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Brokered CDs


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I do them in an account that I am responsible for for my Mom, she is over 90 and I have 4 years worth of living expense tied up in 6-24 month CD's, all bought through Fidelity, most of them brokered to get the maturity date that I wanted.

caveat: buy beware of any and all advice from someone on a message board, especially those posting under the name Wally/ 

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3 hours ago, Judge Roybeanbag said:

I have an option to purchase these in my Vanguard Roth.   I read up on the pros and cons, but I would hold these until maturity.   Any reason not to get~5%?

What are the pros and cons?

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Posted (edited)

I'm planning to buy a vehicle later this year when inventory/prices get a bit back to normal.  I have the money to pay most/all of it in a 3-month CD in Vanguard right now and may roll it over again if I'm not ready to pull the trigger.  Sure beats the 0.2% at the credit union.

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While not brokered, a CD ladder is what I have my 88 year old Dad doing.  He has four CDs and he always enjoys going in town to the bank to flirt with the tellers to roll one over every 6 months or so.  Simple and he always has ready cash -- which, thankfully, he never needs.

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When they say toward the end of life that your portfolio should be a larger percentage fixed-income, CDs are one of the best ways to do that, if interest rates don't suck.  Laddered is a good way to keep cash available if needed.

Unlike a bank CD, brokered CDs aren't FDIC insured, though.

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On 4/28/2023 at 5:35 PM, TwiceHorn said:

When they say toward the end of life that your portfolio should be a larger percentage fixed-income, CDs are one of the best ways to do that, if interest rates don't suck.  Laddered is a good way to keep cash available if needed.

Unlike a bank CD, brokered CDs aren't FDIC insured, though.

A lot of brokered CDs have fdic insurance.  They should say it on the terms as it's a pretty big deal, especially lately.

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CDs… we talkin bout CDs?

VMFXX, Vanguard federal money market fund, if you’re looking for a decent interest rate and liquidity. Compound yield of 4.89% ytd. 
 

As far as in a Roth… ain’t no way I’m going full bitch mode in a Roth by “investing” in CDs. Unless I’m 90 years old.

 

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  • 2 weeks later...
On 5/1/2023 at 7:20 AM, Coelenterate Fuccboi said:

CDs… we talkin bout CDs?

VMFXX, Vanguard federal money market fund, if you’re looking for a decent interest rate and liquidity. Compound yield of 4.89% ytd. 
 

As far as in a Roth… ain’t no way I’m going full bitch mode in a Roth by “investing” in CDs. Unless I’m 90 years old.

 

What about if you’re 60 and want some place to park cash for a couple years?  My safe bonds haven’t been doing so well.  

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When you say your safe safe bonds haven't been doing so well, are you talking about open ended bond funds, and seeing their NAV dropping?

That's probably true.  IMO, open ended funds are designed to designed to give bond exposure over a long period of time and ideally were bought to provide diversification from equities, as their performance (historically) was not highly correlated.  (Tell that to bonds over the last 12 months).  

They aren't really designed for principal preservation over short periods of time.

I'm no guru, but I don't think that anyone with a period specific need for parking assets would want to use open-ended fixed income.

I'd prefer to look at the time period, and either purchase a single bond, or a series of bonds (a ladder), so that the bond or bonds have all matured on the date desired.  In that situation, you don't look at the daily net asset value.  You'd know you have X amount of bonds maturing on Y date, plus whatever interest they've paid in the interim.

Technically that bond's value is bouncing around every day, but you don't care because you are holding the bond itself and know the face amount will be available on X-date.

We just had a scenario where we "think" we'll need X amount of money available in 12 months, but the date keeps getting pushed out.

We laddered 12 bonds - each maturing in 30 day increments from 1 mo. to 12 mo.  Every 30 days, we have 1/12 of our principal maturing.  Each month we can decide to leave it in cash, or buy another bond maturing in 12 or fewer months. 

Once we know that yes, we finally will need the principal on Y-date, we'll quit buying new 12 month bonds and either leave it in cash or buy a new bond maturing at the Y-date.  

Short of the apocalypse happening (we won't care anyway if that happens), we know we will have X amount of money available on Y date, and will have earned market interest rates in the interim. 

 

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You need to look at a bank with a Federated sweep product (yielding somewhere between 4.5 and 5.0) and compare that to CDARs, which I’m assuming is the brokered CD program you’re talking about. The former is probably going to yield you a lot more, and is a lot more liquid than having to have cash tied up for the certificate period. You’re going to get charged for the brokered CD service.

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I’ve been digging into fixed income vehicles pretty deeply the last year. The brokered CD’s definitely have a role to play at certain times. 

For example, when interest rates dropped 1% in one day, I was able to go in and build a 5 year ladder of CD’s with rates better than 1-5 year bonds. That’s because CD’s posted for purchase have a certain regulatory posting period, so they can’t drop the rate daily. They have to refile at a lower rate. So I was basically able to get better rates on a similar security with more safety than a bond. 

There is a dispute over the FSIC insurance coverage of the CD’s. Vanguard and just about everyone will tell you that those CD’s labeled FDIC insured are insured. However I went down a rabbit hole two years ago to really confirm that. I could not. Nevertheless, the most likely scenario is that it would be covered, but if the bank goes into receivership, they can terminate the CD and return your money. 
 

 

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