Terrific show, Eric! Happy to hear you further address CDs from banks (share certificates from credit unions). For CDs or certificates, ask about the early redemption penalty. In my experiences, 180 days is common, but some institutions have shorter "penalty" costs of only 90 days of interest. On the other hand, a year's worth of interest is a steep penalty, and some institutions have up to 1.5 years interest penalty. As for an early withdrawal penalty, if I take out a $10,000 CD on July 1, 2023 from a bank, and that bank has a 180 days early redemption penalty, if I opted to redeem that CD on October 1, 2023, the bank would consume the 3 months of accrued interest AND eat 90 days of my principal to fulfill the 180 day penalty - so I would receive less than my initial principal. Might not be a significant factor when penalty is 180 days or less, but a bigger deal if 365 (or more) days.
Appreciate the nuanced information, Doc! I'll pin this on the video so people have a bit more information. Every bank has their own unique policy for early withdrawal penalties, and the following Forbes article can be a good starting point for those wanting to calculate what an early withdrawal might mean: www.forbes.com/advisor/banking/cds/cd-early-withdrawal-penalty/
Thanks for these videos Eric. I've just found your channel and I have already learned a lot. In fact, I just finished buying some T-bills last week! You're so energetic and enthusiastic about investing which is great. Keep it up! 😊 Looking forward to more postings.
Hello Eric ! I also hold T-Bills and a few CD's.... In the future I would like to move everything to a broker that is also a bank. To my knowledge Schwab has a bank but Fidelity does not (yet). There are others that have both as well. For me I want 'one-stop' shopping at one broker. I have had too many years online chasing CD rates with my holdings scattered all over. But I suppose if a CU offers at least a 50 basis pt. gain over a T-Bill I would consider it. People are watching CD rates so closely now that many CU's are offering small 'teaser' gains, and many consumers really eat that up like its Black Friday at Best Buy. Then I notice it can become difficult to get such an account . Recently I spent 1-2 hrs. uploading id's and documents only to receive an email apologizing for the delay because of the 'overwhelming' response to their great rates. LOL. Time and a rapid, simple execution of such types of trades can be also as or more attractive than an extra 25 or 30 basis points. ...Unless you have very huge sums to trade, I suppose. Thanks for another interesting vid.
Thanks so much, Ed! It's definitely nice having a one-stop shop for everything banking & investing related (provided NCUA/FDIC limits of course). I'd agree that Schwab is pretty darn attractive with their no-FTF checking, brokerage and partnership with AMEX. Merrill Edge / Bank of America is the other one with good credit card relationship but they got the "no so great" reputation 😆. As you said, those CU's are quite nice but I've also run into some of the same troubles too haha. I've largely stuck with brokered / large bank CD's but I deeply respect those who are able to constantly open new ones with smaller banks!
HIGH RATE SPOTTING for longer-term fixed-rate investors! Blackhawk Community Credit Union in Wisconsin is offering a 5.4% 60-month share certificate with $10,000 minimum investment.
What happens when a brokerage collapses holding your CD or T Bill? Do you legal own those CD's or T Bills or do they actually belong to the creditors of the brokerage? I understand you might get your monies back from the insurance but what happens when there is a massive bank/brokerage failure that depletes the FDIC insurance?
Great question! For all large brokers (Fidelity, Schwab, etc), you legally own those CD's or Treasury Bills. So if a broker fails, you have a legal claim to those CD's, hence why they're covered by FDIC. Similar situation for T-Bills but that they're registered with the government. FDIC only applies to CD's from banks, so it would only be required if the bank fails (not the broker). If the FDIC insurance is depleted though (unlikely unless due to mass bank failures), then there is no insurance money to cover additional losses. If a broker fails, almost everything is recoverable since you have a legal stake to it (e.g. stocks, ETFs, bonds, etc). SIPC covers any fraudulent activities by brokers such as if they failed to register your name under a security for a given time, but these situations are extremely rare given the frequent and random audits by the SEC on brokers.
A wealth of knowledge and informational video! A question for you Eric. If I were to buy a T-bill from Treasury Direct given our current economic environment and what the Fed. plans on doing what duration T-bill would you buy? Would you do the 1 month, 2 month, 3 month, 4 month, 6 month, or 1 year? Or do you mix them all up? Thanks so much!
Great question, Rose! CNBC offers a pretty table to see how yields on 1 - 12 month Treasuries are changing day by day. Around late June, Jerome Powell was still mentioning that 2 rate hikes could still occur by the end of the year. www.cnbc.com/us-treasurys/ With that in mind, if I was going for individual T-Bills, my personal pick would be 13 or 17-Week T-Bills. To me, they offer good flexibility in case rates rise while still delivering good present-day yields. But that does require a bit of work. As @tinger20 said, CD and T-Bill Ladders can make it very stress-free & easy to continually re-invest in Treasuries that can still capitalize on rising rates. Charles Schwab is a pretty nice one though it requires a $4,000 initial deposit (assuming 4 rings).
