Here are the rates of the Capital One Bank new issue, non-callable brokered CDs offered today (9-22-2022) at Fidelity: 5yr @ 4.30%, 4yr @ 4.25% and 1yr @ 4.05%. The rates of the American Express new issue, non-callable brokered CDs offered today at Fidelity are 3yr @ 4.30% and 2yr @ 4.20%.
Just a quick note to thank you for your posts. You have a real talent around succinct, relevant and data driven content. I really appreciate and look forward to your insights.
And, with regard to the content of your post, the CD ladder one could create earlier today from the Fidelity brokered CD's you listed here is the strongest and most comprehensive ladder from short to long term maturities that I have seen in years.
P.S. IMO, the breadth and quality of the brokered CD portfolio from Fidelity this week has been far better than Vanguard's. I get the impression that Vanguard got caught sleeping by brokered CD demand this week.
You are very kind. Thank you. As we navigate tumultuous times, I wish all of DA Nation the simple pleasures of life....especially with the colors, scents, decorations and festivals of fall approaching. In the end, the blessings of each day are all that really matter.
I took the EWP on a CD at Penfed because the Penfed EWP doesn't eat into your principal. No such luck at Bread Financial, so I will have to be satisfied with 3.5% APY on a 2YR CD there. I was kind of starved for income so I jumped too early on that one.
Also, you may have misinterpreted my previous post. Currently "Capital One Bk USA Natl Assn" (FDIC certificate #: 33954) does not offer any new issue, non-callable brokered CDs at Vanguard or Fidelity. So, currently you can’t purchase any "Capital One Bk USA Natl Assn" new issue, non-callable brokered CDs at Vanguard or Fidelity. They might offer some in the future, but when is unknown. It could be weeks, months, or maybe longer. Also, if they are offered in the future, the interest rates and terms of the "Capital One Bk USA Natl Assn" new issue, non-callable brokered CDs may be different than those of the "Capital One Natl Assn VA" new issue, non-callable brokered CDs.
Looks like they'll be closing this loophole- message from Fidelity this morning:
Sent: 09/30/2022 11:41 AM
Warning Effective October 1, Capital One Bank (USA), N.A. (FDIC certificate number 33954), is merging with Capital One Bank, N.A. (FDIC certificate number 4297). The combined issuer will be known as Capital One Bank, N.A., and will retain FDIC certificate number 4297. Current holders of brokered deposits of the two issuing banks are grandfathered with FDIC coverage, according to current account-level coverage limits. Additional purchases of Capital One CDs (including Capital One Bank [USA], N.A., FDIC certificate number 33954 in the secondary market), when combined with current holdings in either bank, may be covered only up to the current account-level coverage limits.
So a straight-up 4% yield from a bank would beat the non-compounding brokered CD, at least in dollar terms. Unless, of course, you are able to put each dollop of semi-annual interest spun off from the brokered CD into an even higher yielding vehicle. [For four+ years, running.]
Am I wrong?
If such a CD is purchased at a brokerage, the above would be true whether or not you "wanted interest disbursed". The interest would be paid periodically, regardless of your wants.
The math stands, in a purely abstract sense. And would hold in the real world, were the interest on the brokered CD spent as soon as received every six months. (Or, yes, reinvested at 0%). So let it be said that the "advantages" of a non-callable brokered CD are at least two-fold:
To be able to receive interest (albeit non-compounded) "as you go" . . . with the option of
a) spending it, without incurring any EWP, as would be the case with a standard bank/credit union certificate, or
b) reinvesting it, if only in an interest-bearing Savings account, for an enhanced return.
The variables involved in the second option are too numerous for my narrow mind to enumerate. But with some more spreadsheet noodling, I did determine that, for a 4.30% APR brokered (non-compounding) CD to beat the compound return of a 4.30% APY bank CD, each semi-annual proceed from the brokered CD would need to be aggregated into — and remain in, for the remainder of the 5-year term — an account earning close to 4%. (That's as close as I could get).
So, yes, for argument's sake, in a rising-rate environment, where APRs & APYs continue to escalate over the next five years, the brokered CD is indeed a shoe-in. Whether those rates take a dive somewhere, midway, is unknown, however, but also a possibility.
Given all the unknowns, my preference is to go with something comparatively more in my control — a guaranteed APY through a bank / credit union, rather than a brokered CD (albeit non-callable). And, of course, ladder multiple CDs, to hedge those bets . . .
Thank you for calling out my fuzzy logic, Richard, and bringing it to our attention!
Which is to say that, during the course of your investment period, the value of your brokered CD may both increase, and decrease. Be sure to note that you are guaranteed to get back your initially invested principal only if you hold it to full maturity.
As an example, I am currently invested in a 5-year brokered CD (through TD) with Comenity. It matures next year, and has been dutifully spinning out its promised 3.35% APR each month (in approximate twelfths). For the past several years it was so "desirable" on the secondary market that its value, recorded daily online (by TD) soared over $10k beyond my initial $250k investment.
In our present environment, however, with rate leaders described herein that are now 4% and above, this CD's value, as of today, is at a loss of $1,785.65; instead of $100, its current par is $99.2857. My plan, however, is to hold it until full maturity next year, and then reclaim the full value I originally invested (albeit with less buying power, due to inflation).
Just be cautioned to expect unpredictable fluctuation$, so they don't catch you unawares, and unnerve you. If you're super savvy, somewhere during the course of your brokered CD holding, you might even have reason to sell early, generating a tax loss. (Or, alternatively, a taxable gain.)
[That's TD Ameritrade, not Treasury Direct; sorry for any confusion.]
This morning, my 3.35% brokered CD, maturing in a year (9/26/23), reads as it did last night: Price $99.2857 | Mkt Value $248,214.35 | Gain –1,785.65 . . . – .71%
Go figure!
Disregard my previous comment. My math was wrong in determining the discount.
It's not really relevant for me, since I'll be holding until maturity. But it is certainly an intriguing bellwether — a barometer, or sign of the (volatile) times . . . and shifting winds.
But it does unsettle my "net worth" calculation each time I factor it in — not quite knowing whether to take it at face value . . .