CD rates on the rise

[GlenDale]

I use bankrate.com to receive regular updates to new rates offered by various banks.

I’ve moved a lot of money into various high interest CDs over the past 6 months.

[handiacefailure]

I've been doing a lot of 28 day treasury ladders with my money.   set up so one is being bought and redeemed every week so if something comes up I'll have access to the money right away.   

Interest rate is around 5.25 and really nice thing is I live in a state with absurd state taxes so I'm not paying state income tax on the money so it's coming up to be well over six percent if I take that into account

 

[Jim_n_NYC]

On 9/23/2023 at 6:13 PM, GlenDale said:

I use bankrate.com to receive regular updates to new rates offered by various banks.

I’ve moved a lot of money into various high interest CDs over the past 6 months.

I used to use bankrate but found they don't list a lot of banks.  DoC (Doctor of Credit) has a section that lists high yields around the US.

[TonyDown]

I don't use bankrate.com either.

Found Investorpedia recently but most all the rates were for credit unions.

[GlenDale]

15 hours ago, Jim_n_NYC said:

I used to use bankrate but found they don't list a lot of banks.  DoC (Doctor of Credit) has a section that lists high yields around the US.

I’ll check it out. Thanks

[Cooper]

Citibank announces on Tuesdays any new changes in their CD rates. This is their highest new rate. 

11-Month

APY

5.05%

[Jim_n_NYC]

My latest 3-mo treasury buy executed this morning.  5.6% compounded annual yield.

[BuffaloKyle]

I'll be cashing in my i bond next month once I know for sure the rate probably won't be that great. I'll go with a CD that my online bank offers. Here's their rates:

Product	Interest Rate (%)	APY (%)
11 month Liquid CD	0.05%	0.05%
1 year Online CD	5.35%	5.50%
2 year Online CD	3.25%	3.30%
3 year Online CD	3.30%	3.35%
4 year Online CD	3.34%	3.40%
5 year Online CD	3.39%	3.45%

 

So why is the rate so much lower for a multi year CD? Is it to protect the bank basically if there was a massive interest rate cut and they'd be stuck paying someone such high interest then?

[Jim_n_NYC]

Just now, BuffaloKyle said:

I'll be cashing in my i bond next month once I know for sure the rate probably won't be that great. I'll go with a CD that my online bank offers. Here's their rates:

Product	Interest Rate (%)	APY (%)
11 month Liquid CD	0.05%	0.05%
1 year Online CD	5.35%	5.50%
2 year Online CD	3.25%	3.30%
3 year Online CD	3.30%	3.35%
4 year Online CD	3.34%	3.40%
5 year Online CD	3.39%	3.45%

 

So why is the rate so much lower for a multi year CD? Is it to protect the bank basically if there was a massive interest rate cut and they'd be stuck paying someone such high interest then?

Pretty much.  They think the Fed will stop raising rates soon(ish) and may even lower them some in the next year or two...so they don't want to be stuck paying high yields for, say, 10 years.

I've been noticing the treasury yields in my Fidelity account fluctuate from either the 6-months to the 1-year rates being the highest for auction over the past year but then the rates trending lower once the time frame goes further out.

[BuffaloKyle]

5 minutes ago, Jim_n_NYC said:

Pretty much.  They think the Fed will stop raising rates soon(ish) and may even lower them some in the next year or two...so they don't want to be stuck paying high yields for, say, 10 years.

That's what I figured. I'll prob do a one year CD and then after that could do a 5 year one because I think 2024 won't see much movement in rate hikes or cuts.

[+ augustus]

19 hours ago, BuffaloKyle said:

That's what I figured. I'll prob do a one year CD and then after that could do a 5 year one because I think 2024 won't see much movement in rate hikes or cuts.

Depends on the inflation rate and how the economy is doing.  If the economy suddenly goes into a dive or there is a financial shock the Fed will cut rates quickly.  This is borne out by history.  Hard to predict though.

[ICTJOCK]

Glad to see some of these companies that sponsor annuity products are finally getting clued in and raising rates on their guaranteed (fixed)  accounts.    Most are very low  3-4%.      I think most of these vendors will be slow to change as they got caught with their "pants down"  with baseline guarantees of at least 3.0%  when interest rates fell with the mortgage crises.   

