Bank CDs vs Brokered CDs vs Treasuries--Which is "Best" for Short-Term Cash?
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- เผยแพร่เมื่อ 3 ส.ค. 2022
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Today we respond to a viewer's question about bank certificates of deposit versus brokered CDs.
Here is the viewer's question:
"I'd like to move some [money] to a CD - and don't understand the difference in buying a CD through my brokerage (Fidelity) - which is showing products with high rates or buying directly through a bank like the SallieMae Save Better listed in the newsletter? I feel confident in Fidelity and I'm not sure about an online bank I've not done business with/can trust?"
It's a great question, In the video, I cover traditional bank CDs, no-penalty CDs, brokered CDs and short-term (1 year or less) Treasuries.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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Thanks Rob. Educational as always. Best content on the web!!!
Great video, thanks Rob!
Timely video, been researching and dipping my toe into some more cash alternatives. Thanks.
Thanks for info on the brokered angle. You have opened my eyes.
Thank you so much for the detailed explanation of brokered CDs and treasuries. This is so helpful.
One of the more useful and informative personal finance YT videos I've watched. Great job!
Thanks for the summary. For most folks I would think the "best" would be the instrument that pays the most...however right now that seems to be Treasury s via the convenience of Fidelity.
Awesome video Rob, thanks for the free financial education again!
Thanks for great and timely information as always!
Good overview Rob, thanks for sharing!
Great topic Rob, and you did a great job with it!
Thank you Rob this was very helpful!
Great and detailed review, Rob! Very useful to many of us. Thanks 🙏
Excellent information…excellent presentation…thank you 🙏
thanks you I have been looking for something like this for 3 weeks.
Great video and very helpful. Plus you have ROM #1 which is a great investment of its own!
Great content Rob! One of the nice things about brokered CDs is that you can stack FDIC protections among several banks.
I am not sure if that is true for fidelity. I called them twice and talked to two different representatives and both told me that the account itself is insured upto 250k even though I have invested a total of 400k in CD's. The remaining 150k is not FDIC insured. All 400k is invested through different CD's throght different banks which are FDIC insured...Does anyone received a different info than what I got from fidelity?
Rob I never knew Fidelity had Cds. Ty for the tip.
Fidelity charges a fee for every CD bought or sold on the secondary market. I believe that it is $1 for each CD. I enjoyed your video. Thanks.
As Fed most likely keep raising interest rate till the end of the year, maybe even into 1st quarter 2023, I don't want to lock my rates at current level. So I build my own 1~3 months CD ladder in Fidelity so my money can keep rolling into updated rates. Fidelity has very decent 1~3 months CD rates that you can't find in bank CD.
I opened a Fidelity ladder also.
What are the rates?
@@curtisheath8809 Last time I see, they were4-4.80. There are more in the 5% and even one for 5.25 for a year with minimum 1000 in a bank. Check bankrate!
A new viewer. Good show. Just wanted to point out about the costs of selling or buying a brokered CD in a secondary market and
those brokerage firms would charged $1 for each $1000 for CD
or any secondary T Bill or bond. No fee for new primary CD or T Bill.
I learn something new from this show that Fidelity bought all CDS from new issuer banks and resale to
retail customers. I thought Fidelity makes money through commissions from selling CD for those issuing banks.
Good info to have -especially in today's market.
When I buy CDs through Fidelity I always pay attention to the Coupon Frequency. I usually select one with a monthly payout if available even though the payout is usually slightly lower. I like the flexibility of having some money coming in over time. Just depends on your situation.
Got no penalty at Ally! Great 👍 Video!
I'm a relatively young investor that is just looking to park money in CDs from my "cash" position, in which I take the accounting view of "cash", where the initial maturity is 3 months or less. A one-year CD would not be considered "cash" by an accountant. Anyway, I have bought a number of 1 and 3 month CDs through Schwab, but for the most part I really wonder if that's been better than keeping it in the money market mutual fund. Certainly these days it is compared to 1 month CDs, and I'm a little leery about 3 month CDs as a place to store cash as the market might turn south and my cash allocation needs to shrink, so I wait until I have a pretty large buffer in my cash position before buying one of those.
