Oklahoma 529 College Savings Plan: $50/$100 Bonus Per Beneficiary

Posted on September 11, 2023 // Leave a Comment

The Oklahoma 529 College Savings Plan is offering a $50 or $100 bonus when you open a new account and meet these deposit requirements:

  • $50 bonus: Open with a minimum initial deposit of $250 and set up recurring contributions via bank account or direct deposit) of $50 or more per month until 3/31/2024.
  • $100 bonus: Open with a minimum initial deposit of $500 and set up recurring contributions (via bank account or direct deposit) of $100 or more per month until 3/31/2024. Note that the info on the offer page conflicts with the fine print.
  • After six months, your $50 or $100 bonus will be deposited in your account on or before 5/17/2024.

Compared to all 529 plans nationwide, MESP is an above-average overall plan with reasonable costs and investment options (official plan of Oklahoma, run by TIAA-CREF), making it an acceptable option for those without specific in-state tax incentives. See here to compare 529 tax benefits across all 50 states.

Note that this offer has a limit of “Only one Matching Deposit per new Oklahoma 529 account per beneficiary”, which is more restrictive than the ScholarShare 529 bonus promo. Please see that post for more background information. Additional considerations for this promo:

  • Oklahoma taxpayers may qualify for a state tax deduction up to $20,000 if married filing jointly ($10,000 single) for contributions made into Oklahoma 529 account.
  • You should be able to stack this with other 529 offers like that from California Scholarshare. If you have multiple 529 accounts from different state plans/managers, you can later transfer the balances and merge them into each other, although there may be a modest amount of paperwork required each time. You are allowed one rollover per beneficiary during a rolling 12-month period.

From the full fine print:

PROMOTION DESCRIPTION: To receive a $50 promotion deposit (“the Promotion Deposit”), eligible individuals must (a) open a new Oklahoma 529 account (for a new unique Account Owner/Beneficiary combination) online during the Promotion Period with an initial deposit of at least $250 to be contributed and invested at the time the new account is opened and (b) establish a recurring contribution (from a bank account or by payroll direct deposit) for the new account of at least $50 per month, and shall be maintained at minimum through 11:59 PM CT on March 31, 2024. The Promotion Deposit will be made to the eligible account on or before May 17, 2024.

To receive a $100 promotion deposit, eligible individuals must: a) open a new Oklahoma 529 account (for a new unique Account Owner/Beneficiary combination) online during the Promotion Period with an initial deposit of at least $500 to be contributed and invested at the time the new account is opened and (b) establish a recurring contribution (from a bank account or by payroll direct deposit) for the new account of at least $100 per month, and shall be maintained at minimum through 11:59 PM CT on March 31, 2024. The Promotion Deposit will be made to the eligible account on or before May 17, 2024.

Limit: Only one Matching Deposit per new Oklahoma 529 account per beneficiary. Void where prohibited or restricted by law.

Filed Under: College & Education, Deals & Offers, Investing, Taxes //

Bond Drawdown and Growth Comparison Charts: Short vs. Intermediate vs. Long-Term Bonds

Posted on September 10, 2023 // 2 Comments

When investing in bonds, one of the decisions is how long you want the “term to maturity”, or how much longer the bond will pay interest and then upon maturity repay the principal. The longer the term, the more sensitive the bond price is to interest rates. They are usually broken up into short-term, intermediate-term, and long-term categories. iShares manages a set of popular ETFs that invests in US Treasury bonds of certain maturities:

  • iShares 1-3 Year Treasury Bond ETF (SHY)
  • iShares 7-10 Year Treasury Bond ETF (IEF)
  • iShares 20+ Year Treasury Bond ETF (TLT)

Historically, the longer the term, the higher the return. In exchange for this potential higher return, the longer term leaves you expose to higher interest rate risk. A recent “Chart of the Day” from Abnormal Returns compared the drawdowns of short-term (SHY), intermediate-term (IEF), and long-term (TLT) Treasuries over the last 20 years. I found it a very good visualization of the greater interest rate risk of longer-term bonds in terms of a dropping balance in your brokerage account.

Right now, you might look at this chart and question why anyone would have wanted to own long-term Treasury bonds if you could experience a drawdown of 41%! And from “100% safe government bonds” no less! 😡

Well, lots of people were quite happy with their long-term bonds up until recently. Here is a Morningstar chart that tracks the growth of $10,000 first invested 10 years ago (2013) in the long-term Treasury ETF TLT. During the initial COVID response, your $10,000 investment would have been worth nearly $17,000 when interest rates were dropping. But as of today, you are basically back to only $10,000 again after a long 10 years.