[+ augustus]

On 10/4/2023 at 7:07 AM, ICTJOCK said:

Glad to see some of these companies that sponsor annuity products are finally getting clued in and raising rates on their guaranteed (fixed)  accounts.    Most are very low  3-4%.      I think most of these vendors will be slow to change as they got caught with their "pants down"  with baseline guarantees of at least 3.0%  when interest rates fell with the mortgage crises.   

You can get around 5% for a fixed rate annuity from NY Life and Mass Mutual (2 highly rated companies) through Fidelity.  The terms are 3-4 years.  It's not bad, especially if you are trying to defer income until you retire, as the interest accumulated in an annuity is tax deferred until maturity and you expect to be in a lower income tax bracket in the future.  You can also continue the deferral by rolling it into another annuity.

[ICTJOCK]

1 hour ago, augustus said:

You can get around 5% for a fixed rate annuity from NY Life and Mass Mutual (2 highly rated companies) through Fidelity.  The terms are 3-4 years.  It's not bad, especially if you are trying to defer income until you retire, as the interest accumulated in an annuity is tax deferred until maturity and you expect to be in a lower income tax bracket in the future.  You can also continue the deferral by rolling it into another annuity.

Well I appreciate the input.   And yes,  fixed annuities are probably more competitive than variable annuities with fixed accounts..   Rolling a client into another annuity is certainly frowned on by FINRA because of the surrender period of each product.   It can be done,  but with justification and complance approval.

[jawjateck]

As long as the yield curve remains inverted, I'm staying on the short end of it. I buy 3-month, 4-month, and 6-month T-bills every week.

[sutherland]

On 10/6/2023 at 2:41 PM, jawjateck said:

As long as the yield curve remains inverted, I'm staying on the short end of it. I buy 3-month, 4-month, and 6-month T-bills every week.

Sound advice.  I have created a ladder, too

[Pd1_jap]

I don't understand bond funds ETFs. If I own an ETF that's made up of securitized 2–3 year bond funds, does that mean I get the returns as a dividend? I know all ETFs are different but I don't like how the funds slingshot in value whenever rates rise. 

Can someone smarter than me explain this odd seasaw effect? I feel like a sucker buying these funds that objectively should be at least book value but the market value can fall well below book value whenever a better credit worthy rate surfaces. 

Or maybe just break down and call a broker to buy the bonds directly. 🤷

[+ augustus]

13 hours ago, Pd1_jap said:

I don't understand bond funds ETFs. If I own an ETF that's made up of securitized 2–3 year bond funds, does that mean I get the returns as a dividend? I know all ETFs are different but I don't like how the funds slingshot in value whenever rates rise. 

Can someone smarter than me explain this odd seasaw effect? I feel like a sucker buying these funds that objectively should be at least book value but the market value can fall well below book value whenever a better credit worthy rate surfaces. 

Or maybe just break down and call a broker to buy the bonds directly. 🤷

You get the interest on the bonds or coupons.  Bonds FLUCTUATE in value based on current market interest rates.  

Let's say you buy a 5-year Treasury bond today paying 4.5% annually, which is payable every 6 months.  You paid 100 cents on the dollar for the face value of the bond and are guaranteed 4.5% interest and when the 5 years is up, you get 100 cents on the dollar back at maturity.  The big problem is that bonds fluctuate in value based on CURRENT market interest rates, what you called the seesaw effect, before the maturity date.  From the time you brought that 5-year Treasury to the maturity date it will fluctuate in value.

The reason for this is say you brought a 5-year Treasury in 2020 when they were only yielding 1% and today, 2 years later, a 5-year is paying 4.5%, no one will buy your 5-year from 2020 paying 1% when they can buy a 5-year paying 4.5%.  To make up for this discrepancy, your 5-year from 2020 can only be sold at a DISCOUNT to par value, or 80-85 cents on the dollar to make up for that difference in current rates.  That discount to par value makes it equivalent for a buyer to purchase your old bond paying 1% and get a 4.5% interest rate available today.

It works in reverse too.  If you brought a 5-year paying the 4.5% today and market interest rates were to plunge, the par value of your bond would increase to 120 cents on the dollar (something like that) and you could sell it at a gain.  But again, if you hold on to that bond to maturity you will get the face value of 100 cents on the dollar. 