Some things you didn't mention:
For treasuries, you cannot place market orders outside of the active trading window. That means I either place a limit order that might not get filled as the market shifts as it opens, which would potentially lose me a day of interest every day that happens on top of the day or two I need to have it out of the money market fund to be able to buy things with (and in this area Vanguard is better for letting you use a money market fund to settle transactions, but I much prefer Schwab for everything else) or I take time off of work specifically to buy the treasuries, which isn't going to happen. I definitely like some of the very short-term treasuries that are available compared to the money market fund, but it's a bit of a risk.
For brokered CDs, you have to buy in multiples of $1,000. For bank CDs, the screenshots you showed all had a minimum investment of $1, and I assume you could invest any amount you wanted. Additionally, at least at Schwab, the settlement date of the CD is generally at least a week in the future of when you're able to order it, meaning that every CD you buy essentially requires me to give up a week of interest, unless I were to order it before the money is available (which I'm not sure if I can even do) and only take the money out of the money market fund on the specific day it settles (can I be selling the money market fund the same day as the CD settles, or does it need to be there in cash the day before?), which I don't want to bother with similar to not wanting to take time off work to buy treasuries - I want to do all of the money management I need to do on the weekends. I suppose if you're looking at mainly 1 year CDs that's not as large of an issue, but for me, as I constantly buy 3-month CDs whenever my allocation to cash gets to a certain point, it's a bit of an issue.
Great Lesson ! I'd like to know if I could build my Bond portfolio using these instruments . Seems like I keep getting kicked and disappointed with bond funds . There is certainly more certainty with these vs funds . Especially now with interest rates up in the air .These sort of mimic Buffett's short term bond fund recommendations . I just came across your lessons and am doing a deep dive into them now , just as I'm decluttering my portfolio . Thanks again Rob . Great lessons !
Excellent presentation
Love the video, good job!
Thanks for the video. Great comparison of the various options. One point you might make on interest rate risk goes like this... If you need the money in a year, don't buy a 2-yr CD.
It wouldn't matter on a No Penalty CD you get ALL your money back with the interest to that point you cashed it in.
What I like seeing here is that I am not forced to be in a bond fund that can be dropping. Hold until maturity and you are probably ok (depends on which investment in bonds of course).
Thank you so much for sharing your research and knowledge!
I just made the same choice you eluded to and bought a large amount of short term treasuries over CD's (both offered through Fidelity) to save the state tax
I must run this again on slow. Maybe a couple of times. I think I have a lot to learn.
I have 5 CD through Schwab. Times are from 30 days to 3 months as I wait for a market opportunity. My interest rates range wildly. 1.6, 1.7, 1.05, .85, and 2.3 percent. An example of how things change quickly. Ironically, the .85 was the longest term, just bad timing on the purchase. I prefer all my funds in one place, if possible. I did get in on the I-bond before the reset though. Thanks to your show Rob, I'm smacking down that big interest on that one.
go Marcus, 4.3% for saving…
Schwab has gone up significantly here recently. I'm going to do a 6 month cd at 4.55% which is better than most right now.
Great information. Please do a video on MYGAs, since they are above 5% these days!
Appreciate your work here Rob. Also Corporate Bonds are offering even higher rates for those people looking to get more for their money. Just be aware most will be Callable & beyond a 5 year term. Have to consider the company issuing the Bond too ( will it still be around so the risk factor there ). I inherited a Bank Of America Corporate Bond that pays
6 % every month / Not Callable / Matures in 2036 . Couldn't find anything more than Quarterly payments in todays world. I understand T-Bills are a great option though because they are No Risk.
Navy Federal has 12 month CDs at 3%. They have longer term CDs at higher rates that you gradually add money to. If you have family members in any of the services, you can sign up.
Technically accurate, but a jumbo of information salad there. The key points to consider are: the likelihood you will hold it to maturity? The amount you want to invest, does it exceed FDIC insured per account? The management overhead of accounts in multiple banks (a bank also will likely roll over to a new CD at maturity unless you contact them during the grace period)?
Thank you for the great video Rob… one question that I have always had is, what are the banks investing in with our money to help them maximize the spread and earn as much as they possibly can?
