Fifth Third Bank $250 New Checking Account Bonus w/ Direct Deposit (Expired)

Posted on September 21, 2022 // 10 Comments

Expired: This offer is no longer available.

Fifth Third Bank has a $250 new checking bonus when you open an eligible Fifth Third checking account and make direct deposits totaling $1,000 or more within 90 days of account opening. Note that Fifth Third Bank usually only accepts applications from the geographic area where they have physical branches, including the following 10 states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, Tennessee, West Virginia.

Opening online should automatically populate the Offer Code, or you can request an e-mail with a unique code to bring to a physical branch. Here the fine print:

To qualify for the $250 checking bonus, provide the offer code, open a Fifth Third Momentum® Checking, or Preferred2 checking account by 12/31/2022 and make qualifying direct deposits totaling $1,000 or more within 90 days of account opening. Account(s) must be funded within 45 days of account opening or account may be closed, and you may not be eligible for the bonus. The $250 checking bonus does not require any additional activities. A qualifying Direct Deposit is an Automated Clearing House (ACH) credit, which may include payroll, pension or government payments (such as Social Security). The cash bonus will be deposited into your new account within 10 business days of completing qualifying activity requirements. In order to receive the cash bonus, your checking account must be open and in good standing. Offer is not available to existing Fifth Third checking customers or to those with a Fifth Third Checking account that has been closed within the last 12 months. Bank reserves the right to limit each customer to one new account-related gift incentive per calendar year. Eligibility may be limited based on your account type and ownership role. Account must be funded within 45 days of account opening. No minimum deposit required to open a checking account. Bonus may be taxable as interest income and reported on IRS Form 1099-INT. Consult your tax advisor. UNIQUE OFFER CODE MUST BE PRESENTED AT ACCOUNT OPENING TO RECEIVE THE BONUS. See your banker for details. Not valid with any other offer.

The Fifth Third Momentum Checking account has no minimum balance, no monthly service fees, and fee-free ATM access on the Allpoint, Presto!, and 7-Eleven ATM networks.

Filed Under: Banking, Deals & Offers //

Tellus App: “High-Yield Savings” That Isn’t FDIC-Insured, Backed by Vague Promises

Posted on September 12, 2022 // 9 Comments

A few readers asked about the Tellus app, which compares itself to savings accounts and pays 3.00% APY with no caps. (4.50% APY is only up to $2,500.) Here’s a quick explanation of why it’s an easy pass. Tellus investments are not FDIC-insured and they only provide a very vague description how your money is actually invested. From their FAQ:

How does Tellus afford to pay me such a high interest rate?

Tellus generates its revenues as a non-bank lender. We provide mortgages – loans secured by residential real estate. We use technology and proprietary data to choose opportunities so that we can minimize loss and fraud; this lets us pass the profits onto you in the form of highly competitive yields.

That’s a lot of fancy words, but my translation is “Tellus lends your money out at a lot more than 3.00% APY on unknown residential real estate of unknown quality, in unknown geographic areas, at unknown loan-to-value ratios”.

Mystery underlying investments. Think of all the properties in the world that could fall under “US-based real estate”. With a more transparent structure like that of Peerstreet, I can choose the exact address of the house or building that I am investing in. I can see the original appraisal. I see the borrower terms and interest rate. I can find the purchase history, the tax records, and look up comparable properties nearby. I know I’m earning 7-9% interest rates and Peerstreet is taking about 1%. With Fundrise, I get updates with the address and pictures of the exact apartment building they just bought, and they are SEC-registered private REITs. With Tellus, I have none of this. They are asking for a lot of trust for a new startup company. Are the loans wrapped in a bankruptcy-remote vehicle? Are they registered with the SEC?

Questionable promises of safety. When lending out on residential real estate, I also accept that I can lose money on the deal, because that’s how the world works. That’s honest. From their FAQ:

Is my money safe? Can I always get my money back?
Yes, your money is safe. All transactions and personal identifying data is protected by bank-level, 256-bit AES encryption. You can trust that your money and data are secure with Tellus. You will always get your money back and you can withdraw at any time.

In my opinion, this is not honest. If you’ve paid attention at all during the crypto crisis, you know that “You will always get your money back and you can withdraw at any time” really means “Your money is really the assets of a young start-up company, and if something bad happens then we may instantly freeze all withdrawals”. Real estate loans can go bad. Startup companies can go bankrupt.

This reminds me of the biggest red flag from peer-to-peer lending: The more profusely someone promises to pay you back, the less likely they are to pay you back.

Low returns for level of risk. Even if I knew Tellus lent money using conservative underwriting and everything goes perfectly, you will never get more than the promised APY. 3% APY is far too low. A 90-day Treasury bill pays more than 3%. I would expect at least double their interest rate for the risk involved in real estate lending, which means Tellus might be taking a big cut for themselves (they don’t disclose their cut either). I regularly post FDIC-insured deals at effective rates of 4%+ APY with 100% certainty that I will get 100% of my money back.

Tellus could be run by well-meaning, honest geniuses, but there is no way I’m taking this much risk for limited upside with my hard-earned money. Look beyond the slick marketing and stock photos of happy families. There are many alternatives earning a higher return with more easy assessable level of risk.

Bottom line. Tellus advertises “high yield” and “safety”, when in my opinion it offers the opposite: relatively low returns for the level of risk you are taking on (which is completely unknowable since you have no idea what they are investing in). You are risking complete loss of your investment in a young startup that is not FDIC-insured, and thus it is an easy pass for me. Be careful.