The Growth of 10k chart for the intermediate-term Treasury ETF IEF is similar, but a bit downsized. The peak value in 2020 was about $13,000 before coming back to close to $10,000 again as well. (Focus on blue line only.)

Finally, the Growth of 10k chart for the short-term Treasury ETF SHY was much more ho-hum. Notice how the vertical axes increase in much smaller increments. The peak value in 2020 was only about $11,000 before ending just slightly lower at ~$10,700. (Focus on blue line only.)

In fact, if you compare all three ETFs, the short-term ETF SHY had the highest ending value (and highest total return) over the last 10 years. Term risk showed up, and you could have had both a calm ride and more money in the end.

This is not a recommendation to only buy short-term bonds. Interest rates have been rising recently at one of the fastest rates in history, and that may stop or reverse at any time. Many people still choose to purchase longer-term Treasury bonds as a protection against deflation and/or dropping interest rates. Mostly, these charts help illustrate how these different types of bond terms respond to volatile interest rates. You may wish for a quieter ride (and less downside potential), even if you give up some upside potential. Or not.

Filed Under: Investing, Retirement //

Schwab Cash Sweep Options – Increase Yield 10X, Updated September 2023

Posted on September 6, 2023 // 21 Comments

Updated September 2023. Charles Schwab became a major player by offering discounted stock trades back when high commissions were the norm. These days, nearly every broker offers $0 commission trades on online equity/ETF trades. Where they differ is how they choose to squeeze out profit in such a lean environment. Even though Schwab will deny it publicly, they have chosen in many cases to focus on earning interest from their customers’ idle cash as one of their major sources of revenue.

Chase, Bank of America, Wells Fargo, they all make money by making money off your idle checking account balances while paying you nothing or 0.01% APY. They could all pay you more interest, but they don’t. This is why I post regular updates and monthly summaries of better banking options.

However, Schwab has the worst default cash sweep option for cash sweep amongst the “Big Three” brokerage firms by asset size (Vanguard, Fidelity, Schwab). Their mandatory default cash sweep pays only 0.48% APY as of 9/6/23.

For comparison, Vanguard’s default cash sweep is the Vanguard Federal Money Market Fund, which has an SEC yield of 5.27% as of 9/6/23. If I make a sale or receive a dividend distribution, my Vanguard cash automatically waits in this low-cost fund and earns a competitive interest rate. I may complain about how Vanguard is slipping in the customer service area, but this feature by itself is a major reason that I maintain my Vanguard brokerage account.

Fidelity has a FDIC cash sweep available as well, but they also let me switch my “core position” (their term for default cash sweep) to a higher-yield money market fund like Fidelity Treasury Money Market Fund (FZFXX) which has an SEC yield of 4.97% as of 9/6/23 or Fidelity Government Money Market Fund (SPAXX) which has an SEC yield of 4.97% as of 9/6/23. I find it amusing that Schwab was so chippy with Fidelity in this old article Zero Confusion: Setting the Record Straight. There is a reason why Schwab places that “one click” wall between you and a higher APY.

In the end, the most important thing is for you as the customer to understand the situation. Schwab still has other positive attributes and a reputation for good customer service. The good news is that there are several options for self-motivated individuals (like you that read posts like this!) who are willing to put forth a little effort to earn what could add up to hundreds or thousands in extra interest.

Manually invest in Schwab money market funds. The key is to visit this page: Schwab Purchased Money Funds for the most current fund options, minimums, and rates. These are not FDIC-insured, but they are still regulated by the SEC and required to hold very safe investments of a very short duration. Here the the available Schwab funds and SEC yields as of 9/5/23 with zero minimums. No transaction fees. There are higher-yielding options if you have more than $1 million.

  • Schwab Value Advantage Money Fund® – Investor Shares (SWVXX) 5.23%
  • Schwab Government Money Fund – Investor Shares (SNVXX) 5.05%
  • Schwab Treasury Obligations Money Fund – Investor Shares (SNOXX) 5.06%
  • Schwab U.S. Treasury Money Fund – Investor Shares (SNSXX) 5.03%

Again, these money market mutual funds can’t be set as an automatic sweep; you must manually move money in and out of the product. Every time you have a dividend or capital gains distribution, or you made a sale, you have to remember to move your cash (“sort”) into a higher-yielding option. This also means that if you want to for example buy new shares of stock, you would need to first put in an order to sell your money market mutual fund shares into cash (in order to have the funds available to buy that stock). The system won’t be able to automatically sell your fund. You’ll have to coordinate settlement times, and it may be helpful to have a margin account for faster funds availability.

Treasury bills (auction and secondary). You can buy US Treasury bills and bonds directly through the Schwab fixed income desk. You can place either an auction order for a “new” T-Bill or buy them on the secondary market. There is no commission for online orders and a $25 fee per broker-assisted trade.