@@skyeevl7656 No fees. They take out the percentage of the yield and then after it matures you get the whole amount of the bill so you make some money.
What about "Flex Index CD", it is based on Prime Rate index and today's prime rate is 8.25% as of: July 02. There are a few banks that offer this option, and one example is Merchants Bank of Indiana. Can you provide more insights about this type of CD and whether it is worth considering?
Great question, and I'd be happy to do a more in-depth video on Flex CD's! I've talked briefly about Merchants Bank of Indiana in the past, and it certainly is an attractive option with 5.65% APY on 12 - 36 month Flex CD's. That said, the interest rate is based on the Prime Rate - 2.75% with a floor of 0%. In rising prime rate environments, Flex CD's can be very helpful since the CD rates will rise in tandem compared to fixed rate CD's. The only issue is: if the prime rate falls, the yields on Flex CD's will also fall. Based on recent comments, it sounds like Jerome Powell wants rates to slowly fall throughout 2024. As a result, there's a chance yields on Flex CDs will decrease over time next year. If Flex CD's are currently paying significantly higher than fixed rate CD's, the higher yields could compensate the additional risk. Of course, that's all based on personal preference and goals. Personally, I'm happy just taking a 2-year CD from Discover with a fixed 5% yield. But, I can certainly understand someone else preferring a 24-month Flex CD instead with the potential of earning more!
@@EricTangOfficial Thanks for the detailed reply, Eric. Based on your assessment, it seems like the Flex CD could be a best choice for a one-year duration, and believe it may not be as beneficial for longer periods exceeding one year.
Great question! As @TotalReturns mentioned, an ETF like TIP invests in inflation-protected US Treasury Bonds. They pay a fixed rate and their principal value increases as inflation rises. On the other hand, Treasury Bills pay a guaranteed rate of return. Its yield is not directly affected by CPI data.
Yes you can! A couple popular ETFs are SGOV (iShares 0 - 3 Month Treasuries), BIL (SPDR 1-3 Month Treasuries) and VGSH (Vanguard 1 - 3 Year Treasuries).
Hi Tang, are you saying that with CDs if you buy a 1 year at 5% it stays so but with t bills if you buy a 1 year at 5% if the interest rate drops, automatically your 5% drops too?
Great question, Kennedy! If you purchase a 1-Year CD or 52-Week Treasury Bill at 5%, you are guaranteed to earn that 5% yield assuming you hold the security until the maturity date. Both are essentially locking up your money for 365 days to earn a fixed amount. If you wanted to sell your CD or Treasury Bill before the maturity date (e.g. next month), the price other investors will pay for your security will depend on how competitive yours is relative to the market/other offerings. If banks are offering 6% APY CD's, your 5% CD is now less attractive to other investors. On the other hand, if banks are only offering 4% APY CD's, then yours is now even more attractive.
Hi Eric. Thank you for this great tutorial video. I was looking for Tax calculator in Fidelity that you showed in your video, and couldn't find it. Could you please point me to the right place. Thank you !
Good video. I tend to buy T Bills in my brokerage account for the state tax savings and CDs in my IRA if rate is higher than a T Bill since there is no state tax benefit in the IRA.
Terrific show, Eric! Happy to hear you further address CDs from banks (share certificates from credit unions). For CDs or certificates, ask about the early redemption penalty. In my experiences, 180 days is common, but some institutions have shorter "penalty" costs of only 90 days of interest. On the other hand, a year's worth of interest is a steep penalty, and some institutions have up to 1.5 years interest penalty. As for an early withdrawal penalty, if I take out a $10,000 CD on July 1, 2023 from a bank, and that bank has a 180 days early redemption penalty, if I opted to redeem that CD on October 1, 2023, the bank would consume the 3 months of accrued interest AND eat 90 days of my principal to fulfill the 180 day penalty - so I would receive less than my initial principal. Might not be a significant factor when penalty is 180 days or less, but a bigger deal if 365 (or more) days.
Appreciate the nuanced information, Doc! I'll pin this on the video so people have a bit more information. Every bank has their own unique policy for early withdrawal penalties, and the following Forbes article can be a good starting point for those wanting to calculate what an early withdrawal might mean:
www.forbes.com/advisor/banking/cds/cd-early-withdrawal-penalty/
Thanks for these videos Eric. I've just found your channel and I have already learned a lot. In fact, I just finished buying some T-bills last week! You're so energetic and enthusiastic about investing which is great. Keep it up! 😊 Looking forward to more postings.
Thanks so much for all the support! Glad to hear you've joined the Treasuries train!!
