rate.

Still not bad...
I have 4CDs later every 3 months for the emergency fund. Rates are a little different on each but over the past year they've all dropped from the 3s and 4s back to the low 1s.

It's the emergency fund, so I'm not expecting investment grade returns on it, but at that rate it's losing purchasing power.

I bleed maroon said:

---

FYI - if you have a brokerage account (or can open one), most major ones offer money market rates still in the 3%+ range. My uninvested cash at Schwab goes into SWVXX, which currently yields 3.49%. To be fair, this is not locked in, and can change at any time, but if you're just looking for a short-term place to stash the cash, it's hard to beat. It's effectively as safe as a CD, too (SIPC protection, similar to FDIC).

---

I do the same thing at fidelity

Better rates than any CD and I can get it anytime without having to let the 3 month cd mature

OP, I've got a small CD renewing at Prosperity at 2.5% instead of the 3% I got last time, so we're in the same ballpark.

I keep 95%+ of my cash at Vanguard or Fidelity in funds that pay more, but I still want some cash in a bank with multiple locations that I could tap if the systems went down at my online accounts. Hard to think that could happen, but it can in a New York minute. The little bit of interest I give up for a local CD is worth the peace of mind.

Yeah I know if something impacts the systems at Vanguard/Fidelity it might impact Prosperity also, but I can camp out in Prosperity's lobby until they redeem my government-insured CD. Good luck trying that with the online guys.

Thanks for the insights. Earlier I had checked into high yield money markets at other financial institutions but the initial deposit was way more than I wanted to put.

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

FWIW, Live Oak Bank is still 3.8% for their savings rate. Not bad. I've been using them for several years and have no complaints.

MemphisAg1 said:

---

OP, I've got a small CD renewing at Prosperity at 2.5% instead of the 3% I got last time, so we're in the same ballpark.

I keep 95%+ of my cash at Vanguard or Fidelity in funds that pay more, but I still want some cash in a bank with multiple locations that I could tap if the systems went down at my online accounts. Hard to think that could happen, but it can in a New York minute. The little bit of interest I give up for a local CD is worth the peace of mind.

Yeah I know if something impacts the systems at Vanguard/Fidelity it might impact Prosperity also, but I can camp out in Prosperity's lobby until they redeem my government-insured CD. Good luck trying that with the online guys.

---

I'd think in a scenario both Vanguard and Fidelity went un-withdrawable, monetary currency wouldn't have much value in general

EliteZags said:

---

MemphisAg1 said:

---

OP, I've got a small CD renewing at Prosperity at 2.5% instead of the 3% I got last time, so we're in the same ballpark.

I keep 95%+ of my cash at Vanguard or Fidelity in funds that pay more, but I still want some cash in a bank with multiple locations that I could tap if the systems went down at my online accounts. Hard to think that could happen, but it can in a New York minute. The little bit of interest I give up for a local CD is worth the peace of mind.

Yeah I know if something impacts the systems at Vanguard/Fidelity it might impact Prosperity also, but I can camp out in Prosperity's lobby until they redeem my government-insured CD. Good luck trying that with the online guys.

---

I'd think in a scenario both Vanguard and Fidelity went un-withdrawable, monetary currency wouldn't have much value in general

---

I'm not talking about a doomsday scenario, but instead a situation where their systems don't work. Cyber attack. Prolonged power outage. Internal sabotage, etc. The odds are extremely low. But I'd rather have it and not need it, than need it and not have it.

Another option for cash in a taxable account would be municipal bonds which produce interest that is federally tax free. Funds like MUB and VTEB are paying 3.3% tax free which if you are in the 20% marginal tax bracket is the equivalent of getting 4.1% taxable.

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

A lot of older folks want the FDIC insurance that CD's offer that money market funds don't. A HYSA at a bank will have FDIC but rates aren't guaranteed like a CD

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

I bleed maroon said:

---

permabull said:

---

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

---

(SPIC is pretty much as good as FDIC).

---

SIPC covers the brokerage firm, not specific investments.

Baby Billy said:

---

I bleed maroon said:

---

permabull said:

---

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

---

(SPIC is pretty much as good as FDIC).

---

SIPC covers the brokerage firm, not specific investments.

---

Nope - it covers the brokerage account. If the money market fund is the only investment in the account, it does indeed cover it, up to the limit of $500k. It doesn't cover "the firm", but the customer of that firm.

I bleed maroon said:

---

Muni bonds are even further down the list for me - significant reduction in yield (offset by tax-free nature, but only for some people), worse liquidity and significant interest rate risk. Good for buy-and-hold cash-like allocation, maybe, but not as much as a cash access vehicle.

