Why In The World Would Anyone Buy A CD At These Rates?

chipcollector | Mar 17, 2022 | 23 posts since 2010

Just looked at the 2 and 3 year (JUMBO) CD rates

I used the "search anywhere" tool and with one exception

(a CU that most cannot join) I see ridiculously low CD rates.

The banks are not even paying as much as Treasuries.

2 year Treasury is 2.02

3 year Treasury is 2.16

As of today (3/17) at 2:30 PM Eastern.

Brokers like Fidelity do not charge commissions on Treasuries.

The CD's ought to pay more than Treasuries (they do not)

Just my 2 cents

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Choice | Mar 17, 2022 | 599 posts since 2020

Signals to other FIs, “this is where we are/going to and don’t go above us.”

jack12 | Mar 20, 2022 | 66 posts since 2021

This is interesting
I'm showing 1.41% for a 1 year and 1.98% for a 2 year
Compares favorably to the 18 month 1.50% CD I was considering and no need to join yet another credit union to get it

Jennie | Mar 23, 2022 | 13 posts since 2010

Must have missed your earlier post. Would you please tell me the institutions where you are getting these good rates.
Thanks very much.

chipcollector | Mar 23, 2022 | 23 posts since 2010

I believe Jack is reporting what he is seeing for Treasury securities

Ltssharon | Mar 23, 2022 | 57 posts since 2020

Hi. I'll take your question literally for fun. Many people never have any financial training or mentors. Once they learn about cds they know more than 95 percent of the people they know. Once they learn about cd ladders they are really considered experts. Many many people I know in their forties have nothing but hope to pay next months rents. I just recently discovered this website and the forums and ask the community, though, and so took advantage of the ibond advice, and am now looking up treasuriy bills. the treasury notes are still a challenge because I don't understand yet the way I would do bookkeeping and timing of paying taxes with them. This forum is a real "find" for me. So thanks for the posting. Income Tax On 5-Year cD. I am using all the information i get here to get comfortable operating within treasurydirect.com. By the way, would taxes be less worrisome for me if i used the Schwab brokerage?

chipcollector | Mar 23, 2022 | 23 posts since 2010

In my opinion, u’d be better iff opening an account at a discounter like Fidelity or E*Trade to buy Treasuries
Far easier to navigate than treasury.direct
Neither if those charge anything to buy Treasury securities. The income earned will show on ur 1099 for tax purposes. Not familiar with Schwab. Some discounters, like TDAMERITRADE mark up treasuries a bit but not meaningful. Treasury securities come in two stripes. One is coupon. The coupon types pay semiannual interest. The second stripe does not periodic interest. You buy it at a DISCOUNT and it when it matures u receive the face amount. The difference between what u paid and the face amount is the interest.

Either way the interest is reported on 1099

Good luck

Ltssharon | Mar 27, 2022 | 57 posts since 2020

Thanks also chip collector. I now think in the month of April I will buy 6 month bills at Schwab at auction. I will get money to invest at 4 different times in April, so I think I will look up the dates that the fed meets in April as well as treasury 6 month bull dates. If I have time and energy, that is. Thankyou.

Jennie | Mar 23, 2022 | 13 posts since 2010

Hello, Chipcollector. Would you mind telling me where I can find the "search anywhere" tool?
Thanks very much. I can't find who is offering the rates you have are speaking about in your post.

chipcollector | Mar 23, 2022 | 23 posts since 2010

Go to where you can change the location/state
scroll to the bottom of the list of states
select search anywhere (or whatever the choice is)

Anon456 | Mar 25, 2022 | 285 posts since 2011

-thank you much, CHIPCOLLECTOR, for your post.

In the past, I usually blow past Broker CDs and Treasuries, because they tend to pay less than BANKS and CREDIT UNIONS, but not at present. I finally took the time to look at my brokerage into their fixed income and CD tabs, and was surprised to see what you have been talking about. RIGHT NOW, short money going into Treasuries via my brokerage account is WAY better than normal CDs.

I had a blink eye to these because they traditionally did not compete. Right now, it is the other way around.