Buying an outside ETF. You can also use your free stock trades to buy an ETF that is close to cash (ultra-short duration, high-quality bonds). These will not be FDIC-insured and carry a bit of duration risk, but if your ETF holds T-Bills then those are also fully backed by the US government. Here are a few ideas (note the the reported rates may lag by up to one month):

  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has an effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has an effective duration of 0.08 years.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) and the iShares Short Maturity Bond ETF (NEAR) hold a portfolio of investment-grade bonds with an average duration of ~6 months.

Bottom line. Charles Schwab has a default cash sweep option with a relatively tiny interest rate. To earn more, you must do some research and manually buy one of the alternatives listed above that can earn ~10x more.

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

Best Interest Rates on Cash – September 2023

Posted on September 5, 2023 // 5 Comments

Here’s my monthly roundup of the best interest rates on cash as of September 2023, roughly sorted from shortest to longest maturities. There are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 9/5/2023.

TL;DR: Mostly minor movements this month. 6% APY now (barely) available with 12-month CD special and rewards checking accounts. Compare against Treasury bills and bonds at every maturity, taking into account state tax exemption.

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.

  • 5.26% APY ($1 minimum). SaveBetter lets you switch between different FDIC-insured banks and NCUA-insured credit unions easily without opening a new account every time, and their liquid savings rates currently top out at 5.26% APY from multiple banks. See my SaveBetter review for details. SaveBetter does not charge a fee to switch between banks.
  • 5.30% APY (before fees). MaxMyInterest is another service that allows you to access and switch between different FDIC-insured banks. You can view their current banks and APYs here. As of 8/7/23, the highest rate is from Customers Bank at 5.30% APY. However, note that they charge a membership fee of 0.04% per quarter, or 0.16% per year (subject to $20 minimum per quarter, or $80 per year). That means if you have a $10,000 balance, then $80 a year = 0.80% per year. This service is meant for those with larger balances. You are allowed to cancel the service and keep the bank accounts, but then you may lose their specially-negotiated rates and cannot switch between banks anymore.

High-yield savings accounts
Since the huge megabanks STILL pay essentially no interest, everyone should have a separate, no-fee online savings account to piggy-back onto 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.

  • The top rates at the moment are at Valley Direct and Milli.bank (app-only) at 5.25% APY. CIT Platinum Savings at 5.05% APY with $5,000+ balance.
  • SoFi Bank is now up to 4.50% APY + up to $275 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has their own bank charter now so no longer a fintech by my definition. See details at $25 + $250 SoFi Money new account and deposit bonus.
  • There are several other established high-yield savings accounts at 4.25%+ APY that aren’t the absolute top rate, but historically do keep it relatively competitive for those that don’t want to keep switching banks.

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 4.90% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 4.55% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 4.50% APY with a $500 minimum deposit. Consider opening multiple CDs in smaller increments for more flexibility.
  • American 1 Credit Union has a 12-month CD special at 6.00% APY. Probably won’t last long. Minimum opening deposit is $1,000. Early withdrawal penalty is 90 days interest. Anyone can join this credit union via $3 membership fee to join partner organization (must also keep $5 in share savings).
  • MapleMark Bank has a 12-month certificate at 5.75% APY. Also a limited-time offer. $25,000 minimum. Early withdrawal penalty is 6 months 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 losses.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.28%. Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 5.52% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 5.57% 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, which can make a significant difference in your effective yield.

  • 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 9/5/23, a new 4-week T-Bill had the equivalent of 5.38% annualized interest and a 52-week T-Bill had the equivalent of 5.43% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.36% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.18% SEC yield and effective duration of 0.08 years.

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 2023 and October 2023 will earn a 4.30% 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 2023, 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.

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.

  • Credit Union of New Jersey pays 6.00% APY on up to $25,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Pelican State Credit Union pays 6.05% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, log into your account at least once, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • Orion Federal Credit Union pays 6.00% APY on up to $10,000 if you make electronic deposits of $500+ each month (ACH transfers count) and spend $500+ on your Orion debit or credit card each month. Anyone can join this credit union via $10 membership fee to partner organization membership.
  • Genisys Credit Union pays 5.25% APY on up to $7,500 if you make 10 debit card purchases of $5+ each, and opt into receive only online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • The Bank of Denver pays 5.00% APY on up to $25,000 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. Thanks to reader Bill for the updated info.
  • All America/Redneck Bank pays 5.30% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • 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.