Mortgages, car loans, personal lines of credit, credit cards etc.
I've also been looking at CD rates...now going 4.5% one 14 month for 4.6%. Brokered CD's are a little better, maybe, through Schwab. Treasury ladders paying over 4.7%
Good information. Thanks for putting it together. Off topic question … what is the brand of keyboard on your desk? I am unhappy with my Apple keyboard on my iMac.
Like really short term Treasury Bills, such as the 4 week which is paying @ 2.09% APR currently
People who are sure they won't need to withdraw during the contract term, and who will be at least age 59.5 by the maturity date, should consider MYGA's. Higher yield in exchange for giving up some liquidity.
Got a 6 month broker CD with Wells Fargo at 2.5% hoping for even better rates next year
hi Rob, for brokered CD, how do we choose the 'right' bank, with everything else being equal? is there a rating system? tia
Awesome info sharing, thx
I just opened two CDs with my credit union in TX. One is 12 months at 3.5, and the second is 18 months at 4.0. There is a penalty, but I do not intend to take it out since I have a well-built emergency fund, and I will work for another year. I am aiming at buying an I bond before the end of this month. I am about to retire next year (I am already FRA but decided to wait a bit). I had a stash that I needed to move in order to keep up with some if not all the inflation, and patiently waited and researched for decent deals. I moved my emergency to Capital One checking with a good rate for this time, and the rest for the CDs and the I bond. Investing anymore in the stock market at my age makes me too anxious.
Stock market is going to crash soon when dollar collapses. What are you doing with your cash? I’ve heard buying foreign money to hold protect value til needed.
I'm also looking at what do with some cash slated for a kitchen remodel! I've got cash that has just been sitting, but the interest rates are so much more attractive right now.
I have had a Sallie Mae Money Market account for about 5 years. Currently at 1.5%. They have always been easy to work with. I like the fact you can write checks from the account, which I do for big ticket items. When I paid off a mortgage a couple of years ago, one phone call was all it took to transfer the funds from the MMA to my linked primary bank.
I am considering a Sallie Mae 14-month no penalty CD right now.
Hi Rob, Excellent and thorough as always!
I have been driving cash into 3 month CD’s over the last several months. As they mature, I reinvest. The latest are at 2.4%. With the latest comments from the FED, another rate increase in September is expected. And while some pundits suggest a rate drop next year who knows. Also, since I live in a tax free State (Nevada) I don’t have that issue.
My question: Are you investing in longer term CD’s and Treasuries purely to guard against a rate drop? With shorter term I seem to avoid that risk. Your thoughts?
And thanks again for your great tutorials!
Those pundits keep guessing on CNBC. Whoever appears right they call that person a wizard and forget all the others who say the opposite.
Point taken. I was actually referencing a couple of recent articles in the WSJ. And the SF FED seems to be walking back from .75 to .50 next month. So, I take it you are going longer to hedge downside risk? Thanks again.
You can get 4.6% now. We're still losing money considering inflation though.
@@wthomas5697 any suggestions? I do not have the skill set to bet against the market
@@urbanart7325 Yeah, go to synchrony bank and buy a CD. I think they're up to 5% now. I bought at 4.5% but interest rates have gone up. Lock in a year and a half at that rate and forget about it.
Excellent video
keeping it simple...with my hsa and roth cash, i bought a non callable six month cd through TD ameritrade at 2.75 in the primary market...so the key is non callable and primary market.
Why only primary market and not secondary?
@@AB-xb2xs Sorry for the delayed reply...the Primary market offers stability. The Secondary market offers flexibility. Keeping things simple and choosing stability.
This may did silly but I'm not familiar with primary and secondary market. When I attempted to purchase a 6 month cd through fidelity it didn't ask if I wanted to do primary or secondary
I went with the brokered CDs recently. I picked ones with monthly coupon frequencies vs. at maturity or semi-annually.
I did the same buying 3 months monthly CD at Schwab. Also adding to my positions on dividend payers such as PG & ABBV
Schwab 1 month from Beal bank 2.95% is a good move 😎
@@nortonbros I just bought a 3 month CD from Schwab for 3.34%. The Fed says it will continue to raise a few more times by years end. I’m not usually this conservative with my money but I’m still waiting for stocks to fall further. I’m dollar cost averaging on a lot of solid cash rich companies that can withstand the inflationary time.