Filed Under: Banking, Deals & Offers, Investing //

The “No Risk” Portfolio: Stock Upside Exposure with 100% Money Back Guarantee

Posted on September 7, 2022 // 5 Comments

Everyone loves a 100% money-back guarantee. A popular option on insurance policies is the “Return of Premium” rider. Let’s say you buy a $1,000,000 term life insurance for 30 years at $1,000 a year. At the end of 30 years, if you’re still alive, the insurance policy will no longer pay you the $1,000,000 if you die, but it will return all the premium you paid ($30,000). In your mind, you could think of it as “no risk” because you’ll get your $30,000 back no matter what!

Similarly, a very popular option on income annuities is the “Return of Principal” rider. Let’s say you pay $100,000 upfront in exchange for them paying you $7,000 in annual income for the rest of your life. What about the unlikely but possible chance that you die early in the first few years? A “return of principal” rider will guarantee that your survivors will at least get that $100,000 back. In your mind, you could think of it as “no risk” because you’ll get $100,000 back no matter what!

Create your own 100% Money Back Guarantee Portfolio. Insurance companies already sell complicated equity-indexed annuities that extend a form of this “no principal loss” to investing. But why not apply it to DIY investing? You may already see the flaw in the “no risk” terminology, but if you still like the psychological benefit of knowing you’ll have at least the same number of dollar bills come back to you after 10 years, read on to create your own “no risk” investment portfolio. Allan Roth writes about this in the AARP article Stock Market Investing for the Faint of Heart.

Let’s say you have $100,000. Right now, I see a 10-year FDIC-insured CD paying 3.60% APY (non-callable!) available from Vanguard. Using the Zero Risk Investment calculator from DepositAccounts, I know that I could put $70,210.56 into that CD today, and at the end of 10 years, I will be able to withdraw $100,000 no matter what. That means, I can take the remaining $29,789.44 today and buy stocks. Even if those stocks implode and lose every single penny of value, I will still have $100,000 at the end of 10 years. 100% Money Back Guarantee!

From that perspective, whatever you get from stocks is upside. This chart shows how much of the stock return I would still be exposed to. If stocks alone returned 8% annually, the overall portfolio would still go up about 5% annually, and my total at the end of 10 years would be $164,313.17.

If this level of safety sounds good to you, look more closely. That’s basically a 30% stocks/70% bank CD portfolio, and bank CDs are very similar to high-quality bonds. This is also why I prefer investing in US Treasury bonds and bank CDs for the bond part of my portfolio, I like having a portion of my portfolio that I don’t have to worry about at all. You could also use Treasury STRIPS (zero-coupon bonds) to guarantee a certain future payout.

What if you had a little more faith and just wanted a money back guarantee against the possibility of a 50% stock market loss after 10 years? That would allow you even more stock market exposure at roughly 45% stocks and 55% bank CDs:

This is an interesting alternative viewpoint for deciding your stock/bonds ratio. Personally, I think having even a 50% decline over a full 10-year span is very unlikely, but having a 50% decline over a 1 or 2 years span is very likely. That sharp decline (and all the real-world events causing that decline) is what makes people panic. If you have more faith in the resiliency of stocks, you can own more stocks. Only want to protect from a 10% loss after a 10-year span? Then you could hold 80% stocks to guarantee your money back in that scenario. If, on the other hand, you believe that stock returns are just a random walk with a greater dispersion in results over longer periods (including the possibility of the S&P 500 ending at 1,000 or less in 10 years), then you might want to own a lot less stocks.

Insurance companies are happy to sell you “return of premium” and “return of principal” riders (they are not free, they have a cost that either reduces your payout received or increases your premium cost) because know they can invest your money in the meantime and pocket the returns. If interest rates are high, that means inflation is likely high as well, and the buying power of your $100,000 is shrinking over time. So really, you are still exposed to risk: inflation risk.

More investment education can help us better tolerate stock market volatility, but we also need to be honest about our human tendencies. If using this “100% money back guarantee” structure helps you maintain a certain level of exposure to the stock market, then that can be a good thing. The fanciest investment strategy will fail if you can’t stay invested during the inevitable downturns.

Filed Under: Banking, Insurance, Investing, Retirement //

Best Interest Rates on Cash – September 2022 Update

Posted on September 1, 2022 // 22 Comments

Here’s my monthly roundup of the best interest rates on cash as of September 2022, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or portfolio stability, and there are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 9/1/2022.

TL;DR: 4% APY on up to $6,000 for liquid savings at Current with no direct deposit requirement. Total Direct at 2.60% APY liquid savings. 1-year CD 3.21% APY. 49-month at 3.85% APY. Compare against Treasury bills and bonds at every maturity (12 month near 3.50%). 9.62% Savings I Bonds still available if you haven’t maxed out limits.

Fintech accounts
Available only to individual investors, fintech companies often pay higher-than-market rates in order to achieve fast short-term growth (often using venture capital). “Fintech” is usually a software layer on top of a partner bank’s FDIC insurance.

  • 4% APY on $6,000. Current offers 4% APY on up to $6,000 total ($2,000 each on three savings pods). No direct deposit required. $50 referral bonus for new members with $200+ direct deposit with promo code JENNIFEP185. Please see my Current app review for details.
  • 3% APY on up to $100,000, but requires direct deposit and credit card spend. HM Bradley pays up to 3% APY on up to $100,000 if you open both a checking and credit card with them, maintain $1,500 in total direct deposits each month, and make $100 in credit card purchases each month. Please see my updated HM Bradley review for details.