  • United States Senate FCU has a 60-month CD at 4.86% APY $1,000 minimum. Jumbo CDs have slightly higher rates ($100k+, $200k+). The early withdrawal penalty is 360 days of interest. Anyone can join this credit union via partner organization.
  • Dept of Commerce FCU has a 60-month CD at 4.67% APY $500 minimum. The early withdrawal penalty is 180 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 non-callable CD at 4.65% APY (callable: no, call protection: yes). Be warned that now both Vanguard and Fidelity will list higher rates from callable CDs, which importantly means they can call back your CD if rates drop later.

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 CDs at 4.35% (callable: no, call protection: yes) vs. 4.28% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.
  • 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, currently 2.50% for EE bonds issued from May 2023 to October 2023. As of 9/5/23, the 20-year Treasury Bond rate was 4.56%.

All rates were checked as of 9/5/2023.

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

ScholarShare 529 College Savings Plan: $100 Bonus Per Accountholder/Beneficiary Combo

Posted on September 5, 2023 // 10 Comments

The ScholarShare 529 College Savings Plan is offering a $100 bonus when you open a new account by 9/30/23 and deposit $1,000+ within 10 business days of establishing the account. Your $100 matching deposit will arrive by 1/31/24. The ScholarShare 529 account must be open with a non-zero balance to receive the bonus.

Compared to all 529 plans nationwide, the ScholarShare 529 is a solid overall plan with reasonable costs (official plan of California, run by TIAA-CREF), making it a good option for those without specific in-state tax incentives. See here to compare 529 tax benefits across all 50 states.

I find that having an open 529 plan is a great way to redirect various gifts from friends and family (like grandparents) so that the money doesn’t just get spent mindlessly and then forgotten. If someone gives them a gift card, I just put the equivalent value into the 529 and spend the gift card myself. Since by the time they really understand money it will have been 10 years since birth, it can been a good lesson on how steady saving and investing adds up. Finally, opening a plan and making any contribution also starts the 15-year clock on potential future 529-to-Roth IRA rollovers.

This specific bonus is also interesting due to the limit of “one (1) Matching Deposit per new ScholarShare 529 account per unique accountholder/beneficiary combination.” That means a couple with three children could open six accounts for $600 in total bonuses. It would also require a significant upfront deposit, but many families are already setting aside $100+ each month per kid for future college expenses.

  • Spouse 1 + Child 1
  • Spouse 1 + Child 2
  • Spouse 1 + Child 3
  • Spouse 2 + Child 1
  • Spouse 2 + Child 2
  • Spouse 2 + Child 3

If you have multiple 529 accounts from different state plans/managers, know that you can later transfer the balances and merge them into each other, although there may be a modest amount of paperwork required each time. You are allowed one rollover per beneficiary during a rolling 12-month period.

From the full fine print:

Offer Description: The ScholarShare 529 College Savings Plan (“ScholarShare 529”) is a 529 college savings plan administered by the ScholarShare Investment Board (“SIB”), an instrumentality of the state of California, and managed by TIAA-CREF Tuition Financing, Inc. (“TFI”). To receive a $100 matching deposit (“the Matching Deposit”), eligible individuals must (a) open a new ScholarShare 529 account (for a new beneficiary) online at www.ScholarShare529.com between September 1, 2023 at 12:01 AM Pacific Time (PT) and September 30, 2023 at 8:59 PM PT with an initial deposit of at least $1,000 to be contributed and invested at the time the new ScholarShare 529 account is opened. The initial $1,000 deposit must be received within 10 business days after the account is established. The Matching Deposit will be made to the eligible ScholarShare 529 account on or before 8:59 PM PT on January 31, 2024. To receive the Matching Deposit, the ScholarShare 529 account must be open with a dollar balance greater than zero on the day the Matching Deposit is made. Limit: one (1) Matching Deposit per new ScholarShare 529 account per unique accountholder/beneficiary combination.

Filed Under: College & Education, Deals & Offers, Investing, Taxes //

Vanguard Cash Plus Account Review: FDIC-Insured, But Missing Useful Features

Posted on August 29, 2023 // 8 Comments

Vanguard has been piloting some new products recently, and I was finally invited to try out the Vanguard Cash Plus Account. I’ve been playing with it for a few days and here are my thoughts. First, it’s important to note that there are two separate FDIC-insured products available from Vanguard:

  • Vanguard Cash Deposit – This is a new option for the settlement fund (default cash sweep) in your brokerage account. The interest rate has historically been lower than Cash Plus. 3.70% APY as of 8/28/23. You can make immediate trades straight from the funds in this account. FDIC insurance up to $1.25 million ($2.5 million for joint accounts).
  • Vanguard Cash Plus Account – This is a separate FDIC-insured account with a historically higher interest rate that is not a settlement account. 4.70% APY as of 8/28/23. It is meant as an alternative to a bank savings account and allows incoming ACH direct deposits and ACH withdrawals. FDIC insurance up to $1.25 million ($2.5 million for joint accounts).

