TD Ameritrade Callable Step-Up CD Offering

CTM | Mar 1, 2017 | 62 posts since 2010

I frequently get notices of new issue callable CDs from TD Ameritrade, but this is the first one that seemed to offer reasonable rates.

If you do not currently have an account at TD Ameritade, you may also be eligible for an account opening bonus of up to $ 2500 (for a $1,000,000 account).

Issuer: Wells Fargo Bank

Rating: FDIC Insured*

Order Period: until March 27, 2017

Coupons: 2.00% until 09/30/2019; 2.75% until 9/30/2021; 4.25% until 03/30/2022

Maturity: March 30, 2022

Payment Frequency: Semi-Pay

Call Status: Callable 09/30/2019@100 and quarterly-thereafter

Survivor's Option: Yes-Up to applicable limits

Price: $100

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JDubs | Mar 3, 2017 | 23 posts since 2016

Thanks for the heads up on this. It is also available through Fidelity.

I'll have to start paying attention to brokerage CD rates again, as they appear to be improving - I'm seeing 2.3% for non-callable 5-year, which is comparable to regular bank CD/IRA rates.

cdqueen | Mar 5, 2017 | 14 posts since 2016

A question please to any from the DA community: what does it mean for a cd to be "callable" either on a specified future date, and/or quarterly thereafter, such as the recently offered TD cds? Not familiar with this terminology/fine print as would like, but possibly interested to try one. Thank you in advance to any/all who provide clear explanation of how a "callable" cd accumulates and behaves, assuming it remains unbroken by investor for full term. Thank you.

JDubs | Mar 5, 2017 | 23 posts since 2016

Callable means the bank can redeem it prior to maturity. The call date is the earliest date they can redeem it, which normally corresponds to the first step-up date, which is 9/30/2019 in this case. Quarterly thereafter means, the bank also has the option to redeem it on 12/30/2019, 3/30/2020, and so on. Whether or not they call it early likely depends on where rates end up at that time.

Ally6770 | Mar 5, 2017 | 2,316 posts since 2010

Price? Is there a charge? In the past I purchased many callable CD's as the interest rates declined but never was there a charge. I would never buy a 2% callable CD when there are better rates that you can get. If you need to get your money it would not be easy I understand. I never sold one because I purchased them only when rates were going down. It really does not make sense to purchase one when rates are going up. I really do not understand why one would. Maybe someone could explain it to me.

JDubs | Mar 5, 2017 | 23 posts since 2016

Brokerage CDs can be purchased in $1000 increments. I've never bought one myself, but there could be a charge (commission) depending on your broker. (Fidelity is no-fee for new issues, but $1 per $1000 on secondary transasctions). If they call it early on either of the step-up dates, you would end up with a 2% 2.5yr CD, or a 2.3% 4.5yr CD. I don't see any CDs currently with better rates than those. Now if it goes to maturity, then the YTM would be 2.5% for 5yrs, which is beaten by the MACU 2.75%.

Ally6770 | Mar 5, 2017 | 2,316 posts since 2010

Thanks. I always purchased them at a credit union, savings and loan or bank and never paid
for one. Always held them until when and if they were called. We did not have to take the interest.

cdqueen | Mar 5, 2017 | 14 posts since 2016

Thank you very much to JDubs & Ally6770 for your information, shared experience, additional commentary and particularly for current comparative perspective vis a vis MACU's benchmark high 2.75%. Can the investor/buyer likewise "call" the CD without penalty at quarterly increments, or is this solely the prerogative of TD? Thank you.

CTM | Mar 5, 2017 | 62 posts since 2010

The Call option is dictated by Wells Fargo, the issuer, not TD Ameritrade (or any other broker).

If you could force the issuer to "take back" the CD, that would be a Put option, not a Call option.
The Survivor's option would allow you to Put the CD back to Wells Fargo, but I have not looked at the prospectus of this issue, so I do not know the exact terms (death of owner, death of joint owner, legal incapacity, etc.).

cdqueen | Mar 6, 2017 | 14 posts since 2016

Hmmm... ambiguous plus complex has never been my favorite combination. Thanks CTM for additional clarity.

Ally6770 | Mar 6, 2017 | 2,316 posts since 2010

The issuer would rarely call the CD when rates are going up because they are paying less interest. If you needed the money you could sell it on the open market but you would get less, pay fees and most likely get less back than you paid for it. In this example you have already paid $100 for the privilege of purchasing it. . Why would they call the CD when their rate is lower? If you think rates are not going up then it might be OK. I for one would never pay for the privilege of giving someone my money. I would also never pay for the privilege to shop someplace unless I used a lot of gas (but I get it the same price with my 5% cash back credit card) and did a lot of driving so I could not time my gas purchases with top tier gas or had a huge family and could not shop bargains and stack them with coupons.

CTM | Mar 6, 2017 | 62 posts since 2010

I think another minor clarification is in order ...

The "Price: $ 100" line is not a charge, but what you pay for $ 100 of principal.

You will see bonds quoted, for example, as 101 or 98.5. These numbers represent the the cost for $100 of principal (or face) value.

Ally6770 | Mar 6, 2017 | 2,316 posts since 2010

Thanks. I have never seen or bought a callable CD priced like that unless someone was selling their callable CD.