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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Another Custodial CD Special with a Top 10-Year CD Rate

POSTED ON BY

Update 8/9/13: This custodial CD special is no longer available.

Another CD with a top rate is being offered through the custodial CD program of Jumbo CD Investments, Inc. It’s similar to the CD that I reviewed in June. On the plus side, the rate is higher, but the early withdrawal penalty is much more severe. This new CD has a 2.63% rate (as of 8/2/13) for a 10-year term. It’s important to note that this rate is subject to change daily until the bank has received your funds via a wire transfer. Minimum deposit is $100,000. The early withdrawal penalty is 42 months of interest.

This custodial CD is nationally available, and compared to other nationally available CDs, it’s a clear rate leader. As of 7/15/2013, the highest CD rate that doesn’t require an active checking account is 2.00% APY for a 5-year CD at Salem Five Direct. Longer terms don’t offer higher rates. For CDs with terms over 5 years, the highest rate is 2.00% APY for a 10-year CD at Apple Federal Credit Union. The highest at an internet bank is 1.90% APY for a 10-year CD at Discover Bank.

Another CD option is a brokered CD. At Fidelity, there are currently call-protected 10-year brokered CDs with a rate of 2.90%. The downside with brokered CDs is that if you want to receive the CD funds early, you can’t make an early withdrawal. Your only option is to sell the CD on the secondary market, which could result in a significant loss in principal if rates have risen.

This custodial CD isn’t the typical type of CD that you get from your local bank or credit union. You have to go through the custodian bank. For this case it’s Sauk Valley Bank & Trust (FDIC Certificate # 35131). The underlying bank does not accept CDs from individuals directly. They only open up institutional CDs. That's the reason for the need to do the CD through Sauk Valley acting as your agent. The underlying bank is also a FDIC member, and the CD will be FDIC-insured by the underlying bank (assuming you keep the amount under the FDIC limit). Unlike the typical brokered CD, you can’t sell this on the secondary market if you need to redeem the CD early. The underlying bank will charge you a 42-month early withdrawal penalty.

This CD is available for both personal and business accounts. Joint and trust accounts can also be established and used to increase the amount that is FDIC insured.

This CD offering is available through the CD placement service, Jumbo CD Investments, Inc. Chris Duncan from Jumbo CD Investments reached out to me to promote this deal. Since it's a good deal, I decided to help promote it.

Chris Duncan has worked for Jumbo CD Investments since 1999, and over the years Chris has often shared his CD experiences at DepositAccounts.com and at my Bank Deals blog before DA. You can learn more about Chris and Jumbo CD Investments at their About-Us page.

Chris provided me the steps that you’ll go through if you’re interested in this CD:

  • Review the CD offer at Jumbo CD Investments at this link, and complete their contact form.
  • Jumbo CD Investments will send you a custodial agreement and a new customer form from Sauk Valley Bank & Trust. Jumbo CD Investments will also provide you information on the underlying bank. You’ll be able to confirm that this bank is a FDIC member. You can also use DA’s Bank Health Ratings page to check on the bank’s financial health.
  • Fax the completed custodial agreement and new customer form to Jumbo CD Investments or Sauk Valley Bank & Trust along with your w-9 and an authorized signer resolution.
  • Place your order with Jumbo CD Investments and wire transfer your funds to Sauk Valley Bank & Trust to purchase your FDIC-insured CD.
  • Sauk Valley will wire funds on your behalf to the bank offering the CD
  • You will get a confirmation of your CD from Sauk Valley
  • Sauk Valley will either mail you your monthly interest or they can directly deposit it into another bank account
  • When the CD matures or is closed early, you can choose to have the principal and interest wired back to your own bank without any fee.

When I wrote about the June custodial CD, a long-time reader looked into the offer and commented about his experience. Below is an excerpt from his comment:

When you contact Chris, he will send you via e-mail many items about his firm's background, his resume of experience in this business line, several other bank specific agreements, etc. My impression is that Chris is very good at what he does, has been doing it for several years and it may warrant our review.

You can read his entire comment and the comments of other readers about the June custodial CD in this blog post. These comments also include Chris’s answers to readers’ questions and concerns.

If this current custodial CD is of interest to you, check out the Jumbo CD Investments’ special page and click on the "Get Started" button. From there you can contact Chris and learn more about the CD details. Also, feel free to ask questions in the comments of this post. Chris will be happy to answer your questions.

  Tags: CD rates

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Comments
20 comments.
Comment #1 by ChrisCD posted on
ChrisCD
Just leaving a comment so that I am subscribed to the post.

cd :O)

3
Comment #2 by OldGuy posted on
OldGuy
Fidelity is now showing a 3% GS Bank non-callable 10-year, closing on 7/24.  GS offered that rate last week as well, but it seems to have been snapped up pretty quickly.

11
Comment #3 by OldGuy posted on
OldGuy
The New York branch of State Bank of India has now shown up with a 3.10% APY 10-year, non-callable brokered CD, settling on 7/29.  Let the bidding continue.

11
Comment #4 by lou posted on
lou
Chris, your last CD offer had a six month early withdrawal penalty; this one is 42 months. In my view the penalty is way too onerous and negates any advantage it would have over a brokered CD. I would suggest that you negotiate better terms from your client banks. Personally, I could never purchase a CD with a 42 month penalty.

