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CD Rates Again Looking Pretty Tasty

Once again with interest rates back up a bit and no rate cut coming for now from the Federal Reserve CD (certificate of deposit) rates have moved up a bit to levels that are once again pretty attractive. Fidelity and eTrade (as well as others I am sure) are offering up to 5.4% for a 1 year CD—of course at these higher rates they are callable after 6 months. Just the same this rate is attractive to me. February, March and April brings huge CD maturities to our accounts and I have bought the Brighthouse 6.6% preferred (BHFAP) and the Spire 5.90% preferred (SR-A) with some of the proceeds, but will now go ahead and buy some 5.3-5.4% CDs today–I don’t see going ‘all in’ on preferreds and baby bonds with conservative rates like this being available.

This morning we have some important economic news being released – primarily the producer price index (PPI), but also building permits and housing starts. The PPI in particular could determine whether the 10 year treasury falls back into the 3.80% – 4.20% range or if we move into a higher range for the time being. We will see some of the numbers staring in 30 minutes (at 7:30 central).

Our accounts remain near, but just below, record highs as we have taken some hits on preferreds and baby bonds in the last couple weeks. On the other hand the CD maturities have kept balances relative high as most of the CDs we have owned pay interest at maturity so large lump sum interest payments have been nice (although personally I prefer monthly or quarterly payments–but not many of these are offered).

We are heading into a 3 day weekend–no market action on Monday for the Presidents day holiday so folks can kick back and relax.

30 thoughts on “CD Rates Again Looking Pretty Tasty”

  1. Okay, I am wrong again. Not the 1st time and will not be the last time.
    Schwab’s money market rate has been clarified in writing. The published rate is after fees are deducted.

    “Money market fund yields displayed are net of fees, so if the current 7-day yield happened to be the yield for the year, that would be the rate you’d earn for the year after operating fees are deducted”

    Wish, I had a simple way to find my average monthly balance and the monthly rate paid. But 5.2% (using the last 7 days) is what they are paying.

    1. SteveA – I have a fairly good handle on my money markets at schwab. to me, the harder part is figuring out my daily/running cash balances.

      They sequester (steal) money for transactions that won’t close for days or weeks (like buying a treasury or CD that hasn’t closed yet), and they bounce money around through various “buckets” (which they don’t disclose) to tie up funds so you can’t put them in MM accounts. I also catch them trying to to open margin loans because they have put your cash in some undisclosed status and the available balance I see isn’t really “available”. its all part of their strategy to make money on cash in client’s accounts (not paying anything on it, and investing it for their own benefit).

      Some of the folks on my Schwab account team probably hate having me call because I keep tripping on their nonsense. Rarely can they explain what is happening (I keep telling them that if they can explain the rules, I can play their game – but they don’t know them either). Usually ends with them giving me a cash “customer sat” credit. The few bucks will buy lunch, but I wish they would just publish their policies clearly and completely.

      1. Perjaps this explains why I always calculate the interest as less than the published rate.

      2. When I purchase bonds with a later settlement date, I just run a negative balance, always being sure to place an order to sell SWVXX in the amount of the negative on the day before settlement of the purchased bond. I agree it can be annoying but I suspect they probably “remove” the funds from your account so you don’t forget to put the money in the account on the settlement date. Its annoying that they can’t just pull it from the MM but I’ve just learned to accept it.

  2. Well the real Qs are…

    1. whats the curve telling us?
    2. wants the fed telling us
    3. What are the markets telling us?

    I spent my life pushing investors out the curve. Most everybody just wants 6 months. But if you look at 18 months you normally get enough to ‘cover’ the difference if rates push hard up. In fact you can calculate how much higher they’d have to go before you’d have been better staying short. Over the last 40 years you can count on 1 hand how many times they’ve been lower at 1.5 years than 6 months. What’s that tell you?
    2.The fed? It use to be ‘don’t fight the fed’….. Well for 10+ years the fed has been fighting the fed and their dot plots since prior to 2015.
    3. Mr Market? There’s the bond market and the stock market. Again conflicting information.

    Mr stock market never saw 2022 coming….though advisors did and stayed long….. And in 2023 90% of market experts were negative the whole way up. ‘Long only’ managers didn’t offer one equity idea. All institutional road shows preached caution….and showed us their bond find. You know the ones w 2% ten year records. Finally they are remembering they have equity accounts. Now its only 75% bond presentations!

  3. At ETrade, JP Morgan has a 5.3% 2 Year CD with semi annual payments. Its callable 8/24 just like the newly issued 5.4% one years.

    One can take the 10 basis point haircut to get semi annual distributions even though one might also speculate all of these issues may be called on 8/24. Just diversify and see what happens.

  4. Like Tim, I am unwilling to go all in on the preferred market at this point.

    I am starting to accumulate cash in the money market. My experience in preferred stock investing is such that preferred stock prices are affected by both interest rates and the stock market. At 5,000+ in the SP500, I would at some point expect a pullback. Although it logically should not affect preferred stock pricing, it has in the past.