---

Muni bond funds have been great for me. I've got a fair amount of non-tax deferred money that I will gradually deplete after I retire at 62 until I tap into SS and my 401k/IRAs later in life. I'm earning 4.2% to 4.6% tax-free on most of it and have a smaller portion in lower duration funds earning 3.1% tax-free. The low duration protects me in case I unexpectedly need a chunk of cash for something, which is rare. Those yields range from 4.3% to 6.4% on a before-tax basis for me, much better than I can get in a hi yield savings account.

Plus, they're tax free and don't increase my marginal taxable income, which is allowing me to convert some pre-tax 401k to Roth 401k and still stay within the 24% tax bracket, which I consider a good deal because most of that pre-tax was deferred when I was in a 35% to 45% bracket, federal and state combined.

I've been accumulating in those funds for 15+ years and haven't been hurt by interest rate risk. The bond fund values fluctuate with interest rates, but even with rates up over time I'm still nearly whole on cost basis and have pocketed really nice dividends compared to cash options. When rates go up and prices go down, the bond fund gradually increases its dividend payouts and I'm buying more shares at a discounted price.

Just saying munis can be a good option depending on your circumstances and needs.

MemphisAg1 said:

---

I bleed maroon said:

---

Muni bonds are even further down the list for me - significant reduction in yield (offset by tax-free nature, but only for some people), worse liquidity and significant interest rate risk. Good for buy-and-hold cash-like allocation, maybe, but not as much as a cash access vehicle.

---

Muni bond funds have been great for me. I've got a fair amount of non-tax deferred money that I will gradually deplete after I retire at 62 until I tap into SS and my 401k/IRAs later in life. I'm earning 4.2% to 4.6% tax-free on most of it and have a smaller portion in lower duration funds earning 3.1% tax-free. The low duration protects me in case I unexpectedly need a chunk of cash for something, which is rare. Those yields range from 4.3% to 6.4% on a before-tax basis for me, much better than I can get in a hi yield savings account.

Plus, they're tax free and don't increase my marginal taxable income, which is allowing me to convert some pre-tax 401k to Roth 401k and still stay within the 24% tax bracket, which I consider a good deal because most of that pre-tax was deferred when I was in a 35% to 45% bracket, federal and state combined.

I've been accumulating in those funds for 15+ years and haven't been hurt by interest rate risk. The bond fund values fluctuate with interest rates, but even with rates up over time I'm still nearly whole on cost basis and have pocketed really nice dividends compared to cash options. When rates go up and prices go down, the bond fund gradually increases its dividend payouts and I'm buying more shares at a discounted price.

Just saying munis can be a good option depending on your circumstances and needs.

---

Exactly. You're one of "those people" I mentioned. Congrats!

You are absolutely taking interest rate risk, but on the net, it has been working for you mostly, it appears. Great!

You have also eroded principal, it sounds like, which some or most people may not want to do.

Not everyone has the same tax situation, so what makes sense for some may not make sense for others.

I bleed maroon said:

---

You have also eroded principal, it sounds like, which some or most people may not want to do.

Not everyone has the same tax situation, so what makes sense for some may not make sense for others.

---

Yep, agree. Even with a slight ~1% principal (including reinvested dividends) hit over 15 years, I'm still way ahead with the incremental dividends gained every year vs. pure cash options. Plus the tax-free nature has allowed those Roth conversions while tax rates are low under Trump.

I bleed maroon said:

---

Baby Billy said:

---

I bleed maroon said:

---

permabull said:

---

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

---

(SPIC is pretty much as good as FDIC).

---

SIPC covers the brokerage firm, not specific investments.

---

Nope - it covers the brokerage account. If the money market fund is the only investment in the account, it does indeed cover it, up to the limit of $500k. It doesn't cover "the firm", but the customer of that firm.

---

You're misinterpreting what I said. SIPC will cover the account holder if the brokerage firm fails. But if the fund family that runs your money market fund within your brokerage account collapses, SIPC wouldn't protect you from those losses.

Baby Billy said:

---

I bleed maroon said:

---

Baby Billy said:

---

I bleed maroon said:

---

permabull said:

---

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

---

(SPIC is pretty much as good as FDIC).

---

SIPC covers the brokerage firm, not specific investments.

---

Nope - it covers the brokerage account. If the money market fund is the only investment in the account, it does indeed cover it, up to the limit of $500k. It doesn't cover "the firm", but the customer of that firm.

---

You're misinterpreting what I said. SIPC will cover the account holder if the brokerage firm fails. But if the fund family that runs your money market fund within your brokerage account collapses, SIPC wouldn't protect you from those losses.

---

OK - that's more accurate. Just wanted novices reading this to not get the wrong idea.

And, as far as breaking the buck (from above " if the fund family that runs your money market fund within your brokerage account collapses"), it happened exactly once in recorded history, in 1994, where investors got 96 cents on the dollar as a settlement. It WAS a worry during the 2008 financial crisis, but never happened. It is my opinion that the MMF industry will not let that happen ever again.