@@cashflow68 I’m with ya! I think we bottom out in the market around Q2 or 2024 but if daddy Powell wants to put the printer back on early. What ever that day is will be the bottom of the market
@@nortonbros I agree. It’s difficult to buy at the bottom of the market and rarely works. I used to ask my dad in the 70’s what’s a good stock to buy, he would say “the one I just sold or the one I just bought”. If interest rates keeps rising, prices will inevitably decline. Like they say, the solution to inflation, is higher prices.
So at the end what is your ranking? And please include us notes, 1 year whatever the name, because the yields are robust above 3% right now
Great info thanks
This was very helpful! Do you have any videos that explain bid vs. ask and what the implications are on the treasury or brokered CD market? Although I have a rough idea of what they are, coming from the world of mutual funds, they are somewhat unfamiliar terms. Thanks!
The Bid is the highest price offered by the buyers, and the Ask is the lowest price offered by the sellers. The old saying is that you sell at the Bid price and buy at the Ask. So, a wide bid/ask spread would indicate that the market is not very liquid, since the buyer's bids and the seller's ask prices are relatively far apart. Hope that helps.
I have invested in the NO Penalty CDs at SaveBetter and just a small thing that I learned...... to close a No Penalty CD (or any CD for that matter) requires a phone call to their customer service for them to close the CD and then it takes approximately 3 business days to get the money to your linked external bank account. A small inconvenience because it seems like it could be done online.
Are you truly FDIC insured at Save Better? If they go under, how would you get your money back?
I was able to close the CD online. No phone call needed.
If I am looking at investing between 1-3 years, should I be looking at high-yield CDs? And how does that compare with Treasury I-bonds? I am not very familiar with Treasury bonds though you mentioned it in the video. Not sure if those are T-bills, I-bonds, etc. Thanks!
Enjoyed your program. I did not understand why you put any of your kitchen money in CD’s instead of the T-bills. It looked like from what you said about both CD’s and T-bills, that your kitchen money would have been a better in the T-bills. Help. Thanks Fred in Raleigh
Fidelity recently started Fractional CDs; I'm going to give those a try. Also, I can't help but notice your slabbed copy of ROM # 1 - that's some Frank Miller goodness! - "alternative" asset, lol?
Hey Rob, great stuff. Love CDs to protect principle. Many people down 20% on what they thought were “safe investments.” Balanced funds, wellingtons of the world etc.
If you want to keep safe money safe, CDs are the place to be. Bond fund people in the last 6 months are having trouble sleeping at night. Thanks again for the great content!
If you understand what bond funds represent and your in the right bond fund for your situation, you should not be losing sleep. A bond fund is nothing but a fund of bonds.
If you bought a brokerage CD and you tried to sell it today guess what you would sell it for a loss. No different than a bond fund
@@johngill2853 If I am not wrong, a bond fund is not the same as bond or brokered cd. At maturity, a bond or brokerd cd you get your principles back plus interest. I guess there is no maturity for bond fund. There is no way I can sleep with bond fund.
@@henryng191 a bond fund is definitely not the same as a CD.
And no a bond fund is not the same as a bond but if your goal is to hold a specific type of bond constantly in your portfolio they work great assuming you picked the right Bond fund
If holding a bond fund doesn't allow you to sleep it's definitely not the right investment for you. But I held bond funds most of my life and I never bothered me one bit. (I just changed to a 100% stocks because of my personal situation).
Not sure what I think about bond funds either, having lately lost money even on my short term government bond ETF, which SOUNDS pretty safe. (Maybe a moderate sized holding in an IRA, for diversification?) But I am becoming a fan of treasury bills and notes, at least for my taxable account. In California, exemption from state tax makes them a great bargain compared to CDs, and the yields are very close. They are easy to buy through Schwab, and to set up a ladder if I want.
I will be forever grateful to you, you changed my whole life and I will continue to preach on your behalf for the whole world to hear you saved me from huge financial debt with just a small investment, thank you Mrs Maria Reyes.