Invitation and opening process. I received a physical mailer with an invitation last week, but the application was all online. The invitations are sent to individuals, and if you want to open a joint account, the joint owner must also have a Vanguard brokerage account. The implication is that this product is meant for existing Vanguard brokerage customers only, not as a standalone product.

Features. This is not a full-featured account, but a pretty minimalist FDIC-insured savings account. No minimum balance, no monthly fees. You get a routing number and account number (routing number is 242071583 which turns out to be PNC Bank NA, their bank partner.

It’s important to note all that is not included:

  • No ATM or debit card. (No ATM rebates.)
  • No checkwriting. (I did find mobile check deposit on the app.)
  • No online bill payment service. (You can use your account number to link at your credit card’s website for example, but there is no in-house system.)
  • No automated recurring transfers.
  • No ability to use your money market fund as a backup overdraft source.

Historical note: For a while, Vanguard did offer an “Advantage” account to select customers which did include all these things, but they abruptly discontinued it in 2019. So Vanguard is definitely intentionally leaving all these features out.

Basically, you get to make ACH direct deposits and ACH withdrawals. This enables the direct deposit of paychecks, Social Security, pensions, PayPal/Venmo transfers, and pay bills through vendor websites.

You might think that since it is a Vanguard account, you could use the funds in Cash Plus directly to buy some Vanguard ETFs or mutual funds. Not quite. First, all accounts must be “like registered” for you to transfer from Cash Plus. I am not allowed to transfer to my trust accounts. Second, you must manually transfer the money over, and then it should be available the same day. I found this statement in one place:

A transfer from a Cash Plus Account into a Vanguard Brokerage Account will settle by the next business day, but will be available for trading immediately.

But a slightly different one on their public FAQ:

How long will it take to move my cash from one account to another?

Transfers (including from one Vanguard account to another) generally take 2–3 business days, but at times may be quicker.

The competition. This is a supplemental Vanguard account meant to add functionality for existing Vanguard customers. However, I must point out that Fidelity has included a much higher level of functionality for its customers for a long time.

The plain taxable Fidelity brokerage account will also provide you account and routing numbers so that you can perform ACH deposits and withdrawals. Their core options (settlement fund) also include an FDIC-insured option with lower interest rate, but you can use a money market mutual fund like SPAXX that currently has a 4.98% yield.

But Fidelity also includes a nice bill payment interface, ATM debit card, checkwriting (with free checks), and mobile check deposit all within their standard brokerage account. (Fidelity also includes domestic and international ATM rebates if you have at least $250k in total assets with them. The alternative Fidelity Cash Management Account does include ATM rebates with no minimum balance requirement, but takes a bit more work to manage the cash optimally by manually purchasing their money market funds. I’ll leave the details for another review.)

Basically, if you are the type to want an all-in-one banking solution, Fidelity has already been doing it for years and years with more features. I feel that Fidelity’s customer service is also much better than Vanguard’s.

The Cash Plus account appeals to a niche customer. You are a loyal Vanguard customer that wants the added functionality from a basic high-yield savings account with bank routing and account numbers. You want one that shows up when you log into Vanguard, so you don’t have to log into another bank. The interest rate is pretty good and should stay that way, but still lower than Vanguard’s own money market funds. Maybe you want that FDIC-insurance. Finally, you are satisfied with Vanguard’s level of customer service these days. In my experience, the differences in hold times between Vanguard and Fidelity is simply night and day.

Will I actually use it? Honestly, it’s kind of hard to get excited that Vanguard is offering a barebones FDIC-insured savings account like ING Direct in 2023. I’d love to see the Cash Plus APY as the standard settlement fund along with account/routing numbers. They could even add the other features like ATM debit cards, but I don’t think they can handle the customer service level required. Instead, we just get this little step forward.

Mostly, I don’t need the FDIC insurance as I have full faith in the Vanguard Federal Money Market Fund (VMFXX, 5.28% yield as of 8/28/23) and Vanguard Treasury Money Market Fund (VUSXX, 5.19% yield as of 8/28/23) which both offer much higher interest rates and partial state income tax deductions. These are perfectly acceptable as my “savings accounts”. Stay lean Vanguard, just take the customer service back to the acceptable levels you had before your huge growth.

For now, my plan is to simply keep my Cash Plus account open with minimal activity in case one day the APY is higher than the money market alternatives.