Incidentally, another clarification some may be interested in - - Money Market Accounts that a bank offers actually ARE covered by the FDIC. Money Market Funds (such as those you buy at a broker) are not, except by SIPC at the brokerage account level.

Whew!

I bleed maroon said:

---

permabull said:

---

Texag5324 said:

---

Ive always wondered what are the benefits of going with a CD versus a high yield savings account? They basically have the same rates but a HYSA is more flexible since you can take your money out at any time.

---

I think for a lot of people it's also simplicity. You can hold CDs from a bunch of different banks in a single brokerage account and if you layer them you can have some mature every month for liquidity. That is easier than opening a bunch of different hysa chasing the best yeild.

---

Gotta disagree, here. I think high yield savings accounts are by far the simplest and easiest to use (for ease of access AND liquidity). They also offer the best safety, with the FDIC protection (up to the limit). Money market funds may offer a step up in yield, with almost as good liquidity (may need to wait a day for proceeds) and safety (SPIC is pretty much as good as FDIC).

CDs are further down the list to me, due to much worse liquidity (wait until maturation or pay a penalty). FDIC safety is the best, but you are currently paying a bit for the rate lock via slightly lower rates - if you think rates are going down, it works, but if rates go up, you're locked in until maturation.

Muni bonds are even further down the list for me - significant reduction in yield (offset by tax-free nature, but only for some people), worse liquidity and significant interest rate risk. Good for buy-and-hold cash-like allocation, maybe, but not as much as a cash access vehicle.

---

each CD held in a brokerage account has FDIC insurance and when you spread them across multiple banks each bank has its own 250k insurance so someone with a million bucks can have a single account with 4 CDs in a single account each with their own 250k insurance.

Not sure why yall messing with CDs and locking up your money, especially at that low of a rate. I have all my extra cash in a HYSA at CIT Bank and they're still paying over 4%.

txaggie_08 said:

---

Not sure why yall messing with CDs and locking up your money, especially at that low of a rate. I have all my extra cash in a HYSA at CIT Bank and they're still paying over 4%.

---

Yea CD's never made sense to me when a HYSA just seemed to be better all around. I tried to get my dad to open a HYSA but he is just stuck to CD's.

I feel like CDs are good for people like my mother in-law, because she's frugal and would never pay a penalty to access her cash. She also isn't organized enough to pull the money before it rolls into a new term. Therefore, it gives her a way to have safety net cash that she never touches.

FWIW, some brokers offer FDIC-sweep accounts that transfer uninvested cash to a series of partner banks to obtain the maximum FDIC insurance for each account. They often have lower yields than money-market sweeps, but, again, are FDIC-insured and not SIPC-insured (like money market vehicles).

If FDIC insurance is important to you, it may be worthwhile looking into one of those programs. In my experience however, brokers will make you choose between the higher-yielding money market sweep program (SPIC) or the FDIC-insured sweep program.

Our advisors offer a high yield service with no account minimum requirement (normally it's like $20/quarter min) and the service will move the funds to the highest yielding account automatically and strategize so everything is FDIC protected. Costs 16 basis points annually and the yield shown is net of that. It's currently at 3.78% from the top account. Stupid simple and turnkey.

maxmyinterest.com

I think a lot of people who use CDs like that it is a set rate and isn't going to drop with little notice like a HYSA. If you're still getting 4% on savings that is pretty good, but I feel like that is not common now, and nobody wants to move money from bank to bank to chase yield. A brokered CD would give access to a similar interest rate without having to change banks. I use Fidelity and right now you can get a 3.95% 5-year CD, call protected. Not terribly exciting for me, but I could see some benefits to that over a HYSA.

CDs seems more appealing to me now than when I was younger and chasing pennies or trying to squeeze the last little drop out of my returns. Having certainty of rate via a CD ladder, particularly in an above average interest rate environment, has its appeal.

Having both ticks all boxes. HYSA for emergencies and flexibility. CDs for 6-18 month timeframe and rate optimization. If rates rise, I'd likely favor the CDs more and vice versa.

If a Texas resident, Texas Capital Bank offers a hysa at 3.65apy currently with no minimum. Been beating CD rates for me and immediately available. Was 4+ before rate cuts.

Bottom line, it depends what the purpose of the money is: If it's truly emergency funds, a HYSA is tough to beat. If it's socking away extra cash, a CD is a great alternative. Depending on the comparative rate environment, a money market account or money market fund may be preferable to both.

CDs are wonderful for certainty (and bad for liquidity) over the term you select, BUT be aware, you are paying for the "rate lock", either by the early withdrawal penalty or a lower rate up front (as evidenced in a "no penalty" CD). Most sources estimate this is around a 0.25-0.50% implicit charge, historically. There's no free lunch, and use this information accordingly in helping to make your decision.

Ditto. Munis have been good for us. If I need the cash they spin off, then it's there. Otherwise we just reinvest it.

We will be opting to take more of the cash going forward now that we are past employment income being our primary cash flow.