How to buy CDs now-rates keep rising

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Jobseeker2013
Posts: 81
Joined: Wed May 11, 2022 5:47 pm

How to buy CDs now-rates keep rising

Post by Jobseeker2013 »

I have a large amount of cash sitting in online bank money markets and I would like to put them in CDs I would like to use CDs as my fixed portfolio instead of bonds. The thing is rates keep going up every 2 weeks. How long should I wait? I have a large amount of cash so even a quarter % difference is huge. There is a big difference between 2 and 5 year rates. I am nervous to lock something now and miss the future higher rate.
annu
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Re: How to buy CDs now-rates keep rising

Post by annu »

Everyday you dont invest, you are also losing on any interest...

Maybe you can start with putting some money into I-Bonds as they are very good option right now. You can invest $20k per SSN(2nd 10k is as gift).
This way while you wait, atleast some part of your money is invested and earning you some interest.

On raising interests, maybe DCA into getting CDs.....I have never bought CDs, but if it works for you, maybe check https://www.bankrate.com/banking/cds/cd-rates/

We did do a 3 CD @ 3.2% 2 years ago using this, they had a penalty of 3months interest for breaking it before 3 years, so we knew the risk we were taking getting a CD.
Alan S.
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Re: How to buy CDs now-rates keep rising

Post by Alan S. »

With the fed clearly intending a series of 50 BP increases at the next 3 meetings, I would keep any CD terms short for awhile,
eg 9 months and under. When the recession severity begins to overshadow the inflation severity and forces the interest rate increases to be put on hold, possibly in the fall, that is the time to lock in the higher rates for longer terms. Of course, easier said than done. You could also expect that a severe bear market will do some of the work that rate increases would by deepening the recession.

Fed plans rarely work out exactly as planned.
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Wiggums
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Re: How to buy CDs now-rates keep rising

Post by Wiggums »

Alan S. wrote: Wed May 18, 2022 9:43 pm
Fed plans rarely work out exactly as planned.
+100
"I started with nothing and I still have most of it left."
Topic Author
Jobseeker2013
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Joined: Wed May 11, 2022 5:47 pm

Re: How to buy CDs now-rates keep rising

Post by Jobseeker2013 »

I am thinking CD rates will spike artificially due to inflation worries and go back down. I would like to take advantage of some high rates. BTW, this has nothing to do with why i favor cds over bonds.
mega317
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Re: How to buy CDs now-rates keep rising

Post by mega317 »

Why do you favor them?
kvdecide
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Re: How to buy CDs now-rates keep rising

Post by kvdecide »

You could set up a CD ladder. Fidelity offers a single click method to do this. A 2 year ladder has four rungs - one for every 6 months. So in 6 months you will have quarter of your cash back to invest in a CD with higher rate.

If you need shorter than 6 months, then Tbill is your answer. But rates for 3 month Tbill are really low.

I have the same issue. Upon thinking, I decided not to wait on the sidelines and chase a CD rate. I need some return right now as well.
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Jobseeker2013
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Re: How to buy CDs now-rates keep rising

Post by Jobseeker2013 »

mega317 wrote: Wed May 18, 2022 11:04 pm Why do you favor them?
Many times CDs outperform bonds. Plus I have more control as usually the bank penalty to break a cd early is not bad. So if I need it, I can cash out early or better yet find a higher rate. There is no expense ratio and dont have to sell it.
homebuyer6426
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Re: How to buy CDs now-rates keep rising

Post by homebuyer6426 »

Picked up a couple of 1 year 3% CDs today. The 6 month rates also look pretty good and I will probably get some of those next paycheck.
43% Total Stock Market | 53% Consumer Staples | 4% Short Term Reserves
AnalyzeThis
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Re: How to buy CDs now-rates keep rising

Post by AnalyzeThis »

I just did what you're looking to do a few weeks ago. I took all of my savings out of a bank money market account that was earning very close to nothing. I use Fidelity for my investment accounts and did a CD ladder with them with 3/4 of my savings. The remainder of the money which I may need in the shorter term, I put into a money market account at Fidelity. They provide free checks and a debit card. For the CDs, I expect that the rates will go up and maybe fairly soon so I chose a 3mo, 6mo, 9mo and 12mo term CD ladder so I can potentially get into a higher rate CD in 3mos and possibly every quarter until next August. I figured with the shortest term CD ladder, I'll have more than a fair shot of getting higher rates and can decide on durations for them at that time. Fidelity's rates were pretty decent and it took less than 5 minutes to do the CD ladder with a representative from their fixed income department. One thing that threw me off is that CDs from a brokerage are a little different than bank CDs but it doesn't really affect me. With brokered CDs, you will see the value go down and maybe up from day to day but at maturity you will get the full percentage yield. Everything that I did is FDIC insured.
Onlineid3089
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Re: How to buy CDs now-rates keep rising

Post by Onlineid3089 »

I know you don't prefer bonds, but have you considered short term treasuries? I started to dabble in buying one month and two month treasuries at auction through my Vanguard account because I got annoyed by continuously cashing in and taking out new no penalty CDs at Ally as rates continue to go up. There are one month and two month treasuries available until Thursday morning that Vanguard is estimating will yield 2.228 and 2.519 respectively as of now, though the rates won't actually be set until the auction closes. The interest would also be state tax exempt if that matters to you.

