Can Somebody Please Tell Me What I Am Missing?

HankL | Oct 13, 2022 | 32 posts since 2018

Just curious, am I missing something! I keep reading comments about FI that are offering 3.05% or less while other FI are offering liquid accounts as high as 3.75%? Additionally, why are some readers electing to lock into long term CD’s offering 4+% in a rising interest rate environment when it is becoming abundantly clear that the Fed will probably be increasing their rate around November 2nd by approximately another 0.75% and potentially 1.00%? Six-month T-bills are currently yielding over 4.00%. Why are readers not keeping their cash in high yielding liquid accounts that are just slightly below short-term T-bills or CD's?

Can somebody please tell me what I am missing?

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Answers

GreenDream | Oct 13, 2022 | 358 posts since 2019

You need to be more specific. What FIs are you referring to (are they FDIC or NCUA insured?), what are the liquid accounts types they're offering (savings, checking, CD, etc) at 3.75% and what 3.05% account types are you comparing them to? Be sure you are comparing apples to apples because someone looking for a simple FDIC insured savings account probably isn't too interested, for example, in a rewards checking account that requires 12 transactions a month (or other hoops) or a debt note account from some not FDIC insured organization in order to net a higher APY

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HankL | Oct 14, 2022 | 32 posts since 2018

I’m referring to Vast Bank (OK) (FDIC insured) 13 month’s 3.75% No Penalty CD which allows you to withdraw a minimum of $2500 every 7 days without a penalty. Ken listed the info regarding Vast Bank in his blog but the way it's worded it appears like it isn't available nationwide. I called the bank and was able to open a CD even though I live in another state.

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RZ | Oct 14, 2022 | 391 posts since 2017

Can you elaborate on the establishment and funding options? Is Ken's write up incorrect about the in person requirements?

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HankL | Oct 14, 2022 | 32 posts since 2018

You do not need to live in Oklahoma or be at a branch in person to open the CD.
Just fill out the CD Interest Form and a CSR will contact you. https://www.vast.bank/no-penalty-cd-promo or
Alternatively, just call and speak with a CSR.

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GreenDream | Oct 14, 2022 | 358 posts since 2019

So, you weren't comparing apples to apples. A CD (even a no-penalty CD) is not the same thing as a savings account (which the 3.05% accounts you were referring to are).

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HankL | Oct 14, 2022 | 32 posts since 2018

I disagree. The difference(s) are so insignificant that a NP CD and a savings account are virtually the same.
In this particular NP CD, you can withdraw your money every seven days, and if you withdraw at least $2500 than there is no penalty! The difference between 3.05 and 3.75 APY is sufficiently large enough to incentivize me to choose the NP CD over a lower paying saving account. Perhaps another way to look at this is to consider this CD a seven (7) day CD that rolls over for 13 months.
Perhaps you can explain why you believe that a "CD (even a no-penalty CD) is not the same thing as a savings account"?

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GreenDream | Oct 15, 2022 | 358 posts since 2019

You asked what you were missing. You have the answer (you are comparing apples to oranges). That you don't like the answer doen't alter the fact that that is what you are doing.

CDs (even NO penalty ones) and Savings accounts are two different product types with different target audiences. For just one example of the differences for this particular CD, you say it requires you to take a minimum amount out when you withdraw. Most all saving accounts let you take out any amount at a time. If I only need to take out $100, I can do that penalty free from a savings account, with the account you are talking about I\'d have to take out $2500 or get hit with a penalty.

Two different product types with different purposes. Not saying one is better than the other, just that they're not the same thing and *THAT* remains what you are missing.

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HIMARS4UA | Oct 15, 2022 | 190 posts since 2022

HankL, just curious, have you done business with Vast before you took their 13-months No Penalty CD @3.75APY deal?

After reading the 'small print' on that deal (which I had to request twice when emailing back and forth with Vast) I came away with a feeling that their NP CD isn't as straight forward as others that I've seen.
Vast’s policy pertaining to early withdrawal penalty verbatim:

EARLY WITHDRAWAL PENALTY. You have agreed to keep the funds on deposit until the Maturity Date of your Account. Any withdrawal of all or part of the funds from your Account prior to maturity may result in an early withdrawal penalty. We will consider requests for early withdrawal and, if granted, the penalty as specified above will apply.