So thank you again ...... AND THANK YOU KEN, for this web site and useful information and posts from other users. GREAT RESOURCE

chipcollector | Mar 25, 2022 | 23 posts since 2010

u are most welcome
you are correct, these are strange times.
i've beeen buying fixed income for 34 years and i honestly cannot recall
a situation like this where banks have been so uncompetative
best to buy the Treasuries now
can't beat a Treasury for ease of purchase and sale if needed

Kaight | Mar 26, 2022 | 515 posts since 2011

Treasuries are fine. I'm really more a fan of the (USA) government agency securities myself. They are safe. They pay more. And if you buy callable short paper at a discount, and your issue is called (at par), you have hit the jackpot. This has happened to me and it is fun and profitable. In that same vein generally, even some taxable munis can be attractive provided you choose very carefully and keep things short. Any long paper today, well, I would stay away. "Keep it short, keep it safe" are words of wisdom in this rising interest rate environment.

Natch both treasuries and USA government agency paper offer freedom from state taxation.

alan1 | Mar 26, 2022 | 669 posts since 2015

Kaight wrote: "Natch both treasuries and USA government agency paper offer freedom from state taxation."

Once again, I urge people to ignore "one size fits all" legal opinions on complex tax matters. And, especially, to ignore legal opinions that cite no sources. Kaight has hit the daily double in this respect.

I have no personal knowledge or opinion concerning this matter and, if I had an opinion, I would refrain from expressing it -- I know that my opinion on complex tax matters is not of value to anyone.

According to Finra (Financial Industry Regulatory Authority) on "Agency Securities":

"The tax status of agency bonds varies ..."
Scroll down to chart re Tax Status at https://www.finra.org/investors/learn-to-invest/types-investments/bonds/types-of-bonds/agency-securi...

Again, I am not expressing an opinion on this matter. I am simply providing a citation to a source which expresses a view that is not the same as Kaight's.

Kaight | Mar 26, 2022 | 515 posts since 2011

Thank you, alan1, for your clarification. Clearly not ALL Federal agency paper is state tax free and I should have been more careful when I wrote earlier. However:

Equally clearly it is easy to find Federal agency paper which is not taxable at the state level. And I continue to commend these investments to the attention of others because they are safe. In addition:

For those living in states having low or no state income tax, the state taxable Federal agency paper might offer a better investment opportunity. All of that is merely my opinion which I am happy to share here.

QED | Mar 26, 2022 | 129 posts since 2013

Thanks, Kaight, for mentioning the government agency investments. OK, some are state taxable and others aren't. That's not a big deal in the full context of your post. I'm interested because I like the callable aspects you mentioned, which are pretty cool. I don't think treasurys are generally callable, but I'm not sure. Gotta be careful around here what I write.

Ltssharon | Mar 27, 2022 | 57 posts since 2020

Good gravy, now I know more stuff I didn't know that I didn't know. Thank you so much. I clicked on the link, and it is over my head right now, so of course I try to stay away from anything til I fully understand it. But thank you for letting me know that when people are talking about "agencies" they are talking about things I don't know. Now, doesn't that make sense, or not?

chipcollector | Mar 26, 2022 | 23 posts since 2010

I agree with most of what you stated. I buy both Treasuries and Agencies.
At least at the firms I trade at, short term agencies (under 2 years) are subject to a commission of 10bp, while Treasuries trade free of commission. The wide variety of maturity dates available in Treasuries trump the agencies.

If you look to longer term agencies, the situation changes and the agencies generally beat the Treasuries even after considering the commission

Kaight | Mar 26, 2022 | 515 posts since 2011

I am respectful of what you wrote, chipcollector. I generally purchase these sorts of investments on a yield basis. In other words, all I care about is the YTM or YTW based on the bottom line price I must pay which includes commission.

On that basis, is it your experience that shorter treasuries generally yield more than agency paper having similar maturities? If so, that is a surprise to me. Thinking here of agency paper which, like treasuries, is state tax free.

chipcollector | Mar 26, 2022 | 23 posts since 2010

Hi:

We live in the same universe and are both governed by the YTW/YTM

My experience, which may not be the same as urs, is that agencies are often
Plentiful and advantageous on the long end but scarce and less appealing on the short end, particularly when u have to give a 10bps concession on agencies on none on Treasuries

The new long dated agencies at 4 are a sight for sore eyes.

jimdog | Apr 4, 2022 | 36 posts since 2010

Treasuries are only free of federal taxes, not state.

alan1 | Apr 4, 2022 | 669 posts since 2015

jimdog writes: "Treasuries are only free of federal taxes, not state."
jimdog does not provide a source for his legal opinion.