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

Johnson & Johnson / Kenvue Odd Lot Tender Arbitrage Deal (Results)

Posted on August 25, 2023 // 34 Comments

Update 8/24: Here are the final results of this odd lot tender. See original post below for past details, although the opportunity has passed. Per JNJSeparation.com, the final exchange ratio was 1 share JNJ to 8.0324 shares of KVUE. The deal was oversubscribed, with a final proration factor of ~23.2% of shares tendered. However, those with “odd lots” of 99 shares or less were not subject to proration, which created an opportunity for smaller individual investors.

Here are the stats:

  • 8/14 prices (closing), JNJ $173.44 and KVUE $22.94.
  • 99 shares of JNJ @$173.44 = $17,171 (8/14)
  • 8/24 prices (intraday), JNJ $165.36 and KVUE $23.32.
  • 99 shares of JNJ tendered = 795.20 shares of KVUE.
  • 795.20 shares of KVUE @$23.32 = $18,544 (8/24)

Net profit on 99 JNJ shares bought 8/14, tendered, and sold 8/24: ~$1,350. If you sold your resulting KVUE and immediately bought JNJ back again intraday on 8/24, you would end up with ~112 shares of JNJ.

For the curious, the current market caps are JNJ $430 billion and KVUE $44.5 billion. So if you wanted to keeping owning the “original” JNJ components in a weighted manner, that would be roughly 90% JNJ and %10 KVUE. (JNJ still owns about 9.5% of KVUE after this split-off.)

Original post 8/12:

Everyone knows Johnson & Johnson (JNJ), but fewer know that the huge company spun off its consumer health division (Tylenol, Band-Aid, etc) earlier in 2023 and called it Kenvue (KVUE). JNJ kept its pharmaceutical and medtech divisions, but also still owns about 90% of KVUE. Moving forward with the split-off, they are offering JNJ shareholders the option to tender roughly $100 of JNJ and get $107 of KVUE stock in return.

They are incentivizing JNJ shareholders to help them complete the split-off, and it’s a good deal, almost too good as it may be “oversubscribed” and tenders may be pro-rated. However, there is an “odd lot” provision in the deal, where if you only have 99 shares of less of JNJ and tender them all, you won’t be subject to pro-ration. This is a small corner where small individual investors can gain a small advantage that the bigger money can’t access.

Now, I’m not an expert on this stuff by any means, and there are risks involved. The following two articles and the official informational site explain the various details and risks in much better detail.

From the official site above that tracks the share prices for the exact tender ratio (upper limit not in effect at time of writing):

If the Exchange Offer is oversubscribed and Johnson & Johnson cannot accept all tenders of J&J Common Stock at the exchange ratio, then all shares of J&J Common Stock that are validly tendered will generally be accepted for exchange on a pro rata basis in proportion to the number of shares validly tendered, which is referred to as “proration.” Stockholders who beneficially own “odd-lots” (less than 100 shares) of J&J Common Stock and who validly tender all of their shares will not be subject to proration (other than participants who hold odd-lot shares as a participant in the Savings Plans).

To quickly summarize the potential deal:

  • Buy 99 shares* of JNJ at your broker, for an approximate cost of $17,000.
  • Tender *all* your shares through your broker . You can’t own 100+ shares and only tender 99. The deadline is supposed to be 8/18, but some brokers may require your tender instructions earlier than that. (At Fidelity it is 08/17 at 7pm ET.) I’d do it as soon as you can.
  • If all goes smoothly (not guaranteed by me), then you’ll get ~$18,200 of KVUE approximately 7 business days after the deadline. You can sell the shares for cash if you want to realize a potential profit of ~$1,200. You may get a little less depending on the relative share prices of JNJ and KVUE.
  • * You can buy less than 99 shares for less financial commitment (and less upside), but you have to tender them all.

This is the type of deal that I find both interesting and educational, on top of having a positive expected value. Warren Buffett today wouldn’t bother with this deal, but Warren Buffett age 14 might. This is more of a calculated gamble, rather than a fixed return. There is risk involved, including either the deal being canceled somehow (you keep 99 shares of JNJ) or the limit ratio being reached and you get less than 7.5% premium of KVUE. You should perform your own due diligence.

Filed Under: Deals & Offers, Investing //

Crowdfunded Real Estate Investing: Is Due Diligence by Individual Investors Even Possible?

Posted on August 23, 2023 // 3 Comments

A surprising takeaway from peer-to-peer lending through Prosper and LendingClub was that the borrowers who most strongly promised to pay you back (e.g. “I promise I will pay you back, so help me God, thank you so much”) turned out to also be the most likely to default. If you extend that to crowdsourced real estate investing, this is probably the analogous statement:

“We exclusively work with leading sponsors on commercial real estate offerings that meet our strict marketplace requirements.”