Minimum Required Penalty. If you withdraw money within six (6) days after the date of deposit, the Minimum Required penalty is seven (7) days' simple interest on the withdrawn funds. If partial early withdrawal(s) are permitted, we are required to impose the Minimum Required Penalty on the amount(s) withdrawn within six (6) days after each partial withdrawal. The early withdrawal penalty may be more than the Minimum Required Penalty. You pay the early withdrawal penalty by forfeiting part of the accrued interest on the Account. If your Account has not earned enough interest, or if the interest has been paid, we take the difference from the principal amount of your Account.

Exceptions. We may let you withdraw money from your Account before the Maturity Date without an early withdrawal penalty:(1) when one or more of you dies or is determined legally incompetent by a court or other administrative body of competent jurisdiction; or (2) when the Account is an Individual Retirement Account (IRA) established in accordance with 26 USC 408 and the money is paid within seven (7) days after the Account is opened; or (3) when the Account is a Keogh Plan (Keogh), if you forfeit at least the interest earned on the withdrawn funds; or (4) if the Account is an IRA or a Keogh Plan established pursuant to 26 USC 408 or 26 USC 401, when you reach age 59 1/2 or become disabfed; or (5) within an applicable grace period (if any).

“WE WILL CONSIDER REQUESTS FOR EARLY WITHDRAWAL AND, IF GRANTED, THE PENALTY AS SPECIFIED ABOVE WILL APPLY.”…
"If granted" – The bank seems to give itself plenty of leeway to hold on to your money with them longer that you may have planned.
“YOU HAVE AGREED TO KEEP THE FUNDS ON DEPOSIT UNTIL THE MATURITY DATE OF YOUR ACCOUNT.” – this sounds like it was written by a lawyer who is presenting his case before a judge.

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HankL | Oct 15, 2022 | 32 posts since 2018

Actually, this is my first time dealing with Vast Bank. I recognize and share your concern about the language presented and I agree with you that it sounds like it was written by a lawyer. Please check out their website at:
https://www.vast.bank/no-penalty-cd-promo and also see Ken's October 11, 2022 blog at https://www.depositaccounts.com/banks/vast-bank/offers/
Please note that Vast Bank is a smalI bank. I spoke to an Assistant Branch Manager who confirmed to me that you can make withdrawals every 7 days and they will not incur an EWP as long as the amount is at least $2,500.00. I didn't ask if I can withdraw the entire balance of the CD but if I have to keep the CD open the entire 13 months than I can leave a dollar until it matures and thus avoid any penalty.

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HIMARS4UA | Oct 16, 2022 | 190 posts since 2022

HankL, just to be clear, I do like Vast’s 13 months ‘No Penalty’ CD on its face offering. And as you stated in your previous posts, one could treat this NP CD as a vehicle to maintain funds liquidity in anticipation of higher rates. However, the bank would have to provide clear assurance in that it truly is ‘No Penalty’ deal.

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chaser14 | Oct 14, 2022 | 61 posts since 2019

I think some of us do not trust the FED given it’s past knee jerk reaction in how quickly they reverse course. I for one have three large 36 month CD’s maturing before December 1st and all were earning 2.80% or less so the CD’s right now, especially brokered CD’s sound great compared to what I was earning but I’m parking my money in liquid savings for a bit longer then I’ll lock in for 4 and 5 years to complete my ladder. Also, just today my spouse and I bought the maximum amount of $10,000. each in I-Bonds.

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betaguy | Oct 14, 2022 | 180 posts since 2022

Because markets never make sense except in hindsight. Well, maybe not even then.

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mtshap | Oct 13, 2022 | 4 posts since 2017

Please tell me what is an Fl institution and which ones are offering 3.75%

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HankL | Oct 14, 2022 | 32 posts since 2018

I’m referring to Vast Bank (OK) (FDIC insured) 13 month’s 3.75% No Penalty CD which allows you to withdraw a minimum of $2500 every 7 days without a penalty.
Please see my comment to GreenDream.

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w00d00w | Oct 14, 2022 | 360 posts since 2012

if it works for you in your situation, stick with it. everyone has their own scheme for getting higher yield on money without putting principal at risk. who knows when 5+ year CD rates will peak? i'm certainly not confident in my ability to pick just the "right" moment to move from a highly liquid account to a long term CD. am also highly skeptical of those who claim to have that ability.

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