If nothing else it might be a short term option until you decide you're ready to buy some longer CDs.
buddysam1
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Re: How to buy CDs now-rates keep rising

Post by buddysam1 »

I had a similar situation and chose a treasury ladder rather than a CD ladder. They're incredibly easy to buy either through TD (auction) or a brokerage (auction and secondary markets), have similar rates and are incredibly liquid.
Agree that shorter duration ladders make sense right now.
Northern Flicker
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Re: How to buy CDs now-rates keep rising

Post by Northern Flicker »

Jobseeker2013 wrote: Wed May 18, 2022 8:36 pm I have a large amount of cash sitting in online bank money markets and I would like to put them in CDs I would like to use CDs as my fixed portfolio instead of bonds. The thing is rates keep going up every 2 weeks. How long should I wait? I have a large amount of cash so even a quarter % difference is huge. There is a big difference between 2 and 5 year rates. I am nervous to lock something now and miss the future higher rate.
Ladder it so that you have CDs maturing at least annually, and rolling the ladder will incorporate future rate changes. Bond fund managers do a better job of keeping cash invested, so that over time they generally provide a higher return than DIY fixed income portfolios.
hudson
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Re: How to buy CDs now-rates keep rising

Post by hudson »

Jobseeker2013 wrote: Wed May 18, 2022 8:36 pm I have a large amount of cash sitting in online bank money markets and I would like to put them in CDs I would like to use CDs as my fixed portfolio instead of bonds. The thing is rates keep going up every 2 weeks. How long should I wait? I have a large amount of cash so even a quarter % difference is huge. There is a big difference between 2 and 5 year rates. I am nervous to lock something now and miss the future higher rate.
How long to wait? I don't wait unless rates are artificially low. Now the rates are OK.
What CD duration? I generally never go below 5 years. Going short gives me heartburn; I like to lock in 3% or higher rates.
I mix it up with CDs, nominal treasuries, and TIPS. (You already know that there's no state taxes on treasuries.)

Below is what I do because it fits my individual situation: (This may not work for you.)

Now, my CDs are all 5-7 years; they make up 90% of my holdings. The bulk will mature in 20 months.

In 20 months, I plan to go 50:50 treasuries/TIPS or CDs/TIPS depending on the rates.

I'll do a rough duration match. My average maturity will be 10 years which means individual holdings will include 5 to 20 year maturity CDs, nominal treasuries, or TIPS. Will I adjust the duration as I age from 76 to 96? Maybe and maybe not. I haven't warmed up to yearly adjustments. I may adjust yearly; I may adjust every 5 years; I may not adjust at all. I haven't figured it out.
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BL
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Re: How to buy CDs now-rates keep rising

Post by BL »

No one can tell you how to do this, but various folks have suggestions that you can consider.
We are older and are happy to have found threads on Bogleheads about buying treasury bills/notes/bonds and bank CDs (and TIPS which I don't fully understand at this moment) at various brokerages. Since we are at Vanguard, we have moved cash to the settlement fund or money market fund, which pays 2.11% currently (things have changed this calendar year and no one knows how long this will last, but besides a great MM rate, the bank CDs at places like V, Fidelity, and Schwab are now competitive or better than most banks/CUs.)

We go to "CDs and bonds" to find CDs and Treasuries along with rates and maturity dates. I bought some CDS out to 2 years but have decided to try to stick with treasuries as the state tax savings is worth something to me so CDs will have to outperform to beat treasuries. I have recently found 4 month treasury bills at over 3% interest rate, as an example. Several are close to 3%. There is no charge to buy treasuries that someone else is selling so it makes sense to buy especially when auctions are not near and rates are uncertain until after the auction. I may eventually get a good ladder set up but currently am fine in looking at rates within my range and finding the most satisfactory bid yield for now. I do have them maturing from 1 month to 2 years at present.
Blue456
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Re: How to buy CDs now-rates keep rising

Post by Blue456 »

Don't bother with CDs. You can buy 3 moth treasuries at fidelity or other brokerages. It's very easy and saves you some money on state taxes.
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