Reading this WSJ article Missing Millions and a Rabbinical Arbitrator: Real-Estate Deal Gone Bad Hits Popular Crowd Funder (gift article, should bypass paywall) about CrowdStreet, you get more of a peek behind the curtain. The strange title? Apparently one of their sour deals has resulted in $63 million of “missing” investor funds while also stipulating that any disputes be settled by a rabbinical court rather than the US legal system. Now that’s a new thing to look for in the fine print.

There is much more information in the full article, but here are a few quotes on Crowdstreet returns:

The Journal analyzed data on expected and realized returns of 104 completed deals from the sale of property or investor redemptions, which the company posted from 2013 to August 2022.

The Journal analysis found that more than half of those investments promoted on CrowdStreet’s platform failed to meet their target returns. Hundreds of CrowdStreet users lost some $34 million on 19 deals that underperformed as of this July, according to the Journal’s analysis. A dozen of those deals lost nearly 100% of investor funds.

CrowdStreet also hosted successful deals. More than 20 deals outperformed projected return rates by at least 10 percentage points. Hundreds of others are still outstanding. It often takes at least three years before investors can realize a return on their investments.

Some of the deals did well, some did awful. You can see their completed deals here. Many of their complete losses were hotel-related (“The 100% loss shown simply represents absolute total loss of capital incurred by investors”, ouch). Houston Red Lion Hotel. Cloverleaf Suites Overland Park. Intellistay Courtyard Tulsa. Four Points Sheraton Little Rock, Arkansas. That sounds like some poor deal structuring if your downside is so extreme.

The stated aim of all these real estate start-ups is to make commercial real estate investing more accessible to individual investors. Unfortunately, in my opinion it has been shown that individual investors simply aren’t given enough information to judge whether the deals are good or not. I would look up property addresses, learn about neighborhoods, try to look up the history of the borrowing groups, read through the comparables, appraisals, and contracts, but in the end, you are trusting the platform to perform most of the due diligence. There are no audited financial reports for me to read. There are no ratings agencies. How can one tell the difference between skill and luck? I have managed positive overall returns with my specific investments with PeerStreet, RealtyShares, Fundrise, Patch of Land, and others, but I had the most faith in PeerStreet’s model and they are likely to end up my worst performer.

The problem is the platform is strongly incentivized to do what is necessarily to maintain a high rate of deal flow and transactions, so they can make fees. When you are “exclusive” and “strict”, you don’t get deal flow now that the boom times have ended. Once the deal flow stops, they are dead in the water. This adds pressure to allow marginal borrowers and questionable deal terms.

I’ve only put relatively small amounts of “play account” funds into these sites, but as I don’t feel I can properly judge the individual deals nor properly judge the deal brokers, it’s probably time for me to avoid this asset class altogether.

Filed Under: Investing, Real Estate //

Different Types of Taxable Bonds: Long-Term Performance and Returns Comparison

Posted on August 22, 2023 // 1 Comment

As part of its “Portfolio Basics” series, Morningstar has an educational article on taxable bonds, including corporate bonds, US government bonds, and foreign government bonds, along with their different credit grades and maturity lengths.

Over the last 20 years, things have played out pretty much as the traditional theory would have predicted. The higher the “risk”, the higher the return. High-yield “junk”-rated corporate bonds have had the highest return, but also the bumpiest ride due to their higher credit risk and higher interest rate risk (they are usually of longer maturity). Short-term US Treasury bills (“cash”) has had the lowest return but the lowest credit risk and lowest interest rate risk. Personally, I see this chart and am satisfied with my holdings of intermediate-term US Treasury bonds (green line) that keeps the highest credit risk but with effectively a ladder out to a longer average maturity.

But hey, those high-yield bonds still returned a lot more money over the last 20 years instead. Why not just hold those instead? First, don’t forget to step back and look at the bigger picture:

If you’re going to accept big swings, you might prefer one of the highest returning assets in the top-right corner. (I have no idea which one will be the absolute highest in the next 20 years, but I don’t think it’s an accident that all the stocks are grouped together in that top-right corner.) If you can hold on through the scary periods, the gap between stocks and bonds over the long run (~100 years below) is huge:

This is why many will advise you to own more stocks if you want an overall higher risk/potentially higher return profile, as opposed to riskier bonds. But before you get carried away, read this book excerpt Courage Required from William Bernstein. Bleak times will come again. Safe things have value beyond the rate of return.