High-yield savings accounts
Since the huge megabanks pay essentially no interest, I think every should have a separate, no-fee online savings account to accompany your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • Rates rising across the board, while the leapfrogging to be the temporary “top” rate continues. TotalDirectBank at 2.60% APY ($2,500 minimum, must initiate transfer from external bank, no FL residents for some reason). SaveBetter at 2.50% APY ($1 minimum) through Ponce Bank and Liberty Savings Bank.
  • SoFi Bank is now up to 2.00% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit each month of any amount for the higher APY. SoFi has their own bank charter now so no longer a fintech by my definition. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • There are several other established high-yield savings accounts at closer to 1.50% APY. Marcus by Goldman Sachs is on that list, and if you open a new account with a Marcus referral link (from reader Paul) you can get an extra 1.00% APY for your first 3 months.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (plan to buy a house soon, just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. CIT Bank has a 11-month No Penalty CD at 2.15% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 2.00% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 1.75% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Connexus Credit Union has a 12-month certificate at 3.21% APY. $5,000 minimum. Early withdrawal penalty is 90 days of interest. Anyone can join this credit union via partner organization.

Money market mutual funds + Ultra-short bond ETFs*
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). * Money market mutual funds are regulated, but ultimately not FDIC-insured, so I would still stick with highly reputable firms. I am including a few ultra-short bond ETFs as they may be your best cash alternative in a brokerage account, but they may experience short-term losses.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 2.14%. Compare with your own broker’s money market rate.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.97% SEC yield ($3,000 min) and 3.07% SEC Yield ($50,000 min). The average duration is ~1 year, so your principal may vary a little bit.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.75% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.85% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks and are fully backed by the US government. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 9/1/2022, a new 4-week T-Bill had the equivalent of 2.33% annualized interest and a 52-week T-Bill had the equivalent of 3.50% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 2.07% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 1.80% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.

  • “I Bonds” bought between May 2022 and October 2022 will earn a 9.62% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-October 2022, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.
  • See below about EE Bonds as a potential long-term bond alternative.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore, as I feel the work required and the fees charged if you mess up exceeds any small potential benefit.

  • Mango Money pays 6% APY on up to $2,500, if you manage to jump through several hoops. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.
  • NetSpend Prepaid pays 5% APY on up to $1,000 but be warned that there is also a $5.95 monthly maintenance fee if you don’t maintain regular monthly activity.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • Porte fintech app requires a one-time direct deposit of $1,000+ to open a savings account. Porte then requires $3,000 in direct deposits and 15 debit card purchases per quarter (average $1,000 direct deposit and 5 debit purchases per month) to receive 3% APY on up to $15,000. New customer bonus via referral.
  • The Bank of Denver pays 2.50% APY on up to $15,000 if you make 12 debit card purchases of $5+ each, receive only online statements, and make at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $25k. Thanks to reader Bill for the updated info.
  • Presidential Bank pays 2.25% APY on balances between $500 and up to $25,000, if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Evansville Teachers Federal Credit Union (soon Liberty FCU) pays 3.30% APY on up to $20,000. You’ll need at least 15 debit transactions and other requirements every month.
  • Lake Michigan Credit Union pays 3.00% APY on up to $15,000. You’ll need at least 10 debit transactions and other requirements every month.
  • Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Bread Financial has a 5-year certificate at 3.65% APY ($1,500 min), 4-year at 3.60% APY, 3-year at 3.55% APY, 2-year at 3.50% APY, and 1-year at 3.00% APY. The early withdrawal penalty for the 5-year is 365 days of interest.
  • NASA FCU has special 49-month CD at 3.85% APY. $10,000 minimum of new money. The early withdrawal penalty for the 5-year is 365 days of interest. Anyone can join this credit union via partner organization.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I see a 5-year CD at 3.55% APY. Be wary of higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I see a 10-year CD at 3.90% APY vs. 3.30% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates rise.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently 0.10%). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. Purchase limit is $10,000 each calendar year for each Social Security Number. As of 9/1/2022, the 20-year Treasury Bond rate was 3.53%.

All rates were checked as of 9/1/2022.

Filed Under: Banking, Deals & Offers, Investing //

Credit Union 1 (CU1) New Checking Account Promo $500 w/ Direct Deposit

Posted on August 29, 2022 // 31 Comments

Credit Union 1 (CU1) has a $500 checking account promotion with qualifying direct deposits. Available to both new and existing customers who haven’t set up direct deposit yet. Based in Illinois, CU1 membership is open nationwide through membership in the Credit Union 1 Educational Development Association (one-time $5 CU1EDA fee + additional one-time $5 CU1 membership fee). Hat tip to reader Chuck. Offer expires 9/30/22.

$500 Direct Deposit bonus steps.

  • Open a CU1 Checking Account. Open a checking account with CU1 online and use Promo Code CHK500, at your local branch or by calling. Must open with $25 minimum or a $500 direct deposit. Already a member with a checking account? Setup your direct deposit in digital banking and call our team to mention the “$500 checking offer”.
  • Set up direct deposit ($1,000/month for 3 months). Establish direct deposit activity within 60 days of account opening or by September 30th, 2022. Minimum recurring aggregate total direct deposit of $1,000 per month for three (3) consecutive months.
  • Receive your $500 checking bonus. The $500 bonus will be deposited into your account following three (3) consecutive months of qualifying activity. Bonus will be paid by deposit into your CU1 checking account within 7 days of meeting all qualifying criteria.
  • Note: Must keep the checking account open for at least 12 months after opening.