7
Comment #5 by ChrisCD posted on
ChrisCD
Believe me, I wish the bank would negotiate better terms, but they aren't really having a hard time getting money at this point.  Of course the two offers above could have some affect.  We will have to see how the rest of the week plays out.

I am working on a comparison between a brokered CD like the ones above and this one where there is a penalty.  As soon as I have that, I will post that info.

Personally, I believe this one could be a good target for someone with a well established ladder and looking for income.  Of course the other two could fall into that category as well.  However, I believe they would be much more expensive to close in a higher rate environment.  Again, I will have a future comment to see if that is the case.

3
Comment #6 by ChrisCD posted on
ChrisCD
Well, after another rate drop, my rate is looking worse and worse. Rate is now a 2.73%.  Argh.

Furthermore, the penalty doesn't help.  I looked at a scenario where rates rose to 4.5% in 3-years.  That would leave 7-years left.  The brokered CD is slightly more expensive to close but of course it is paying a higher rate so overall it performs better.  Keep in mind, both are very expensive to close and either way closing after 3-years gives you an overall loss. This assumes a $100,000 investment.

I estimate the cost of closing the brokered CD by calculating the difference between 4.5% and 3.10% over the remaining term.  That gave me a cost of about $9,800. Now, there are a few other variables that would come into play on the pricing, but the rate is obvisouly by far the largest.  Estimated Total earnings after 3-years if closed:  -$500.00

The 42-month penalty on the 2.73% comes to about $9,424.00.  Total estimate earnings after 3-years if closed:  -$-1234.11

So unless you have $250,000 at the above mentioned banks, I don't think I have an advantage today.  I am curious if you think my cost to close the brokered CD seems accurate.

cd :O)

4
Comment #7 by QuickSilver posted on
QuickSilver
I'm surprised that a CD with these terms would attract any knowledgeable buyers.  

The current 10 year US Treasury note yields ~2.55% at the moment.  It is extremely liquid, extremely safe, and it is not subject to state income taxes.  

9
Comment #8 by ChrisCD posted on
ChrisCD
The rate was higher when we first brought it to Ken's attention.  We have actually seen quite a few banks dropping their rates so the recent spike in rates may not hold.

The rate itself does rank in the top 10 to 15 depending on which sources you have access to.  If the knowledgeable buyer is already maxed out at the other banks, this rate looks pretty good.  I realize that isn't the case with many readers here, and believe me, I fit into that category.  :O)

3
Comment #9 by doitmyself (anonymous) posted on
doitmyself
It appears this "unknown" bank/CU is unable to make a offer and stick to it for any period of time.  Brokered CDs/treasuries are the better choice.

Chris, I don't think you're ever going to come up with anything worthwhile.

3
Comment #10 by OldGuy posted on
OldGuy
The State Bank of India 10-year deal seems to have disappeared from Fidelity's list.  Also, I thought I saw a CIT 10-year non-callable CD pop up on the list this morning, but I blinked--and now it's gone.  Maybe the deals have been sold out.  Maybe the banks have had second thoughts.

5
Comment #11 by ChrisCD posted on
ChrisCD
I logged into my Schwab account and still see State Bank of India.  There is also a CIT Bank (3.00%), GE Capital (2.90%) and Goldman Sachs (3.00%).  I do need to make it clear I am just providing that info as an individual logging into his personal account. 

4
Comment #12 by Anonymous posted on
Anonymous
Tying your money up for 10 yrs at that rate is for suckers.

4
Comment #13 by Anonymous posted on
Anonymous
Interesting Chris,

 

What do you think the reason is that Goldman Sachs is always on top of the list for 10 year rates?

1
Comment #14 by ChrisCD posted on
ChrisCD
@13 - There are a few possibilities.  One may be reputation.  Some people don't like Goldman Sachs very much so by offering the top rate, they are providing an incentive to overlook that.

Also, alot of people have CDs with them so buy putting their rate at the top, they ensure that is the first rate people see.

And they may want to ensure they capture as many deposits as they can, thus they price at the top so that they aren't competing with the middle of the pack.

Anyone else have any thoughts?

3
Comment #15 by Anonymous posted on
Anonymous
I look at Schwab's inventory of CD offerings often also.  I also notice that the yield to maturity rate is normally higher on secondary market C.D.'s than the rate on new issues for Goldman Sachs CD's.  I have never been told the reason for this but I guess you might be taking a slight risk paying over par on the secondary C.D. If the bank was to go bankrupt, my understanding is that you would only get back from the FDIC the par value and none of the amount over par; therefore, I suppose this may be the reason the yield to maturity rate is higher than the new issues due to this added  risk compared to new issues. 

1
Comment #16 by lou posted on
lou
Yeah, it's very simple - the rate they pay on the CD is less than what they would have had to pay if they issued a 10-year bond. Also, the federal govt provides a guarantee (FDIC insurance) which probably costs them less than what they would have had to pay for private insurance for a bond issue.

3
Comment #17 by paoli2 posted on
paoli2
I am confused by the info about Goldman Sachs CDs and FDIC insurance.  I have some from our brokerages and they definitely are supposed to be insured.  Are you saying they aren't?  BTW, I only buy new issue CDs if that makes a difference.    Thanks.

2
Comment #18 by paoli2 posted on
paoli2
Folks:  Per the above post, I just checked my records and it says "Goldman Sachs Bank" FDIC.  This is the reason I always make sure the CDs are from banks.  They are also 5 year CDs.  I rarely go longer.

2