Re federal income taxes:

According to IRS Publication 550, "Investment Income and Expenses":

"Interest on U.S. obligations, such as U.S. Treasury bills, notes, and bonds, and obligations issued by any agency or instrumentality of the United States is taxable for federal income tax purposes."
(emphasis added)
p. 5 of PDF, "U.S. obligations" at https://www.irs.gov/pub/irs-pdf/p550.pdf

Re state and local income taxes:

As to Treasury bonds, according to TreasuryDirect Research Center's article "Treasury Bonds: Tax Considerations":

"Treasury bonds pay interest every six months. This interest is exempt from state and local income taxes."
(emphasis added)
https://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond_tax.htm

As to Treasury notes, according to TreasuryDirect Research Center's article "Treasury Notes: Tax Considerations":

"Treasury notes pay interest every six months. This interest is exempt from state and local income taxes."
(emphasis added)
https://www.treasurydirect.gov/indiv/research/indepth/tnotes/res_tnote_tax.htm

As to Treasury bills, according to TreasuryDirect Research Center's article "Treasury Bills: Tax Considerations":

"This interest is exempt from state and local income taxes."
(emphasis added)
https://www.treasurydirect.gov/indiv/research/indepth/tbills/res_tbill_tax.htm

Ltssharon | Apr 4, 2022 | 57 posts since 2020

I found the same thing that Alan1 found. No need to worry about paying state taxes on treasury bills, or notes, and likely not bonds (though I didn't pay as much attention to the wording). YAY For a minute I was concerned.

GreenDream | Apr 5, 2022 | 178 posts since 2019

"..does not provide a source for his legal opinion"

Get off your high horse. This is a message board every post here is an opinion (and *not* legal advice) even your own posts, despite your claims that you are "not expressing an opinion on this matter".

By all means, when someone posts an opinion that is factually inaccurate, counter it with accurate information but spare us the high horse holier than thou attitude.

Rickny | Apr 5, 2022 | 259 posts since 2017

I was going to comment on T Bond interest taxation but thought it would be best to let Alan1 chime in :)

MAKNYC | Mar 29, 2022 | 95 posts since 2015

Agreed. Personally bought 2 year treasury at todays auction @ 2.36%. Could be wrong on my rate call but same would apply to the similar duration CD. And with the treasury I get early access to my funds at current market pricing which would almost certainly be better than any EWP and also the state tax benefit to those that it applies to. The banks are as behind the market as the Fed is.

planxy | Apr 16, 2022 | 61 posts since 2013

Financial regulatory economist here. When rates are rising, bankers follow fast on their loans and lag on their deposits. When rates are falling, borrowing rates drop slowly while deposit rates plummet. As it always was and will be.

Ltssharon | Apr 16, 2022 | 57 posts since 2020

I did not know that at all.thank you planxy.

July2022 | Apr 17, 2022 | 25 posts since 2018

A little late here, But I would suspect that a lot of people are comfortable with banks and CD's vs the unknown wizardry of Treasuries.
So being risk adverse is at the core of their investing, those people opt out with low yield CD's and make up the difference with a gig or a part time job.

betaguy | Apr 18, 2022 | 6 posts since 2022

with treasuries, you're just taking out the middleman (the banks). The treasury (the government) is who pays you via FDIC if something goes wrong. Brokered treasuries are the same basically as brokered CDs in my mind. Just better rates at this point in time. What is this unknown wizardry you speak of?

Ltssharon | Apr 18, 2022 | 57 posts since 2020

I know the treasury allows a person to buy LOTS of treasury bills, etc. , But I cannot find anywhere that states how many dollars worth of treasuries they actually FDIC INSURE. By contrast, in banks or credit unions, my trust (which has 2 beneficiaries) is fdic insured for 500,000 dollars.

alan1 | Apr 18, 2022 | 669 posts since 2015

from the FDIC: "FDIC deposit insurance enables consumers to confidently place their money at thousands of FDIC-insured banks across the country, and is backed by the full faith and credit of the United States government."
https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/

The FDIC does not insure Treasury securities. The FDIC does not pay anyone "if something goes wrong" (whatever that means) with Treasury securities.