    My money market SWVXX is currently paying 4.86%. Note – the published rate of 5.2% is misleading. With a high expense base of 0.34%, 4.86% is the money in your pocket. This week, I did up BHFAP to 37.5% of my full position and added SR-A, 25% of a full position, as well as a small amount of 6.15% FHLB bonds. In the prior week, I added the new STT preferred – a full position – paying 6.7% (had to buy by CUSIP via the Schwab bond desk).

    But my proceeds for STT-D and NI-B will go to the money market for now.

    My next CD expirations happen in June/July.

    1. I believe the yield for SWVXX (also true for FIDO MMs) is after expenses.

      From Schwab:
      7-Day Yield (with waivers)
      As of 02/16/2024
      7-Day Yield (without waivers)
      As of 02/16/2024
      The 7-Day Yield is the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund’s yield would have been lower. The 7-Day Yield (without waivers) is the yield without the effect of all applicable waivers.

      1. I can always be wrong. When I do the math, my monthly interest is close to the 7-day rate minus the 0.34 expenses. Hard to do this preciously since they do not provide the average balance for the month. Nor have I seen the actual monthly rate when they credit the interest just the last 7 days.

        1. I did a search online and people say the rate is after expenses. I called Fidelity once to ask, and they said the MM rates are after expenses. You can always call Schwab to confirm.

          1. I will ask in writing using their message center and post their replay. For SWVXX to return 5.2% after the 0.34% expenses, that means their prime funds are returning 5.54% before expenses.

            Let’s see what they say.

          2. From Fidelity on their MM Funds the yield is the current yield NET of expenses. It is right in the footnotes of the disclosures

            The current yield reflects the current earnings of the fund, while the total return refers to a specific past holding period. The 7-Day Yield is the average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund’s total income net of expenses, divided by the total number of outstanding shares and includes any applicable waiver or reimbursement.

            I can’t speak to other brokers

            1. In general ‘truth in savings’ levels the yield field…..meaning yield quotes are the same….with MM we look for current yields. Federated Hermes quotes both 7 day and 30 day. Look at the 7 for current, the 30 for the recent direction move.

  5. If you live in Florida; Space Coast Credit Union has a 1yr CD 5.61% min $500.
    CIT Bank (Online div of Citizens Bank) has an 11mo 4.90% No Penalty CD.

  6. Goofy idea but could you guys just buy something like TVE to essentially get a 5 year 5% CD that matures in 2029? With the plus it pays 2.54% along the way with the final payment upon maturity? Or some idea similar that has a AA rating?

    1. fc–just looked at them (have looked at them many times in the past) and they would be about a 5% yield to maturity (+/-)–so maybe you re on to something there.

    2. The TVE rate may be reset. They make that determination on April 3, 2024, taking effect on May 1, 2024.

      1. James, that is not a worry, the rate will not reset because the 30yr is too high. Rate will stay the same.

        If, by chance, in the near future rates were reset lower than the current coupon, then owners would have the right to PUT at $25.

      2. TVE only resets lower. Never higher. In this env all the way to 2029… if it resets lower the price per share of this would go back up to par due to interest rates once again being rock bottom low. Heck.. i forgot about the PUT as pigpile mentioned. Def would go near par.

    3. Absolutely fc. Locked in at $20.98 (5.80%+ YTM) in Q4. With AAA/AA was best risk-adjusted yield going. Rolled off around $22.50 when YTM dropped to sub 4.5%.

      My CD/CD-equivalent threshold is currently 5.40% or higher so I’ve been allocating to equity-side, though at today’s 4.89% YTM TVE appears a reasonable non-callable, ultra-safe, near-CD principal-protecting-equivalent for anyone wanting a zero-drama holding.

  7. 2 year vs 1?

    4.7 on two years vs 5.30 on one year? Rates on 1 year would have to fall below 4.25% to have equaled the yield 4.7 on 2… When you roll a year from now. So the gamble is rates will be below 4.25 on 1 year a yr from now….

    I’d rather suffer a 4 something roll over then not have money rolling if rates maintain near here, much less go up.

    Marcus had 15 months at 5.40

  8. Yeah, I have loaded up a few in the last 2 weeks at 5.20-5.40% with durations from May to January. Almost all in tax-deferred accounts. Almost all were JPM offered by ET with one with Merchants Bank of IN.

    1. yazzer, just tough for me to wait till Maturity to get paid on those market beating JPM CDs. I see them there but drift to the monthly or quarterly payers. Having now just said that, I have a very big At-Maturity payment coming in March (1 yr) from….you guessed it, JPM. So I complain, but not too loudly. lol

      1. Agreed – these are in an account I won’t need the $$$ anyway, for now… The Merchants one is for 5.25% maturing 5/29/24.

  9. I had one mature the other day, and was sitting on it needing to do something. Being this cash was in taxable I took advantage of treasury jump to buy a secondary T Note for almost 2 years at 4.72%. I just cant find anything in CD land of that duration that pays that well. Especially after subtracting 5% state income tax a CD has in my state. I have another mature in a week, probably will go 6 month or so on that one.

    1. Grid–I was looking further out as well and if the rate is decent they are callable–otherwise the rate for non-calls is substandard.

      1. Wells just issued a non callable 18 month 5% (5.116% YTM) monthly payer. So this duration type has blipped up 15-25 bps this week. Though it doesnt settle until 2/27.

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