3% APY for 7 year CDs

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whatchamacallit
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3% APY for 7 year CDs

Post by whatchamacallit » Mon Feb 20, 2017 1:50 pm

I was surprised to see this high of a rate on 7 year CDs considering that is what the 30 year treasury is currently paying.

https://www.andrewsfcu.org/personal/che ... cates.html


If I am reading the website correctly, it looks like these can be bought within an IRA.

This is really making me consider selling my IRA bonds and buying these. It seems like there is some free lunch to be obtained here considering the 7 year treasury rate of 2.26%.

https://ycharts.com/indicators/7_year_treasury_rate
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dualstow
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Re: 3% APY for 7 year CDs

Post by dualstow » Mon Feb 20, 2017 2:02 pm

Yeah, CD rates are generally higher than treasury rates.
By how much, I don't know. At least one of the Kevins here -- which initial -- buys CDs.
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dualstow
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Re: 3% APY for 7 year CDs

Post by dualstow » Mon Feb 20, 2017 2:14 pm

...but, what are you buying 7-year instruments for? Just curious.
After all, the 30-year bonds are not bought for their yield.
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ochotona
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Re: 3% APY for 7 year CDs

Post by ochotona » Mon Feb 20, 2017 2:45 pm

dualstow wrote:...but, what are you buying 7-year instruments for? Just curious.
After all, the 30-year bonds are not bought for their yield.
For their potential tax losses? ;)

Get the CDs!
whatchamacallit
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Re: 3% APY for 7 year CDs

Post by whatchamacallit » Mon Feb 20, 2017 6:27 pm

dualstow wrote:...but, what are you buying 7-year instruments for? Just curious.
After all, the 30-year bonds are not bought for their yield.

I understand this thought because of the possible capital gains (or loses) but I think I have come to disagree on ignoring the yield.

The truth is that you are locking in the yield that you buy the 30 year bonds at.


Here is how I think of it as free lunch for the retail investor:

Imagine if 7 year treasury bonds were yielding 3% but could buy as if they were yielding 2.26%.

If this was possible, a $1000 bond would instantly be worth 1,047.66.
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dualstow
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Re: 3% APY for 7 year CDs

Post by dualstow » Mon Feb 20, 2017 6:40 pm

I have to admit, it's tempting. I have a 2022 ten year note in my vp paying exactly 2%.
If yields go up, I might have to buy some 5-yr treasury notes or CDs.
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Re: 3% APY for 7 year CDs

Post by Desert » Mon Feb 20, 2017 8:23 pm

whatchamacallit wrote:I was surprised to see this high of a rate on 7 year CDs considering that is what the 30 year treasury is currently paying.

https://www.andrewsfcu.org/personal/che ... cates.html


If I am reading the website correctly, it looks like these can be bought within an IRA.

This is really making me consider selling my IRA bonds and buying these. It seems like there is some free lunch to be obtained here considering the 7 year treasury rate of 2.26%.

https://ycharts.com/indicators/7_year_treasury_rate
It's a great offer. I rolled IRA money into this certificate back in September, and was worrying it was going to be reduced before my funds arrived. The early withdrawal terms are good, so if rates spike you can roll it into a higher yielding CD without taking the capital loss. That's the good news. The bad news is that you won't get the price appreciation if rates fall. Over significant time though, I expect the higher rate instrument to win. CD's and Share Certificates are one of the only free lunches available to small investors. Gobble 'em up! :)
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Re: 3% APY for 7 year CDs

Post by tennpaga » Mon Feb 20, 2017 8:48 pm

Seems like a great vehicle for "deep cash".
* Gresham's Law: Bad behavior drives out good.
* Gresham's corollary: Avoid participating in systems where good behavior cannot win.

https://fs.blog/2009/12/mental-model-greshams-law/
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Re: 3% APY for 7 year CDs

Post by Xan » Mon Feb 20, 2017 9:30 pm

TennPaGa wrote:Seems like a great vehicle for "deep cash".
It does sound good, but it's locked up for 7 years. Not only is that very deep indeed, but if rates should rise, you don't get to take advantage of that.
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Re: 3% APY for 7 year CDs

Post by dualstow » Tue Feb 21, 2017 6:53 am

What is the penalty for early withdrawal?

Never mind, found some details here (though 2015) via carl53:

https://www.bogleheads.org/forum/viewtopic.php?t=178121
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sophie
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Re: 3% APY for 7 year CDs

Post by sophie » Tue Feb 21, 2017 7:39 am

It does sound good until you take state/local taxes into account. For my situation, this reduces the benefit enough that it isn't worth pursuing.

One nice thing about CD's is that it costs only a few months' interest to get out early, should rates rise. Sort of like a US savings bond. A Treasury will sell below par in that situation, enough to wipe out any potential interest gains.
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Re: 3% APY for 7 year CDs

Post by dualstow » Tue Feb 21, 2017 7:41 am

sophie: In the boglehead thread linked above, it was IRA only, anyway. Still the case? Probably. OP says IRA CD.
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