Offer fine print:

1 To redeem this offer you must use Promo Code: CHK500 before September 30, 2022. Offer not available to existing members who already have direct deposit coming into a CU1 account, those whose accounts have been closed within 90 days, or closed with a negative balance within the last 3 years from the date of use of the Promo Code. Promo Code is only good for one-time use and is not redeemable with any other offers. To receive $500 bonus: (1) Within 90 days of use of the Promo Code, you must establish and receive a minimum recurring aggregate total direct deposit of $1,000 per month into a new or existing CU1 checking account. (2) Your direct deposit must be from an electronic deposit of your paycheck, investment account, pension or government benefits (such as Social Security) distribution from your employer or government agency. Person to Person transfers or payments are not considered a direct deposit. Bonus will be paid by deposit into your CU1 checking account within 7 days of meeting all qualifying criteria. To receive the bonus, the checking account must not be closed or restricted at the time of payout. Bonus is considered interest and will be reported on 1099-INT. Offer may be cancelled at any time without notice.

Account Closure: If the checking account is closed by the member or by CU1 within 12 months after opening, we will deduct the bonus amount from the checking account at closing.

Free Checking details.

  • No monthly maintenance fee.
  • CO-OP ATMs access. Get cash surcharge-free at more than 30,000 ATMs nationwide
  • No fee for online statements, $3 monthly paper statement fee unless age 65+.
  • Inactivity fee of $25 a month if no activity for 12 months.

Application experience and tips. Here are some tips based on my account opening experience from outside Illinois.

  • Note: CU1 performed a hard credit inquiry on Experian as part of my application. I don’t like this practice but many credit unions do this.
  • Applied online via promotion link above.
  • Enter your personal information including name, address, drivers license/ID, Social Security number, and so on. They will ask for a scan of the front and back of your photo ID.
  • Be sure to enter the promo code CHK500 when prompted towards the end of the application.
  • My initial deposit was via external checking account by providing them account and routing number. There was no option for credit card funding.
  • Your minimum deposit should be $40 by my math: $25 Free Checking minimum initial deposit, $5 CU1EDA, $5 minimum for Share Savings account, and $5 CU1 new member fee. See screenshot below.
  • After my online application was submitted, within an hour they asked for supporting documentation: another scan of front/back of ID, proof of address (utility bill, paystub), and proof of SSN (scan of SSN card or W2 2021). I submitted via email (can also fax) and my account was approved the same day.
  • Registered for online access and logged in to find out my checking account number. Also look under “Services > Setup Direct Deposit”. Routing number is 271188081.

CU1 looks eager to expand, as they have multiple other competitive offers while also recently acquiring Northside Community Bank in June 2022.

  • 44-month CD at 3.00% APY + up to $500 bonus:

    LIMITED TIME OFFER : Get an up to $500 Bonus2 when you open a 44-Month Share Certificate. There is a $1,000 minimum balance requirement to open the Share Certificate, and you can receive a bonus payment2 when you deposit NEW money over $100,000!

    $100,000 – $249,999 deposited | $250 one-time Bonus Payment2
    $250,000 and over deposited | $500 one-time Bonus Payment2

  • 22-month CD at 2.25% APY. Rates as of 8/29/22.
  • Need a big mortgage? They have what they call The Lowest Jumbo Rate Ever with possibly waived PMI, 80/10/10 structure, and $400 closing credit.
  • Auto Loan rates starting at 5.24% APR for up to 60 Months + $100 bonus:

    To qualify for the $100 bonus, there is a $15,000 minimum loan amount and loan must close within 30 days from the application date. Offer does not apply to existing Credit Union 1 loans or the refinancing of existing Credit Union 1 loans. Bonus will be deposited into the member’s CU1 account at the loan closing. Bonus will be reported on 1099-MISC.

  • If you live near a branch, it is also notable that they have a page on savings bonds which states that Credit Union 1 members can redeem US Savings Bonds at any branch location. This is nice to see, as many banks barely seem to know what a paper savings bond looks like nowadays.

Let’s hope they handle this promo better than certain other credit unions (*cough* Teachers FCU) and give them a chance to earn our continued business through their competitive term certificate, mortgage, and car loan rates.

Filed Under: Banking, Deals & Offers //

EFCU Financial Federal Credit Union 5-Year CD

Posted on August 14, 2022 // 8 Comments

Update: Rate has since dropped to 3.75% APY as of 8/16/22, and they have also stopped accepting application from people joining via a membership in the EFCU Financial Foundation or the Louisiana Wildlife Federation. Hope some folks got in that were interested. Thanks to reader Hugo for the heads up.

Original post:

EFCU Financial Federal Credit Union has some top certificate rates effective 8/11/22. NCUA-insured. Found via DepositAccounts. Here are the rate highlights:

  • Regular 60-month certificate 4.00% APY ($500 minimum)
  • Regular 60-month certificate 4.10% APY (Jumbo $100k minimum)
  • IRA 60-month certificate 4.10% APY ($500 minimum)
  • IRA 60-month certificate 4.20% APY (Jumbo $100k minimum)
  • Also available: 12-month, 18-month, and 24-month at 3.00% APY, 30-month CD at 3.25% with one-time rate bump allowed.

More details:

  • Early withdrawal penalty for 60-month certificate is 180 days of dividends.
  • Hard credit pull with a new membership application.
  • Must keep $5 minimum in Share Savings account as long as you are a credit union member.