Ltssharon | Apr 18, 2022 | 57 posts since 2020

Hi Alan 1, Thank you. I went to the website you referenced:https://www.fdic.gov/resources/deposit-insurance/financial-products-not-insured/index.html
Well, hmmm. I try to be a no-risk investor, and this website clearly indicates that treasury bills are not FDIC insured. Now I have to figure out if I bonds and treasury bills are at all more secure than stocks. I understand their value if sold on the secondary market prior to maturity, can fluctuate. I guess I had been assuming that the treasury ABSOLUTELY would magically be able to guarantee that at maturity I would be returned the full value plus interest. One time I bought 1 share of stock and the company I bought went bankrupt and the stock went down to 0. If there is any security "insurance" that accompanies buying both ibonds and treasury bills and treasury notes what kind of "insurance" is it? I could sleep well at night purchasing CDs guaranteed by "the full faith.....of the government". I really do want to sleep well at night. Thank you Alan.

alan1 | Apr 18, 2022 | 669 posts since 2015

responding to ltssharon:

from TreasuryDirect:

1. "Treasury Bills, like other marketable Treasury securities, are debt obligations of the U.S. Government and are backed by the Government's full faith and credit."
https://www.treasurydirect.gov/indiv/research/articles/res_invest_articles_tbills_104.htm

2. As to savings bonds (which are not marketable):
"The United States backs savings bonds with its full faith and credit."
p. 2 of PDF at https://treasurydirect.gov/forms/mar0023.pdf

sleep well, and don't fret over people who make unsourced and unsupported assertions about Treasury obligations, the FDIC, etc., etc.

Ltssharon | Apr 18, 2022 | 57 posts since 2020

Thanks. I will sleep well. I checked out the url source, and low and behold there it is, tucked under "forms". Lesson learned, "even when you are not looking for "forms", read everything in "forms". Thank you again.

chipcollector | Apr 18, 2022 | 23 posts since 2010

As the OP I am quite pleased that this thread is being used positively to enlighten people who were heretofore unaware of the availability of safe, higher yielding investments.

In terms of safety, Treasuries are safer than CD’s

They are direct obligations of the US Government

CD are indirect obligations of the US Government

Treasuries do fluctuate in price with the market but, as a trade off, do not carry stiff premature
withdrawal penalties

As this post has grown so has the yield on both Treasuries AND CD’s. Some institutions have raised their rates to levels almost as high as Treasuries

As always, invest only within ur comfort zone

Ltssharon | Apr 18, 2022 | 57 posts since 2020

Thank you so much chip collector. I have learned so much from these generous responses. And of course there is much to learn. For example, my brother just informed me that since 1/4 of my ibonds were inherited, for those I have to put some kind of " income in respect of decedent IRD" . So off I go with new things to either learn about or make errors in. This is the sort of thing I don't know that I don't know, until some kind individual takes it into their kind heart to enlighten me. Of course, money talk is taboo for the most part in polite conversations, so this website is extremely helpful to me. Thank you.

alan1 | Apr 18, 2022 | 669 posts since 2015

Ltssharon -- as to inherited savings bonds and federal income taxes, a starting point is IRS Publication 550, "Investment Income and Expenses".

The section on "U.S. Savings Bonds" begins at page 7 of the PDF. Begin there, keep on reading and, when you are on the third column on page 8 of the PDF, you will arrive at the subsection on "Decedents". That subsection concludes on page 9 of the PDF at
https://www.irs.gov/pub/irs-pdf/p550.pdf

As I stated earlier, this is "a starting point".

Ltssharon | Apr 19, 2022 | 57 posts since 2020

Thank you. I printed the 550 pages out and just read them through for the first time. Now the battle begins to get a copy of mom's taxes (both individual and estate) , and possibly her tax forms from 2001 - 2007 (date of death), to try to figure out what has been paid on interest those bonds earned and reported to the IRS while she was living, and also on her individual tax receipt on the years before and of her death as well as on the estate tax paid on the year of her death. My on my. A family member took care of her taxes, but he may not actualy have all this information... My oh my. Thank you for all your help. I feel confident now enough to go actively seeking this information. I hope this post helps someone else also. It is worth taking all these complexities into account when planning how to leave money to others upon one's own death.....My idea is that you need to leave them (maybe in a letter), information about how you have handled ibond interest. With the IRS saying all is needed is to keep 7 years tax receipts, and the IRS not actually having tax statements LONG past available, and ibonds lasting for 30 years, it is futile ground for tax unknowns. So, thank you, and I really needed this help.

Rickny | Apr 17, 2022 | 259 posts since 2017

I have no problem with Treasury direct but some people are concerned what the Treasury department would do if your funds were taken due to fraud.

planxy | Apr 19, 2022 | 61 posts since 2013

It is very hard for scammers to get into anyone's account. Have to know everything about the account-holder, filling in about 30 line items correctly, then it CALLS you a few days later. Source: Experience when I thought I had lost my passcodes.

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