The longer the maturity of the bond, the MORE fluctuation in face value of the bond.  As an example of this fluctuation, there is that 20-year ETF that is down 46% in value from 2020 because of rising interest rates and their bond holdings consist of low interest rate bonds brought before the rise in the rates.  This is the danger of buying a long bond, but also you could have a really good capital gain if interest rates were to drop.

I personally don't like bond funds.  I would buy individual bonds.  

Hope this helps.

[Pd1_jap]

5 hours ago, augustus said:

You get the interest on the bonds or coupons.  Bonds FLUCTUATE in value based on current market interest rates.  

Let's say you buy a 5-year Treasury bond today paying 4.5% annually, which is payable every 6 months.  You paid 100 cents on the dollar for the face value of the bond and are guaranteed 4.5% interest and when the 5 years is up, you get 100 cents on the dollar back at maturity.  The big problem is that bonds fluctuate in value based on CURRENT market interest rates, what you called the seesaw effect, before the maturity date.  From the time you brought that 5-year Treasury to the maturity date it will fluctuate in value.

The reason for this is say you brought a 5-year Treasury in 2020 when they were only yielding 1% and today, 2 years later, a 5-year is paying 4.5%, no one will buy your 5-year from 2020 paying 1% when they can buy a 5-year paying 4.5%.  To make up for this discrepancy, your 5-year from 2020 can only be sold at a DISCOUNT to par value, or 80-85 cents on the dollar to make up for that difference in current rates.  That discount to par value makes it equivalent for a buyer to purchase your old bond paying 1% and get a 4.5% interest rate available today.

It works in reverse too.  If you brought a 5-year paying the 4.5% today and market interest rates were to plunge, the par value of your bond would increase to 120 cents on the dollar (something like that) and you could sell it at a gain.  But again, if you hold on to that bond to maturity you will get the face value of 100 cents on the dollar. 

The longer the maturity of the bond, the MORE fluctuation in face value of the bond.  As an example of this fluctuation, there is that 20-year ETF that is down 46% in value from 2020 because of rising interest rates and their bond holdings consist of low interest rate bonds brought before the rise in the rates.  This is the danger of buying a long bond, but also you could have a really good capital gain if interest rates were to drop.

I personally don't like bond funds.  I would buy individual bonds.  

Hope this helps.

[+ augustus]

US 1-MO          5.418    
US 2-MO          5.446    
US 3-MO          5.516    
US 4-MO          5.54    
US 6-MO         5.603    
US 1-YR           5.493    
US 2-YR           5.248    
US 3-YR           5.081    
US 5-YR          4.976    
US 7-YR          5.009    
US 10-YR        4.968    
US 20-YR        5.294    
US 30-YR        5.057    

These are the interest rates on Treasury paper this day.  Rates are rising, especially the longer maturities, without the Fed taking action.  Economists are calling this the "term premium" because investors want to be compensated more for unknown risks, the largest risk being the rising national debt.  You can get 5.6% on a 6-month T-Bill and in a high tax state that's equivalent to about a 6% CD.  

[Cooper]

Best CD rates at Citibank:

11-Month

 

APY

5.25% to 5.65%

[Jason Dutch]

On 10/31/2023 at 3:33 AM, Cooper said:

Best CD rates at Citibank:

11-Month

 

APY

5.25% to 5.65%

Now we're talking! This is better than any savings acct APY I've seen (or at least been eligible for) for a while. Nice.

[Bucky]

So in today's economic environment, the $64Million question is:

if you were guaranteed 5% for 2 or 5 or even 10 years, would you park your money in that almost risk-free venue, or put it to work in equities??

[sutherland]

On 11/14/2023 at 2:39 PM, Bucky said:

So in today's economic environment, the $64Million question is:

if you were guaranteed 5% for 2 or 5 or even 10 years, would you park your money in that almost risk-free venue, or put it to work in equities??

If I were over age 60 (which I am), getting 5% risk free on $1 million or more is fine with me.  That is why I now have very little in equities, as my T-bills and CDs are giving me 5%.   A young person can take the risk with equities, assuming it can be held for 10+ years and the return will be closer to 8 or 10%.

[BuffaloKyle]

So the fed kept the interest rate the same at this week's meeting and signaled they will be cutting rates next year so I'm going to move some money into CDs soon. My online bank has a one year cd for 5.50% and a five year for 3.45% so I'm going to put some in both. Should I put most of it in a five year you think even though the one year rate is so good?

Edited December 13, 2023 by BuffaloKyle