Membership eligibility. Their eligibility criteria is open to anyone nationwide. Persons who live, work, worship, or attend school in these nine Louisiana Parishes can join for free: East Baton Rouge, West Baton Rouge, Ascension, East Feliciana, West Feliciana, Iberville, Livingston, Point Coupee, St. Helena. Anyone nationwide can join EFCU Financial with a membership in the EFCU Financial Foundation or the Louisiana Wildlife Federation. The cost is $35 for an annual membership.

Good deal? This is a very competitive CD rate for a 5-year CD, approximately 35 basis points higher than the next best rate. For comparison, as of 8/12/22, the 5-year Treasury bond rate is 2.97%. The hard credit pull and $35 entry fee make it better for high balances to make it worth the trouble.

Based on their website and mobile app, they appear to be using the same backend software as many other credit unions.

As with past credit union certificate deals, I would still recommend acting fast if you are interested. It’s a good enough deal that it is quite possible that there will be enough new applications to overwhelm their limited staff (and deposit needs). You might pony up $35, start the application process, take the credit pull hit, and have the deal fall apart before you can fund the certificate. I’m not saying this will happen, but it is possible. Of course, it is also possible that this is only the start of multiple places offering 4% APY CDs.

Filed Under: Banking, Deals & Offers //

Vanguard Cash Deposit Program: New Cash Sweep Option (Currently Invitation Only)

Posted on August 11, 2022 // Leave a Comment

Vanguard has been gradually rolling out a new option for the cash settlement sweep in your Vanguard Brokerage Account. The Vanguard Cash Deposit is FDIC-insured via partner banks and is currently available to select customers on an invitation-only basis:

Currently, enrollment in the Vanguard Cash Deposit program is by invitation only to existing clients who have at least one Vanguard Brokerage Account. Mutual fund accounts, 529s, or other accounts are not eligible for Vanguard Cash Deposit.

Here is a quick comparison of the interest rates from the two available options:

Banking Partners (as of 8/10/2022)

  • Valley National Bank (FDIC cert. 9396)
  • NexBank (FDIC cert. 29209)
  • Synovus Bank (FDIC cert. 873)
  • Bank of Baroda (FDIC cert. 33681) (coming soon)
  • Synchrony Bank (FDIC cert. 27314) (coming soon)

Commentary. Vanguard’s existing cash sweep fund, the Vanguard Federal Money Market Fund (VMFXX), already invests “at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities).” In other words, everything inside is also fully backed by the US government. I am a big fan of FDIC insurance, but even I don’t lose any sleep at all about the safety of VMFXX, not to mention I’ve found VMFXX historically tracks short-term interest rates quite well. As of this writing (8/10/22), VMFXX is yielding about 35 basis points more than the Cash Deposit sweep.

I don’t know if this new cash sweep option is in response to consumer demand, or if it will serve as a profit source for Vanguard. I’m sure that some people out there will prefer having FDIC insurance, even it means less interest income. (Be sure not to exceed the FDIC limits at any of the partner banks, such as having separate account held there.) For now, I’ll pass. If the Cash Deposit sweep does start earning a lot more, I would consider switching.

If you wish to opt in to this option, you can try to check if you are “invited” by visiting the product page, clicking on “Choose Vanguard Cash Deposit”, and logging into your Vanguard brokerage account. I was also repeatedly greeted by a pop-up window upon login.

Filed Under: Banking, Deals & Offers, Investing //

Best Interest Rates on Cash – August 2022 Update

Posted on August 2, 2022 // 5 Comments

Here’s my monthly roundup of the best interest rates on cash as of August 2022, roughly sorted from shortest to longest maturities. We all need some safe assets for cash reserves or portfolio stability, and there are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 8/2/2022.

TL;DR: 4% APY on up to $6,000 for liquid savings at Current with no direct deposit requirement. MyBankingDirect 2.20% APY liquid savings. 1-year CD 3% APY. 5-year CD 3.65% APY. Compare against Treasury bills and bonds at every maturity. 9.62% Savings I Bonds still available if you haven’t done it yet.

Fintech accounts
Available only to individual investors, fintech companies often pay higher-than-market rates in order to achieve fast short-term growth (often using venture capital). “Fintech” is usually a software layer on top of a partner bank’s FDIC insurance.

  • 4% APY on $6,000. Current offers 4% APY on up to $6,000 total ($2,000 each on three savings pods). No direct deposit required. $50 referral bonus for new members with $200+ direct deposit with promo code JENNIFEP185. Please see my Current app review for details.
  • 3% APY on up to $100,000, but requires direct deposit and credit card spend. HM Bradley pays up to 3% APY if you open both a checking and credit card with them, and maintain $1,500 in total direct deposit each month and make $100 in credit card purchases each month. Please see my updated HM Bradley review for details.

High-yield savings accounts
Since the huge megabanks pay essentially no interest, I think every should have a separate, no-fee online savings account to accompany your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

  • MyBankingDirect is up to 2.20% APY with no minimum balance requirements ($500 minimum to open).
  • SoFi is now offering 1.80% APY + up to $325 new account bonus with direct deposit. You must maintain a direct deposit each month of any amount for the higher APY. SoFi now has their own bank charter so no longer a fintech by my definition. See details at $25 + $300 SoFi Money new account and deposit bonus.
  • There are several other established high-yield savings accounts at closer to 1.50% APY. Marcus by Goldman Sachs is on that list, and if you open a new account with a Marcus referral link (from reader Paul) you now can get an extra 1.00% APY for your first 3 months.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (plan to buy a house soon, just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. CIT Bank has a 11-month No Penalty CD at 2.00% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 1.40% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 1.55% APY with a $500 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • Bread Financial has a 12-month certificate at 3.00% APY. Early withdrawal penalty is 180 days of interest.