I'm surprised you know her. I've been making a lot of profits investing with her for a few months now.
Mrs Reyes changed my life because of the high profits I got from investing with her.
You invest with Mrs Reyes too? Wow that woman has been a blessing to me and my family.
I'm new at this, please how can I reach her?
I was skeptical at first till I decided to try. Its huge returns is awesome. I can't say much
I wonder if each brokered CD protected to a maximum by the issuing Bank. Or only Fidelity account is protected as the CD holder?
Rob - excellent video as I am looking at moving some bond fund monies to brokered CD (not callable). Looking at long term performancee on bonds vs guaranteed +4.5% (don't need the money)
LedingClub Savings offers a 2.07% PAY. so far this is the best saves rate I found. Gonna look into buying CDs and treasures. thank you!!
Good stuff!
I believe you don't get any interest payments on a bank CD until maturity, whereas if it's a brokered bank CD, you get interest payments (monthly or semi-annual) before maturity.
thank you for the information sir
I have been purchasing CD's through my Broker for Many Years. I like the ability to purchase more than 250K in my different Accounts (Regular IRA / 401K Roll-Over IRA / Roth) since they offer CD's from many banks. Today I purchased a 8 year CD that pays 4.4%. I have a Huge CD Ladder and really enjoy investing this way.
What is not discussed is whether the CD is callable by the bank. Your 8 year CD at 4.4% is great but can the bank call it? In other words if interest rates fall below 4.4% the bank has the option to buy you out of the CD
@@JohnPaul-xi4dz I only buy non callable. I have since purchased another CD at 4.2% for 5 years.
Can you also talk about Agency Bond? Very good yield and high quality. Do not know any negative issues
If the US tbill is purchased in a Roth IRA or 457 deferred comp. is the tax advantage (no state and local taxes) of Tbills negated?
I'm not a fan of CDs in such volatile times. But if I were going to park a chunk of money in a CD I'd do a ladder in 3 or 6 month increments over a year. I'm finding 3% in "Raise Your Rate" CDs at Ally which does, in fact, automatically raise the rate when they go up.
A ladder is what I am doing. I do not know your age. If I was younger, I will continue to bet on the stock market. Actually, I am still in it, but I am trying to fence my risk. I am also looking at the T bills to park my last chunk of available cash. I am just looking at minimizing risk while keeping the inflation from eating deeper at my cash.
What happens when dollar collapses this summer?
@@u.s.patriot298What happens when a meteor destroys the Earth in 2 months?
Am I correct that you're saying that brokered CDs are only subject to this value variability if sold prior to maturity? At maturity are you guaranteed to receive the face value of the CD as a worst case scenario?
BTW, I went to the Savebetter site and they also have a "high yield CD" option. Am I correct that this is simply a vanilla bank CD? Any potential "gotchas" to know here?
Hey Rob, CDs are still looking really good. I have a question: Via my brokerage firms, Fidelity and Vanguard, I want to invest in multiple CDs with a total cumulative value in excess of the FDIC maximum insured amount of $250k. Also, these are IRA and 401k accounts. How are these purchases treated by FDIC: Does the FDIC $250k cap apply to all CDs at both brokerage firms? Is each FDIC insured CD treated as a separate CD and therefore covered by $250k unto itself? What if i purchase 2 CDs from the same bank using two different brokerage firms? The FDIC website is not clear this. Cheers!
I got a two year brokered CD through Edward Jones at 3.3%. Not mentioned but most if not all brokered CDs are simple interest whereas bank CDs are compounded.
And in this context compounded is better right ?
Fidelity and probably all the Brokerages allow you to buy treasuries at auction, I found that eliminates the Bid/Ask premium you have to pay when buying treasuries on the secondary market, giving slightly better effective yields. You should discuss that option as well. The only downside is you have to buy on the auction date which may only be once per month for longer term treasuries.
What happens with Fidelity if you dont buy them on that day of auction?
@@robertw477 If you look at the auction schedule you can place your order after 4pm on the announcement date up to the morning of the auction date. The available treasuries appears on the auction tab. This gives you a few days to place your order.
