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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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.
Curious as to your take on the current state of yields for 5 year cd's? It looks like the fed will probably hike around 50bps more (maybe 2 hikes of 25bps) and then most likely pause. If that's the case I wonder if 5 year cd rates might go a little higher with these upcoming hikes or if maybe this is the best it's going to get? I wouldn't think 50bps of hiking at this point in the cycle would move the needle much (if any) on 5 year cd's? I think when the fed hiked 50bps in Dec a few of the big banks (Discover and Cap One) increased 15bps as all.
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01-19-2023 at 08:51 PM.
Quote
from ListedGuru
:
Curious as to your take on the current state of yields for 5 year cd's? It looks like the fed will probably hike around 50bps more (maybe 2 hikes of 25bps) and then most likely pause. If that's the case I wonder if 5 year cd rates might go a little higher with these upcoming hikes or if maybe this is the best it's going to get? I wouldn't think 50bps of hiking at this point in the cycle would move the needle much (if any) on 5 year cd's? I think when the fed hiked 50bps in Dec a few of the big banks (Discover and Cap One) increased 15bps as all.
Thoughts?
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.
I simply do not understand why these SD posts keep coming up unless they are shills. Vanguard Federal Money Market which invests in federal instruments like tbills provide as of last week, a SEC 7 days yield of 4.35%. No minimum amount, no minimum time. Completely liquid and partially state tax free. If the interest rate goes up, so does this. If you want to lock the interest rate, buy treasuries. They are also liquid on the secondary market.
CDs make money for the banks. They take your money, invest in treasuries and corporate bonds and make a profit on the difference. So skip the middleman and invest directly.
If I knew what the 12-24 month t-bill rates were going to do with any certainty, I'd be trading futures and making insane money on a beach somewhere. So, unfortunately I can't be of much help there. All I can say is that with rate declining, and some CDs lagging behind that decline, I think it's a matter of time before CD rates drop to align with the drop in t-bill yields.
As far as i-bonds are concerned, that's a fair assessment, but I don't think we're going to 0.4% or anywhere near that low based on the calculation methodology for the inflation component of the bond. I think you'll still get a blended rate in the 5% range over the 12 months and can withdraw at month 15 shaving off 3 months of interest, with no state/local tax on the cap gain. It may be objectively a better move to just buy the 12 month bill instead and remove the guesswork for the May rate. If the math says so, then ok.
Where and how to buy t-bills? Can you share some links or pointers?
I simply do not understand why these SD posts keep coming up unless they are shills. Vanguard Federal Money Market which invests in federal instruments like tbills provide as of last week, a SEC 7 days yield of 4.35%. No minimum amount, no minimum time. Completely liquid and partially state tax free. If the interest rate goes up, so does this. If you want to lock the interest rate, buy treasuries. They are also liquid on the secondary market.
CDs make money for the banks. They take your money, invest in treasuries and corporate bonds and make a profit on the difference. So skip the middleman and invest directly.
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.
How do you figure out if the potential tax savings of one fund outweighs the higher interest rate of another fund?
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.
Exactly. If you want to skip the stock market.
Fidelity 4.566 Yield = 3Mo, T-Bills
Auction Close Date 01/23/2023
How To Buy Treasury Bills, Treasury Notes, Treasury Bonds | Fidelity & TreasuryDirect (Step By Step)
Anyone know if we buy 3-month T-bills, will it auto cash out to the funding account when it reaches 3 month? In other words, do we need to log in and cash out? TIA.
Quote
from ieee488
:
I have a Schwab account.
If I disable Auto Roll when purchasing, the T-bill cashes out.
Quote
from dingdong123
:
Where and how to buy t-bills? Can you share some links or pointers?
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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.
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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.
Thoughts?
Our community has rated this post as helpful. If you agree, why not thank ImaPuppy
Thoughts?
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.
CDs make money for the banks. They take your money, invest in treasuries and corporate bonds and make a profit on the difference. So skip the middleman and invest directly.
As far as i-bonds are concerned, that's a fair assessment, but I don't think we're going to 0.4% or anywhere near that low based on the calculation methodology for the inflation component of the bond. I think you'll still get a blended rate in the 5% range over the 12 months and can withdraw at month 15 shaving off 3 months of interest, with no state/local tax on the cap gain. It may be objectively a better move to just buy the 12 month bill instead and remove the guesswork for the May rate. If the math says so, then ok.
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CDs make money for the banks. They take your money, invest in treasuries and corporate bonds and make a profit on the difference. So skip the middleman and invest directly.
And then why not Vanguard Cash Reserves Federal Money Market Fund at 4.36%, same $3K minimum.
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.
Fidelity defaults to a FZFXX Treasury Money Market fund that has 7-day yield of 3.93% as a core position:
https://fundresearch.fi
While Fidelity's SPRXX Money Market fund has a higher 7-day yield of 4.15% but is mostly commercial instead of treasury:
https://fundresearch.fi
Not sure how to determine if the extra % interest of SPRXX outweighs the potential tax savings of FZFXX.
Fidelity 4.566 Yield = 3Mo, T-Bills
Auction Close Date 01/23/2023
How To Buy Treasury Bills, Treasury Notes, Treasury Bonds | Fidelity & TreasuryDirect (Step By Step)
https://www.youtube.com/watch?v=r...eMc
If I disable Auto Roll when purchasing, the T-bill cashes out.
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