Money market mutual funds + Ultra-short bond ETFs*
Many brokerage firms that pay out very little interest on their default cash sweep funds (and keep the difference for themselves). * Money market mutual funds are regulated, but ultimately not FDIC-insured, so I would still stick with highly reputable firms. I am including a few ultra-short bond ETFs as they may be your best cash alternative in a brokerage account, but they may experience short-term losses.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 1.92%. Compare with the Fidelity Government Money Market Fund (SPAXX), Fido’s sweep option which charges a higher expense ratio and thus only offers a 1.42% SEC yield.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.40% SEC yield ($3,000 min) and 2.50% SEC Yield ($50,000 min). The average duration is ~1 year, so your principal may vary a little bit.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.37% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 2.55% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks and are fully backed by the US government. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes.

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 8/2/2022, a new 4-week T-Bill had the equivalent of 2.18% annualized interest and a 52-week T-Bill had the equivalent of 3.09% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 1.38% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 1.18% SEC yield. GBIL appears to have a slightly longer average maturity than BIL.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit for electronic I bonds is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.

  • “I Bonds” bought between May 2022 and October 2022 will earn a 9.62% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More on Savings Bonds here.
  • In mid-October 2022, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.
  • See below about EE Bonds as a potential long-term bond alternative.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore, as I feel the work required and the fees charged if you mess up exceeds any small potential benefit.

  • Mango Money pays 6% APY on up to $2,500, if you manage to jump through several hoops. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.
  • NetSpend Prepaid pays 5% APY on up to $1,000 but be warned that there is also a $5.95 monthly maintenance fee if you don’t maintain regular monthly activity.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops which usually involve 10+ debit card purchases each cycle, a certain number of ACH/direct deposits, and/or a certain number of logins per month. If you make a mistake (or they judge that you did) you risk earning zero interest for that month. Some folks don’t mind the extra work and attention required, while others would rather not bother. Rates can also drop suddenly, leaving a “bait-and-switch” feeling.

  • Porte fintech app requires a one-time direct deposit of $1,000+ to open a savings account. Porte then requires $3,000 in direct deposits and 15 debit card purchases per quarter (average $1,000 direct deposit and 5 debit purchases per month) to receive 3% APY on up to $15,000. New customer bonus via referral.
  • The Bank of Denver pays 2.00% APY on up to $10,000 if you make 12 debit card purchases of $5+ each, receive only online statements, and make at least 1 ACH credit or debit transaction per statement cycle. If you meet those qualifications, you can also link a Kasasa savings account that pays 1.00% APY on up to $25k. Thanks to reader Bill for the updated info.
  • Presidential Bank pays 2.25% APY on balances between $500 and up to $25,000, if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • Evansville Teachers Federal Credit Union (soon Liberty FCU) pays 3.30% APY on up to $20,000. You’ll need at least 15 debit transactions and other requirements every month.
  • Lake Michigan Credit Union pays 3.00% APY on up to $15,000. You’ll need at least 10 debit transactions and other requirements every month.
  • (I’ve had a poor customer service experience with this CU, but the rate is still good.) Lafayette Federal Credit Union is offering 2.02% APY on balances up to $25,000 with a $500 minimum monthly direct deposit to their checking account. No debit transaction requirement. They are also offering new members a $100 bonus with certain requirements. Anyone can join this credit union via partner organization ($10 one-time fee).
  • Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • CFG Bank has a 5-year certificate at 3.65% APY ($500 min), 3-year at 3.55% APY, and 1-year at 2.75% APY. The early withdrawal penalty for the 5-year is 180 days of interest.
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Right now, I see a 5-year CD at 3.55% APY. Be wary of higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. You might find something that pays more than your other brokerage cash and Treasury options. Right now, I don’t see any 10-year CDs available vs. 2.76% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates rise.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently 0.10%). I view this as a huge early withdrawal penalty. But if holding for 20 years isn’t an issue, it can also serve as a hedge against prolonged deflation during that time. Purchase limit is $10,000 each calendar year for each Social Security Number. As of 7/5/2022, the 20-year Treasury Bond rate was 3.22%.

All rates were checked as of 8/2/2022.

Filed Under: Banking, Deals & Offers, Investing //

Bank of America Free Museum Tickets Nationwide 2022 Dates

Posted on July 28, 2022 // Leave a Comment

The next eligible Museums on Us weekend is August 6th & 7th. Bank of America is running their Museums on Us program again for 2022, which offers debit and credit cardholders free admission to 225+ museums, science centers, and botanical gardens nationwide on the first full weekend of every month (Saturday and Sunday). Each person just needs to show their valid Bank of America or Merrill Lynch credit or debit card and photo ID for free admission.

Each individual cardholder gets ONE free general admission for themselves only, so be sure everyone with their own BofA cards brings them. If you have a BofA credit card, you may consider adding family members (of any age) as a free authorized user. Another option is to open a Kids Savings Account with no monthly fee and also comes with a debit card. You may need to open this in a physical branch.

Remaining 2022 Calendar Dates (Check specific museum for hours)

  • August 6-7
  • September 3-4
  • October 1-2
  • November 5-6
  • December 3-4

Here is the full list of participating locations. Excludes fundraising events, special exhibitions and ticketed exhibitions. One of the available museums is the Thinkery in Austin, Texas. We found it to be a fun and interactive children’s science center. The admission was $12 per person including kids (23 months and under free), which means this could have saved our family of five $60 for that one day. I’ve seen other museums on their list with $20 admission prices.