Hello Eric ! I also hold T-Bills and a few CD's.... In the future I would like to move everything to a broker that is also a bank. To my knowledge Schwab has a bank but Fidelity does not (yet). There are others that have both as well. For me I want 'one-stop' shopping at one broker. I have had too many years online chasing CD rates with my holdings scattered all over. But I suppose if a CU offers at least a 50 basis pt. gain over a T-Bill I would consider it. People are watching CD rates so closely now that many CU's are offering small 'teaser' gains, and many consumers really eat that up like its Black Friday at Best Buy. Then I notice it can become difficult to get such an account . Recently I spent 1-2 hrs. uploading id's and documents only to receive an email apologizing for the delay because of the 'overwhelming' response to their great rates. LOL. Time and a rapid, simple execution of such types of trades can be also as or more attractive than an extra 25 or 30 basis points. ...Unless you have very huge sums to trade, I suppose. Thanks for another interesting vid.
Thanks so much, Ed! It's definitely nice having a one-stop shop for everything banking & investing related (provided NCUA/FDIC limits of course).
I'd agree that Schwab is pretty darn attractive with their no-FTF checking, brokerage and partnership with AMEX. Merrill Edge / Bank of America is the other one with good credit card relationship but they got the "no so great" reputation 😆.
As you said, those CU's are quite nice but I've also run into some of the same troubles too haha. I've largely stuck with brokered / large bank CD's but I deeply respect those who are able to constantly open new ones with smaller banks!
Another good video ET! 2 more potential rate hikes so the Tbill and CD rates should be pretty solid in the next few months
Totally right & let's see what Powell does! Perhaps the yields will change over the next few months 😀
Thank you Eric for so many great and honest and humble financial advices
Thanks so much & glad it's been helpful!!
HIGH RATE SPOTTING for longer-term fixed-rate investors! Blackhawk Community Credit Union in Wisconsin is offering a 5.4% 60-month share certificate with $10,000 minimum investment.
Nicely spotted, Doc! I'll add it on the weekly list!
What happens when a brokerage collapses holding your CD or T Bill? Do you legal own those CD's or T Bills or do they actually belong to the creditors of the brokerage? I understand you might get your monies back from the insurance but what happens when there is a massive bank/brokerage failure that depletes the FDIC insurance?
Great question! For all large brokers (Fidelity, Schwab, etc), you legally own those CD's or Treasury Bills. So if a broker fails, you have a legal claim to those CD's, hence why they're covered by FDIC. Similar situation for T-Bills but that they're registered with the government. FDIC only applies to CD's from banks, so it would only be required if the bank fails (not the broker). If the FDIC insurance is depleted though (unlikely unless due to mass bank failures), then there is no insurance money to cover additional losses.
If a broker fails, almost everything is recoverable since you have a legal stake to it (e.g. stocks, ETFs, bonds, etc). SIPC covers any fraudulent activities by brokers such as if they failed to register your name under a security for a given time, but these situations are extremely rare given the frequent and random audits by the SEC on brokers.
A wealth of knowledge and informational video! A question for you Eric. If I were to buy a T-bill from Treasury Direct given our current economic environment and what the Fed. plans on doing what duration T-bill would you buy? Would you do the 1 month, 2 month, 3 month, 4 month, 6 month, or 1 year? Or do you mix them all up? Thanks so much!
I'm no expert. Many times.. I went through 'should have, could have, would have, etc". Now a days, I just do ladders for CDs and TBs.
Great question, Rose! CNBC offers a pretty table to see how yields on 1 - 12 month Treasuries are changing day by day. Around late June, Jerome Powell was still mentioning that 2 rate hikes could still occur by the end of the year.
www.cnbc.com/us-treasurys/
With that in mind, if I was going for individual T-Bills, my personal pick would be 13 or 17-Week T-Bills. To me, they offer good flexibility in case rates rise while still delivering good present-day yields. But that does require a bit of work.
As @tinger20 said, CD and T-Bill Ladders can make it very stress-free & easy to continually re-invest in Treasuries that can still capitalize on rising rates. Charles Schwab is a pretty nice one though it requires a $4,000 initial deposit (assuming 4 rings).
@@EricTangOfficial Thank you kindly for the reply!!😁
@@tinger20 Thank you for the reply!! 😁
Yeah, they are basically paying the same. I bought the 4 week t bill you mentioned in the video. I also have a few CD's. Great info sir.
Nice one! Happy to hear you're getting a good 5+ yield!
Is there any fees to buy T-Bill?
@@skyeevl7656 No fees. They take out the percentage of the yield and then after it matures you get the whole amount of the bill so you make some money.
What about "Flex Index CD", it is based on Prime Rate index and today's prime rate is 8.25% as of: July 02.