Buy at Treasury Direct….I bought my 9.6% I bonds and 17 week bonds that way. 17 week is at about 4.6%.
Alliant Credit Union tends to have some of the highest certificate APYs that I find.
Are CD's the best way to get guaranteed income from cash reserves? I'm not comfortable with bond funds because they can go down and are not guaranteed.
Hi Rob, thanks for the video. My brokerage account is with InteractiveBrokers, and their disclaimer states that their CDs are NOT FDIC-insured although they're issue by FDIC-insured banks. How can that be?
Can you put out informational video on I bonds they dont seem to be very clear on how that all works with gifting ect.
thanks
Thank you!
Are the CDs on save better callable? I don't see that in the fine print but I know a lot of CDs especially those sold by brokerages are callable.
@Rob Berger, what do you think of EE Bonds for now? thanks
TD AMERITRADE..bought 4 yr CD in primary market 4.45% with 4.5% yield.
It is now over two months later...Sallie Mae now has a no penalty 14 month CD through Save Better that is now 3.30%. A regular 18 month CD is available at Ally for 3.50%.
Is treasury bill income state tax exempt when we buy it at the discount from secondary market? Should the income be treated as short term capital gain or state tax exempt interest income?
So if callable, they can just return the money. So you just get whichever returns for the period it was hold? I assume it will just happen automatically when they call? Not sure why you say there will be a complication. Are you going to lose money of they do the call?
SaveBetter was down for 4 days for planned mantainance/upgrades and after that was over promplty went down again today. During all that time they didn't (still don't) allow new signups. It looks like they are having a hard time scaling up. Do you have anything else to recommend?
Since this video is 5 months old, 10-2 Treasury yields have been in inverted since June ‘22. Why would anyone buy a 13-17 month CD? A retiree should be focusing on yields. Your best bet would be 3-6 month Treasury Bills with substantially higher yields.
Treasury Bills also have a tax advantage (no state or local taxes)
FDIC insured is worth 1.04 for every 100.00 invested in the bank. so much for that !
When you discuss interest rate risk, does this mean there is never principle risk in any of the three investments you discussed here?
I'm confused about insurance with greater than 250k invested, ie which option has best protection and/or any way to preserve FDIC protection tion of larger funds? If not, how are the other options protected for greater than 250k?
separate the fund into multiple FDIC protection banks.
Fidelity has a place when I buy a CD , it asks if I want buy the CD again when my CD expires. If I say yes will they buy another CD at the same interest or do they buy a CD with a new interest rate.?
Hi Rob, I have a question about the FDIC insured between bank and brokerage CD. Is that true I have the same protection from FDIC for my brokerage CD as my bank CD even though the brokerage CD was not purchased directly from the bank? If that is the case, I wonder why people not purchase CD from the brokerage. The interest from the brokerage CD is always higher than bank CD. Thanks,
Yes, brokerage CDs are FDIC insured (although you should always confirm before buying). They do trade like bonds, so if you needed to sell before maturity, you may get less than face value depending on prevailing interest rates at the time of the sale.
In comparing to buying a $1000.00 12-month CD @ 5.15 % vs leaving $1000.00 in a saving account with 5.15% APY. Would you earn more than 5.15% with saving by letting the monthly interest from the 1000 earn monthly compound interest for 12 month? I am trying to figure out if saving this way would beat the CD rate.
How would these choices compare to a money market fund? I mean, beside the lack of FDIC...
I thought one of the advantages of brokered CDs is I can buy them in my IRA. I try to keep ~5 yrs worth of my yearly retirement withdrawl in cash like investments. Am I missing something?
How do you know when the cd matures if you decide you don't want to automatically roll it into another term? Like do i need to sell at the end of maturity or will there be something to let me know its matured and I need to sell to get my profit
Great video topic Mr. Berger. I think I'll put some money into a 12 month CD instead of my cash just sitting in my high-yield savings account.
@@kimappreciateslife Why do you have 4?
1/6/23 Rockland federal credit union. 4.5% 12 month CD. 4.0% on 15 month CD
Man, when are rates going up on CDs?? I expected better than this. I’m staying in savings at 2% at Wealthfront til CD rates go up.