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Hard to justify a CD with penalty at 4.6% when a no penalty at 4.4% exists (Sallie Mae/Savebetter). Give yourself the flexibility/liquidity option and give up the 0.2%, seems like the right move.
Well, step 1 is maxing out the i-bond contribution ($10k/pp/py) if you haven't done that, before May when the new rate will certainly be lower. So, do that first for your first $10k.
Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.
I think you're thinking about this correctly. A 50bp move from the current rate isn't going to make a material difference in 5y CD yields, which seem to be between 4.3% and 4.5% at the time of writing. Instead, consider what WILL drive them:
1. The dot plot released in subsequent Fed meetings where Fed members provide forward guidance on the terminal rate.
2. The Fed's forecast of core inflation through 2024 and beyond (I believe they're looking at 3.1% long-run, but I might be off on that, don't want to check right now)
3. How 2-5y yields react to the above 2 points
4. How breakevens are pricing cuts moving forward. When, for how long, and how much as well as how aggressively.
With all that in mind, and this is really more of a thought exercise from a trading perspective than for consumers holding these products to maturity, I think the current 5y CD rates will have a positive real return as early as Q3 2024. I think less so of the US 5y mostly because it's trading at 3.5%, but even then I'd probably be long the US 5y rather than short.
I'm not intimately familiar with these banks' business models but a few of these rates, at a surface level, give off an "asleep at the wheel" vibe. The short bond trade is super crowded across funds and crowded trades usually don't go well.
If I were specifically in the market for 5y CDs (I'm not) I'd be buying them now, and I think this will be close to, if not the, secular terminal rate for this cycle.
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Hard to justify a CD with penalty at 4.6% when a no penalty at 4.4% exists (Sallie Mae/Savebetter). Give yourself the flexibility/liquidity option and give up the 0.2%, seems like the right move.
Hard to justify a CD with penalty at 4.6% when a no penalty at 4.4% exists (Sallie Mae/Savebetter). Give yourself the flexibility/liquidity option and give up the 0.2%, seems like the right move.
yes, that's a good option too. A lot of people have money at ALLY that hate to keep opening up accounts all over the place. If you're sure you won't have to touch the money before March of 2024, it's a decent rate on a 13 month. The Sallie Mae is a 14 months term to maturity 4.4% with no penalty.
You may need to use a PC/computer or the browser on your phone.
At the link in OP click "open account" on the next page there is an option to click
"I already have an account with Ally Bank" from there it will get your log in credentials and you can move money from say, their money market account into a CD.
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You may need to use a PC/computer or the browser on your phone.
At the link in OP click "open account" on the next page there is an option to click
"I already have an account with Ally Bank" from there it will get your log in credentials and you can move money from say, their money market account into a CD.
The advantage of an Ally account vs most others is that the account can be opened in the name of a trust. Very few with decent rates have that capability.
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Quote
from Deal_Breaker2
:
Fed Fund rate is 4.5% and expected to go higher.
3m2y spread is already inverted at 64bps, effectively saying that the average Fed Funds rate over the next 2 years is expected by traders to be 0.64% LOWER than it will be in 3 months (where the rate will likely be terminal based on some of the data releases we've been seeing), which is a roundabout way of saying that most of the rate hikes are already priced into interest-bearing products like these. You may get a small uptick but go look at the 2y, 5y and 10y yields and you'll see where we're heading.
At this point the concern is looking for a soft landing and avoiding recession and significant deflation, not trying to stamp out inflation. I don't think waiting to buy products like these are going to get you a significantly better yield, and in fact you'd be risking this interest rate altogether.
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There's no reason to get a 4.6% CD when you can get a 4.65% treasury bill with the same duration. I've posted this in a lot of similar threads already, but the treasury bill has better liquidity and isn't subject to state or local income tax. You can buy treasuries through a normal brokerage like Fidelity without paying any commissions or fees.
3m2y spread is already inverted at 64bps, effectively saying that the average Fed Funds rate over the next 2 years is expected by traders to be 0.64% LOWER than it will be in 3 months (where the rate will likely be terminal based on some of the data releases we've been seeing), which is a roundabout way of saying that most of the rate hikes are already priced into interest-bearing products like these. You may get a small uptick but go look at the 2y, 5y and 10y yields and you'll see where we're heading.
At this point the concern is looking for a soft landing and avoiding recession and significant deflation, not trying to stamp out inflation. I don't think waiting to buy products like these are going to get you a significantly better yield, and in fact you'd be risking this interest rate altogether.
I was thinking of buying a 2 year T-bill or CD or something in Dec but my funds weren't freed up. Have I missed the boat?
If I don't need money for 1-2 years, what are the best choices? I'm currently getting 4.2% in a Money Market but how long will it stay at those rates?
Is it better to look in 4.4% at Sallie Mae now, or keep riding the MM for more months, or buy a T-Bill, etc?
There's no reason to get a 4.6% CD when you can get a 4.65% treasury bill with the same duration. I've posted this in a lot of similar threads already, but the treasury bill has better liquidity and isn't subject to state or local income tax. You can buy treasuries through a normal brokerage like Fidelity without paying any commissions or fees.
