3% APY for 7 year CDs

Discussion of the Cash portion of the Permanent Portfolio

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thisisallen
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Re: 3% APY for 7 year CDs

Post by thisisallen » Tue Feb 21, 2017 10:23 am

7 yr rate is same for regular CD or IRA CD
https://www.depositaccounts.com/banks/a ... html#rates
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dualstow
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Re: 3% APY for 7 year CDs

Post by dualstow » Tue Feb 21, 2017 10:31 am

thisisallen wrote:7 yr rate is same for regular CD or IRA CD
https://www.depositaccounts.com/banks/a ... html#rates
Nice. Ah, rereading OP I see "making me consider selling IRA CDs and buying these". Whoops.
I guess that was just the boglehead thread that mentioned "for IRA only." (kevinm, March 2016)
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Desert
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Re: 3% APY for 7 year CDs

Post by Desert » Tue Feb 21, 2017 3:00 pm

Xan wrote:
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.
Yeah, it's a good place for "deep cash" in a barbell FI allocation, or as a replacement for intermediate treasuries in a bullet FI allocation. I use it for the latter. The CD provides a higher rate (relative to treasuries) and the ability to withdraw early without loss of capital in the event of a substantial rise in rates. Swedroe uses CD's extensively (in tax advantaged accounts) in his portfolios.
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Re: 3% APY for 7 year CDs

Post by whatchamacallit » Tue Feb 21, 2017 5:38 pm

@ dualstow
Thanks for boglehead thread. After reading about 4 week transfer it is probably not worth hassle for me after all.
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Re: 3% APY for 7 year CDs

Post by dualstow » Tue Feb 21, 2017 7:35 pm

No problem, but remember your mileage may vary. Looks like some buyers of the CD were luckier than others, and some have a hunger for yield that pushes through all the red tape.
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sophie
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Re: 3% APY for 7 year CDs

Post by sophie » Wed Feb 22, 2017 9:11 am

You're all aware that a CD bought for an IRA is likely to be a brokerage CD, right? And that a brokerage CD has to be sold on the secondary market if you want to cash it in early, so that you are taking on the same interest rate risk with it that would get with any other bond?

The point of the barbell scheme is that the cash half should remain liquid, and with minimal interest rate risk. I would not, in an IRA, take on the interest rate risk of a 7 year bond, unless intermediate bonds were part of my investing strategy (like the Desert portfolio). It doesn't seem worthwhile for a 3% return.

Not sure this is available as a brokerage CD though. It doesn't come up at Fidelity. You'd probably have to open an IRA at the credit union in order to get the CD. Seems like a big hoop to jump through for not a lot of reward. You can get 2.8% 10 year brokerage CDs at Fidelity.
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dualstow
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Re: 3% APY for 7 year CDs

Post by dualstow » Wed Feb 22, 2017 9:38 am

You're all aware that a CD bought for an IRA is likely to be a brokerage CD, right?
I don't know much about CDs, much less brokerage ones, but if this comes with info about an early withdrawal penalty, it's probably not a brokerage one, right?

Well, I think this offering might have started out as a for-IRA CD (possibly brokerage) once upon a time, and now also exists as a regular one.
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Desert
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Re: 3% APY for 7 year CDs

Post by Desert » Wed Feb 22, 2017 9:53 am

This CD is a direct purchase. I don't purchase brokered CD's, because they're subject to interest rate risk, and the buy/sell spread is typically much larger than that of treasuries. I look at them as completely different investment vehicles. The option to break the CD and reinvest at higher rates is the major benefit of direct purchased CD's. And yes, you have to open an IRA account and roll the funds into it. It's a pain, but not nearly as bad as it sounds. It was worth it to me, since it's cranking out a couple hundred dollars extra in yield every month. I love the constant plodding of the direct CD's. Nearly all my fixed income now is in CD's at PenFed and and Andrews, all at 3%. When I purchased the CD's, their yield was more than 100 basis points higher than a comparable treasury, with a huge reduction in risk of rising rates. I didn't really want to mess with it, but I couldn't pass up that much money.

My goal is to have the combination of fixed income and gold allocations keep pace with inflation. Then the high risk equity slice provides the growth. It's really just the "Larry" portfolio concept with a slice of gold. I first got the concept from Taleb, and then after I studied some more, realized that I'd just ended up with Swedroe's portfolio. He doesn't like gold though, because there is no expected real return. I have the same expectation of gold, but still think it's worth holding a small slice for disaster insurance, and noncorrelation possibly leading to some rebalancing opportunities.

There is one real downside of CD's I should point out though: Nobody wants to hear about CD's; they immediately think you're an out-of-touch little old grandma, sitting in a rocker with a cat on your lap, knitting. :)
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Re: 3% APY for 7 year CDs

Post by dualstow » Wed Feb 22, 2017 10:02 am

LP with gold, I like it.

Hey, rocking chairs and cats are both eternally underrated. O0

I would replace the needles and yarn, though. https://youtu.be/LS-ErOKpO4E
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Desert
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Re: 3% APY for 7 year CDs

Post by Desert » Wed Feb 22, 2017 2:26 pm

dualstow wrote:LP with gold, I like it.

Hey, rocking chairs and cats are both eternally underrated. O0

I would replace the needles and yarn, though. https://youtu.be/LS-ErOKpO4E
That's an excellent substitution! You've saved me from years of toil. :)
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Re: 3% APY for 7 year CDs

Post by pugchief » Thu Feb 23, 2017 1:58 pm

Is anyone concerned about the possibility of a bail-in (Cyprus style) during the next financial crisis? G20 supposedly quietly passed some laws making this possible in the US?

Would treasuries not be safer in a situation like this?
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Re: 3% APY for 7 year CDs

Post by Desert » Thu Feb 23, 2017 6:25 pm

pugchief wrote:Is anyone concerned about the possibility of a bail-in (Cyprus style) during the next financial crisis? G20 supposedly quietly passed some laws making this possible in the US?

Would treasuries not be safer in a situation like this?
I've thought about this a lot, and I think it's impossible to know whether treasuries are safer. It's possible that treasuries are safer than CD's, and it's also possible that CD's are safer than treasuries (piss off the world, but keep the old lady voters happy).
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