CD Or Money Market?

CDmanFL | Jan 11, 2023 | 286 posts since 2019

Friends,

I just broke a 5 year CD at 3.1% and paid a 6 month penalty and now have $300K to place. I was going to put it in a multi-year CD but saw that some of the big brokerages have MMs around 4.25%. I know that no one has a crystal ball but does it make sense keeping it liquid at 4.25% in the hopes of getting that coveted 5% (or higher) five year CD? Call it a little poll with no backlash from me if your prognostication is wrong. Just curious to know what others would do. Also wanted to ask, is there any real risk in these brokerage MMs? I know they are not insured but is there anything to be concerned about?

Post an answer

Answers

rockies | Jan 11, 2023 | 295 posts since 2018

@CDmanFL
Short term vs longer term is the question each of us is trying to answer for ourselves, so I will not try to guess the right answer for you.

However, if you decide to go shorter term, I highly recommend you read the post by RichardW on taxable equivalent yields of 6-month CD's vs 6-month Treasurys at

https://www.depositaccounts.com/community/misc/51048-comparing-taxequivalent-yields-6month-tbill-6mo...

Additionally, this same analysis is appropriate for 1-, 2-, 3-, and 4-month Treasurys. All of these hit record highs today (January 10) for their maturities (in the current rate cycle). As an example, the 1-month Treasury finished the day at 4.41% which is up 66 bps since touching 3.75% on December 8. And, with no state or local tax, the taxable equivalent yield on this short term Treasury may easily exceed the top money market funds and short term CD's if you live in a state with these taxes. Rates are from the Daily Treasury Par Yield Curve Rates at:

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treas...

As one example, you could create a one month Treasury ladder by buying $75K per week of 1-month Treasury bills so you would never have to wait longer than a week to access $75K for emerging CD opportunities.

No new bank/credit union, no ChexSystems, no credit check, no $250K FDIC/NCUA insurance max, direct Treasury obligation, secondary market if you need to sell, ability to track Fed increases while waiting for the right longer term CD, etc.

Just another idea as you plan your next steps.

CuriousDave | Jan 11, 2023 | 233 posts since 2018

If you are looking for a longer term, Langley Federal CU has a limited time offer of 5% APY for a 29 month CD.

dave9354 | Jan 12, 2023 | 58 posts since 2010

That is only for an ira cd

Demay | Jan 11, 2023 | 29 posts since 2018

Navy Fed credit union 5% 15 month!

fliegeroh | Jan 11, 2023 | 116 posts since 2022

I am not opening any CDs now because I think liquid rates are going to rise shortly and will be in the 4.75 to 5.00% rate later in the spring. I have no crystal ball as you say, but I would keep some of that cash in say MySavings Direct at 4.35% APY and then open shorter CDs as the rates rise. Go with CD ladders rather than putting all your cash in one CD.

MAKNYC | Jan 11, 2023 | 323 posts since 2015

Regarding the brokerage MMF risks, it’s technical, but you need to determine the type of MMF it is. If it’s specifically defined as a government fund it would not be subject to liquidity gates and/or liquidity fees whereas more general MMF (that hold commercial paper, CD’s and asset backed securities) would be subject to both in the event of a true crisis. This would be explicitly laid out in the prospectus. It’s hasn’t happened since these new regs were put in place after 2008/9 but this was the governments way of trying to avoid having the sponsoring firm support their funds. Very low risk, but not 0. There are also even riskier varieties that aren’t specifically forced to maintain ‘the buck’, but those tend to be more institutional so I’m assuming you wouldn’t find yourself playing there.

Ltssharon | Jan 13, 2023 | 471 posts since 2020

Yes, there is something to be concerned about. I am concerned any time something makes me at all anxious. These not fdic insured mms cause me anxiety.

JeffinEasternFL | Jan 11, 2023 | 744 posts since 2020

If FDIC coverage is a concern, there are plenty of banking money market checking/savings accounts that are covered under FDIC and paying in excess of 4%! MBoI comes to mind and coverage can be up to $1M!. Most are listed here on DA...I'm sitting on enough liquid cash to fund two JUMBO CDs myself and waiting while a couple others at 2.7/3.0% come due this year and next and the EWP is to severe to pull them now.

Ltssharon | Jan 13, 2023 | 471 posts since 2020

How about this: every week for a month buy 1 month treasuries, putting 300/4 dollars in each time. Just keep rolling it over til you see the long term deal you want. How about that?

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.