I was planning on getting long duration T-bills like 1 and 2 year, but have I missed the boat? With each passing week are the 1 and 2 year T-bill interest rates going down now?
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Quote
from SlickGatsby
:
I was thinking of buying a 2 year T-bill or CD or something in Dec but my funds weren't freed up. Have I missed the boat?
If I don't need money for 1-2 years, what are the best choices? I'm currently getting 4.2% in a Money Market but how long will it stay at those rates?
Is it better to look in 4.4% at Sallie Mae now, or keep riding the MM for more months, or buy a T-Bill, etc?
What are the smart people doing?
Well, step 1 is maxing out the i-bond contribution ($10k/pp/py) if you haven't done that, before May when the new rate will certainly be lower. So, do that first for your first $10k.
Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.
Last edited by ImaPuppy January 19, 2023 at 04:09 PM.
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Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.
1. The dot plot released in subsequent Fed meetings where Fed members provide forward guidance on the terminal rate.
2. The Fed's forecast of core inflation through 2024 and beyond (I believe they're looking at 3.1% long-run, but I might be off on that, don't want to check right now)
3. How 2-5y yields react to the above 2 points
4. How breakevens are pricing cuts moving forward. When, for how long, and how much as well as how aggressively.
With all that in mind, and this is really more of a thought exercise from a trading perspective than for consumers holding these products to maturity, I think the current 5y CD rates will have a positive real return as early as Q3 2024. I think less so of the US 5y mostly because it's trading at 3.5%, but even then I'd probably be long the US 5y rather than short.
I'm not intimately familiar with these banks' business models but a few of these rates, at a surface level, give off an "asleep at the wheel" vibe. The short bond trade is super crowded across funds and crowded trades usually don't go well.
If I were specifically in the market for 5y CDs (I'm not) I'd be buying them now, and I think this will be close to, if not the, secular terminal rate for this cycle.
484 Comments
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yes, that's a good option too. A lot of people have money at ALLY that hate to keep opening up accounts all over the place. If you're sure you won't have to touch the money before March of 2024, it's a decent rate on a 13 month. The Sallie Mae is a 14 months term to maturity 4.4% with no penalty.
Our community has rated this post as helpful. If you agree, why not thank Deal_Breaker2
At the link in OP click "open account" on the next page there is an option to click
"I already have an account with Ally Bank" from there it will get your log in credentials and you can move money from say, their money market account into a CD.
Sign up for a Slickdeals account to remove this ad.
At the link in OP click "open account" on the next page there is an option to click
"I already have an account with Ally Bank" from there it will get your log in credentials and you can move money from say, their money market account into a CD.
Our community has rated this post as helpful. If you agree, why not thank ImaPuppy
At this point the concern is looking for a soft landing and avoiding recession and significant deflation, not trying to stamp out inflation. I don't think waiting to buy products like these are going to get you a significantly better yield, and in fact you'd be risking this interest rate altogether.
Our community has rated this post as helpful. If you agree, why not thank TurtlePerson2
At this point the concern is looking for a soft landing and avoiding recession and significant deflation, not trying to stamp out inflation. I don't think waiting to buy products like these are going to get you a significantly better yield, and in fact you'd be risking this interest rate altogether.
If I don't need money for 1-2 years, what are the best choices? I'm currently getting 4.2% in a Money Market but how long will it stay at those rates?
Is it better to look in 4.4% at Sallie Mae now, or keep riding the MM for more months, or buy a T-Bill, etc?
What are the smart people doing?
I was planning on getting long duration T-bills like 1 and 2 year, but have I missed the boat? With each passing week are the 1 and 2 year T-bill interest rates going down now?
Sign up for a Slickdeals account to remove this ad.
Our community has rated this post as helpful. If you agree, why not thank ImaPuppy
If I don't need money for 1-2 years, what are the best choices? I'm currently getting 4.2% in a Money Market but how long will it stay at those rates?
Is it better to look in 4.4% at Sallie Mae now, or keep riding the MM for more months, or buy a T-Bill, etc?
What are the smart people doing?
Edit: ^ The above has an argument against it depending on your view of how Feb-Apr CPI will impact the inflation component of the next i-bond rates. YMMV.
You didn't miss the boat at all btw, I just think this is a good time to buy. There's a lot of laymen inflationary talk and fearmongering going on but sharp traders who actually trade bonds are already looking ahead towards deflation here, and the retail interest-bearing products are going to catch up to that sentiment imo.
Anyway, in order after i-bonds if you don't need the money for 1-2 years:
1. 27-month (a little over 2 years but still) CD posted on SD today that was at 5%
2. 12-month t-bill (~4.65% or so, NOTE: This may be #1 if you live in a high income tax state)
3. CD like the one here for 4.6%
4. No-penalty CD at SallieMae for 4.4%
I actually think the liquidity with the SallieMae CD is worth the 0.2% as I said in my first comment, for the opportunity cost alone. I would rank it ahead of this Ally CD but curated it based on what you said. You never know what could open up and this is a hedge against rates rising higher due to unforeseen wage growth or other inflationary (from a CPE perspective) components that the Fed would use to justify more hikes than anticipated/priced in. Just my 2c, but anyway, buy the ibonds first this quarter.