Filed Under: Banking, Credit Cards, Deals & Offers //

US Bank $400 New Checking Account Bonus

Posted on July 26, 2022 // 20 Comments

US Bank has a $400 new checking promotion when you open a new Platinum, Gold or Easy U.S. Bank checking account with $25 minimum and complete the following:

  • Enroll in online banking or the U.S. Bank Mobile App within 60 days of opening your account.
  • Complete two or more direct deposits within 60 days of opening your account totaling $4,000 or more.

Must open by August 8th, 2022 and use the promo code 2022JUL. This offer may be restricted to those states where US Bank has a physical branch presence.

You may still be considered a “new” account even if you had a US Bank account years ago:

Offer is not valid if you or any signer on the account has an existing U.S. Bank consumer checking account, had a U.S. Bank consumer checking account in the last two years, or received other U.S. Bank bonus offers within the past two years.

The most basic option is the Easy Checking account, which has a $6.95 monthly fee which that is waived with any one of the following:

  • Your combined monthly direct deposits total $1,000 or more.
  • You keep an average account balance6 of $1,500 or more.
  • You are age 65 or greater.

All in all, a relatively straightforward checking promotion with decent bonus size. Good potential Project Free IRA fodder. Worth a look if you are in their geographic area.

Filed Under: Banking, Deals & Offers //

Reader Question: Buying Individual Corporate Bonds on Secondary Market At 6% APY?

Posted on July 21, 2022 // 7 Comments

Here’s a good question from reader Elizabeth in response to yesterday’s post about buying Treasury bonds on the open secondary market:

One thing I’m interested in is on that same table you shared – Corporate bonds rated BBB are around 6% for 5 years. Can you write about this? What are the pros and cons?

Here’s my thought process. Yes, us “retail” investors can also buy individual corporate bonds via major brokers with a fixed income desk like Fidelity. (Bond trading is rare on newer trading apps like Robinhood.) The bonds are judged by various rating agencies and usually separated by their grading. Right now, I see a Moody’s BAA3-rated corporate bond with 5 years left until maturity paying 6.78% interest (click to enlarge):

However, corporate bonds are not within my circle of knowledge. The special thing about every single US Treasury bond is that they are all fully-backed by the US government. Same with an FDIC-insured bank CD or NCUA-insured credit union certificate. It’s like comparing all 16 oz. jars of JIF brand peanut butter; I know all of them are the same, so I can just buy on price.

Once you venture into the world of corporate bonds, things get a lot more complicated. There is wide range of potential credit risk from the issuing company. If the company fails, you may not receive your initial principal back. There is call risk from callable bonds where the issuer can redeem your bond early (to their benefit), not to mention several other early redemption wrinkles like “make whole call”, “sinking fund protection”, and “special optional redemptions”.

Baa3 and BBB- rated bonds are still technically “investment-grade”, but they are just one notch above “below investment-grade”, aka “junk”, aka “high-yield” bonds. Here is a quick table of bond ratings from Investopedia:

If take a closer look at the available bonds above, you’ll see that only one bond is paying over 6.7% and it doesn’t even have an S&P rating, which means there might be something funny going on. The rates quickly go back down to the 5.XX% range.

Do I know why one bond has to pay 6.7% interest rate to entice a buyer, while another one only has to offer 4.8%? I must admit that I really have no idea.

Bonds are for safety. In addition, I should remember my reason for holding bonds. They are my safety blanket. They are my next 10 years of expenses that are guaranteed to be there even if bad things happens. What if Russia bombed a NATO country tomorrow? The US would be obligated to go to war. China might then feel that it has to back Russia. Who knows. Hope for the best. Prepare for the worst.

My goal with bonds is to maximize yield without sacrificing safety.

Stocks are for growth and upside potential. Let’s take the bottom bond highlighted – an Ally Financial corporate bond paying 5.6% yield for the next 5 years. Ally Bank is familiar to me, and I am a longtime customer. Why not buy that bond? Well, if I bought that bond, the most that it will ever pay me back is the bond face value and interest. Worst case is still that Ally goes bankrupt and I lose all or most of my entire investment and end up with zero. This has happened, and to much larger companies than Ally.

Up to 6 days before their eventual collapse, Lehman Brothers had an A investment grade rating. The eventual recovery on their bonds was 21 cents on the dollar.

However, I could also buy Ally Financial stock (ticker ALLY). Right now, it is trading at only a 4.72 P/E ratio and is even paying a dividend yield of 3.54%. Five years from now, I could be sitting on a +50% or +100% or +200% total return. In other words, if you want to take on risk for a higher return, you are competing with stocks. There is ongoing debate about the inclusion of high-yield bonds in a portfolio, but I prefer to take risks with stocks and keep my bonds as safe as possible.

Consider a low-cost, diversified mutual fund or ETF. The benefit of holding riskier corporate bonds inside a mutual fund/ETF is that any one corporate bankruptcy won’t wipe you out. You can be diversified across hundreds of companies. Now, you can’t control the maturity as tightly, you’ll still lose some yield to management costs, and you’re still subject to interest rate risk. If you own the Vanguard Total Bond Market ETF (BND) or any Vanguard Target Retirement Fund, you already own corporate bonds inside a fund.