There are a few banks that offer this option, and one example is Merchants Bank of Indiana.
Can you provide more insights about this type of CD and whether it is worth considering?
Great question, and I'd be happy to do a more in-depth video on Flex CD's! I've talked briefly about Merchants Bank of Indiana in the past, and it certainly is an attractive option with 5.65% APY on 12 - 36 month Flex CD's.
That said, the interest rate is based on the Prime Rate - 2.75% with a floor of 0%. In rising prime rate environments, Flex CD's can be very helpful since the CD rates will rise in tandem compared to fixed rate CD's. The only issue is: if the prime rate falls, the yields on Flex CD's will also fall.
Based on recent comments, it sounds like Jerome Powell wants rates to slowly fall throughout 2024. As a result, there's a chance yields on Flex CDs will decrease over time next year.
If Flex CD's are currently paying significantly higher than fixed rate CD's, the higher yields could compensate the additional risk. Of course, that's all based on personal preference and goals.
Personally, I'm happy just taking a 2-year CD from Discover with a fixed 5% yield. But, I can certainly understand someone else preferring a 24-month Flex CD instead with the potential of earning more!
@@EricTangOfficial Thanks for the detailed reply, Eric. Based on your assessment, it seems like the Flex CD could be a best choice for a one-year duration, and believe it may not be as beneficial for longer periods exceeding one year.
subscribed! stay awesome mate
Thanks so much, Richard! Appreciate it!!
Is an etf likeTIP the same as a t-bill?
No. TIPs are indexed to inflation (CPI) and have longer durations. An ETF like SGOV holds a mix of 1-3 month T-bills.
Great question! As @TotalReturns mentioned, an ETF like TIP invests in inflation-protected US Treasury Bonds. They pay a fixed rate and their principal value increases as inflation rises. On the other hand, Treasury Bills pay a guaranteed rate of return. Its yield is not directly affected by CPI data.
Can you buy a treasury bill etf?
Yes you can! A couple popular ETFs are SGOV (iShares 0 - 3 Month Treasuries), BIL (SPDR 1-3 Month Treasuries) and VGSH (Vanguard 1 - 3 Year Treasuries).
Where can one get a T - bill ?
Good question! You can find them on Treasury Direct or from a large broker like Fidelity, Vanguard, Charles Schwab, E-Trade, or Merrill Edge
Thanks!
Thanks so much for the Super Thanks, Robert! Really appreciate it & all the support!
T bills are free from state and local taxes
Yep! Treasury Bills are certainly a good option for those in high income tax states or locales!
Hi Tang, are you saying that with CDs if you buy a 1 year at 5% it stays so but with t bills if you buy a 1 year at 5% if the interest rate drops, automatically your 5% drops too?
Great question, Kennedy! If you purchase a 1-Year CD or 52-Week Treasury Bill at 5%, you are guaranteed to earn that 5% yield assuming you hold the security until the maturity date. Both are essentially locking up your money for 365 days to earn a fixed amount.
If you wanted to sell your CD or Treasury Bill before the maturity date (e.g. next month), the price other investors will pay for your security will depend on how competitive yours is relative to the market/other offerings. If banks are offering 6% APY CD's, your 5% CD is now less attractive to other investors. On the other hand, if banks are only offering 4% APY CD's, then yours is now even more attractive.
@@EricTangOfficial perfect thank you.
CD’s NUTS 🥜
Appreciate you pointing out the tax equivalent yield calculator at Fidelity. Nice to have an accurate comparison when considering t bills vs cds.
For sure! Math is hard for me but an online calculator helps out a ton!
Thanks for that detailed info between cds and treasuries.
My pleasure!! Hope you're getting those > 5% APY rates!
Hi Eric . If I buy T-Bill will it return the money on mature day by itself, or will I have to sell it by myself?
Automatically goes back into the account on its own. Trust me, it’s like clockwork
Yup! Whether you buy it on Treasury Direct or via a broker, the T-Bill will mature by itself. No work on our ends!
Hi Eric.
Thank you for this great tutorial video. I was looking for Tax calculator in Fidelity that you showed in your video, and couldn't find it. Could you please point me to the right place. Thank you !
Great question! Here ya go: digital.fidelity.com/prgw/digital/taxyieldcalc/
Good video. I tend to buy T Bills in my brokerage account for the state tax savings and CDs in my IRA if rate is higher than a T Bill since there is no state tax benefit in the IRA.
Excellent point, Keith! The IRA is truly a special account!
I’d add that if you sell a Treasury early and interest rates have risen, you’d lose principal. With a CD, you’d only lose a small amount of interest.
very good points!
Great video, Eric! I'm a big supporter of CDs myself but treasuries are rising more and more up my alley
Always a solid option! The relative safety of Treasury Bills are super popular among fixed income investors 🙂