If I had to buy corporate bonds and wanted a stream of higher income without a reckless amount of credit risk, I would consider the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX, $3k min) or Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX, $50k min). VWEHX has a 0.23% expense ratio and a 30-day SEC yield of 6.71% as of 07/18/2022. VWEAX has a 0.13% expense ratio and a 30-day SEC yield of 6.81% as of 07/18/2022.

You are buying a basket of nearly 700 bonds that straddle the line between investment-grade and below investment-grade. This is a bond fund that I would own for the income stream, not if I needed the entire amount in cash soon as it can drop quite a lot during times of market stress. The expense ratio on this Vanguard fund is much lower than the industry average. Just a suggestion for further research. I don’t own this fund. In fact, I don’t own any corporate bonds at all.

Hope that helps!

Filed Under: Banking, Investing, Retirement //

[Step-by-Step Guide] How To Buy Treasury Bonds on Secondary Market From Fidelity Brokerage

Posted on July 19, 2022 // 20 Comments

Fidelity fixed income page screenshot

Here is quick walkthrough from buying a (roughly) 1-year Treasury bond on the secondary market via my Fidelity brokerage account. Please note that I am not a professional bond trader nor a tax professional, and I won’t be able to cover every detail. I maintain part of my portfolio bond allocation in roughly a 5-year bond/CD ladder, comparing and buying the top rate amongst US Treasuries, bank CDs, and credit union certificates across the country as they are all fully-backed by the US government. This guarantees that every year, at least 20% of it is liquid and available in adverse conditions like job loss.

Treasury bonds vs. certificates of deposit. First, you’ll want to compare your Treasury bond effective yield against bank CD rates. At the time of this writing, 1-year Treasury was at ~3.10% while the top brokered 1-year CD was at 3% APY. Due to my local/state tax situation, the after-tax Treasury bond rate was comparable to a 1-year bank CD paying ~3.50%. Right now, the Treasury bond safely wins if held inside a taxable account.

New issue available? For example, if today was 7/15/2022 and I wanted to buy a new 52-week T-Bill from TreasuryDirect or Fidelity, I would look at the official auction schedule see that the next available date for a 52-week T-Bill is on Thursday 8/4/2022 to place an order, 8/9/2022 auction date, and 8/11/2022 settlement date. I have no idea what interest rates will be like then, and for my purposes I wanted to lock in now.

Buying secondary Treasuries on Fidelity. To buy bonds on Fidelity, you must log into your brokerage account and navigate to the “Fixed Income” section, where they will show a quick overview of current rates across roughly 75,000 fixed income investments from brokered CDs to high-yield corporate bonds. (See image at top of post. Click to enlarge.)

Next, click on the “Bonds” tab > US Treasury bonds > Secondary market. This narrows it down to about 578 bond CUSIPs. This search and trade was completed 7/15/2022.

Since I want a Treasury bond with only one year left until maturity, I set the filter for a maturity date between July 2023 and July 2023. That should narrow it down to only 5 bond CUSIPS. Let’s take a look at them (click to enlarge):

These are all “used” bonds that have already been issued and been paying someone else interest at their own rate. The market will adjust the price of these secondary bonds so that everything with a similar maturity ends up paying relatively close to a current “market” rate. Most of these started out paying really low interest rates, so right now you’ll often be buying them at a discount to their face value. (When interest rates go up, prices for existing bond go down since their interest payouts are lower.)

If you hold two bonds with the same “yield to maturity” all the way until it matures and pays you back the principal, you should end up with the same amount of gain at the end even if it is split differently between interest income and capital gain. (If you buy at a discount and have years left until maturity, a pro-rated portion of the discount is reported as income every year until maturity.)

Note that these price quotes are separated into “bid” and “ask”. Bid is what folks are offering to pay, and ask is the price at which folks are offering to sell. There is a spread between them because if there wasn’t, they would have matched up and sold. For example, someone might offer to sell at an effective 3.09% yield, with another offering to buy at 3.14% effective yield.

I’m a small fry, so I just pay attention to the “Ask” and the minimum quantity. Sometimes the offered price looks good but requires you to buy $500,000 of it! (1 bond = $1,000 face value.) Also, the prices are like stocks and fluctuate constantly, so don’t anchor yourself to any specific number. I might wish I could get that 3.20% I saw the day before, but that rate may or may not come back during my buying window.

When you’re ready, you can place a limit order. This lets you set a maximum price you’ll be willing to pay (and thus minimum yield). For example, I chose this Treasury bond that began life as a 5-year bond on 7/31/2018 and matures on 7/31/2023 with an annual coupon of 2.75%. I offered a price of 99.652 each, which guarantees me a minimum effective yield of 3.09% (exempt from state and local taxes). I recommend always using a limit order, just in case.

A note on commissions. Fidelity does not charge a commission (or mark-up) on secondary US Treasury bond purchases if performed online. There is still the indirect cost of the bid/ask spread, but that is more of a concern if I was to sell. I believe that Fidelity has close enough to the best order fill available to an individual investor. I haven’t compared them in detail, but be aware that others may charge a mark-up.

My order was successfully filled at $99.652, which means for 10 bonds with $10,000 face value, I paid $9,965.20 for the bonds plus a little more for any accrued interest. US Treasury bonds are not callable and the interest is paid semi-annually. My next interest payments (at the old bond’s lower 2.75% rate) will be on 7/31/2022, 1/31/2023 and 7/31/2023 with the full return of $10,000 face value at maturity. Again, based on my local/state tax situation, my after-tax interest will be comparable to a 1-year bank CD paying 3.50% APY. This compares well to the best available rates on cash right now.

Filed Under: Banking, Investing //
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