Filed Under: Investing, Retirement //

Big List of Anti-Lists: Asset Classes NOT Owned By Some Experienced Investors

Posted on August 20, 2023 // 5 Comments

Every asset class has its energetic supporters, from rental properties to altcoins to gold. Listening to each group, you may feel that you need to own every asset class in order to be “diversified”. However, sometimes less is more, and it can be useful to read about why many seasoned veterans consciously avoid certain corners of the investment world. I find it a refreshingly different perspective, even if I may or may not agree. Everyone’s needs are different, and I own several of the things below myself. Here are a few lists along with supporting arguments.

William Bernstein – MD, author and wealth manager. I compiled this list while listening to the linked interview.

  • Commodities Futures
  • Individual Stocks
  • Corporate bonds
  • Long-term bonds
  • Fixed annuities

Jonathan Clements – financial author and long-time WSJ columnist

  • Savings bonds.
  • Long-term bonds.
  • High-yield “junk” bonds.
  • Municipal bonds.
  • International bonds.
  • Individual stocks.
  • Immediate fixed annuities (but he does plan to buy some eventually).
  • Deferred income annuities.
  • Gold
  • Commodities
  • Real Estate Investment Trusts (REITs)
  • Rental properties.
  • Long-term-care insurance.
  • Life insurance.
  • Disability insurance.
  • Flood insurance.

Amy Arnott – CFA, portfolio strategist for Morningstar Research

  • Actively Managed Funds
  • Real Estate Investment Trusts (REITs)
  • Sector Funds
  • Alternative Investments
  • I Bonds
  • High-Yield Bonds
  • Gold

Let me know if you come across any other “What I Don’t Own” lists.

[Image credit: Amazon]

Filed Under: Investing, Retirement //

TIPS Real Yields ~2% Across All Maturities; 4.4% Guaranteed 30-Year Withdrawal Rate

Posted on August 15, 2023 // 5 Comments

One of my regular bookmarks is the TIPS real yield page (along with the regular Treasury yields). I noticed that the real yield on the 30-year TIPS has nudged above the 2% mark:

At the same time, the 30-year regular Treasury is at 4.3%, making the break-even annual inflation rate about 2.3%. Over the next 30 years, I’d take the over on that, or at least take some insurance out on the possibility of high inflation.

In addition, as David Enna of Tipswatch points out, this is the first time in a long while that all the various maturities (5/10/30 year shown below) are all around 2%.

If you wanted to, you can again construct a ladder of TIPS that will provide you a guaranteed inflation-protected income over the next 30 years (including spending down your principal) of over 4% above inflation (~4.4% as of this writing, as rates are higher today that at the time of writing for that post).

That means if you put $1,000,000 into a 30-year TIPS ladder right now, you can create ~$44,000 income for year 1 and then another ~$44,000 adjusted for inflation (CPI-U) annually for the next 29 years. All fully backed by the US government. No stock market volatility. No chance of annuity insurance company failure. Check out TipsLadder.com and Eyebonds.info if you are ready to get deep into the details.

While I am not looking into investing a lump sum into a TIPS ladder, I do own both regular US Treasuries and TIPS to provide the stable, guaranteed growth portion of my portfolio. (I’m roughly 70% stocks and 30% bonds.) If I’m getting guaranteed 5% growth from US Treasuries and guaranteed 2% + inflation from TIPS, I’m pretty happy with that for the safe part of my portfolio.

I am taking this opportunity rebalance my existing bond holdings and free cash to create an overall longer duration for my TIPS. I want to lock in that 2% real yield across longer maturities while it is available. Real yields might go even higher, but I’m more worried about it going lower than higher.

Filed Under: Investing, Retirement //

Best Interest Rates on Cash – August 2023

Posted on August 7, 2023 // 1 Comment

Here’s my monthly roundup of the best interest rates on cash as of August 2023, roughly sorted from shortest to longest maturities. There are often lesser-known opportunities available to individual investors. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you could earn from switching. Rates listed are available to everyone nationwide. Rates checked as of 8/7/2023.

TL;DR: 5%+ APY available on liquid savings. 5% APY+ available on multiple short-term CDs. Compare against Treasury bills and bonds at every maturity.

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.

  • 5.25% APY ($1 minimum). SaveBetter lets you switch between different FDIC-insured banks and NCUA-insured credit unions easily without opening a new account every time, and their liquid savings rates currently top out at 5.25% APY from multiple banks. See my SaveBetter review for details. SaveBetter does not charge a fee to switch between banks.
  • 5.20% APY (before fees). MaxMyInterest is another service that allows you to access and switch between different FDIC-insured banks. You can view their current banks and APYs here. As of 8/7/23, the highest rate is from Customers Bank at 5.20% APY. However, note that they charge a membership fee of 0.04% per quarter, or 0.16% per year (subject to $20 minimum per quarter, or $80 per year). That means if you have a $10,000 balance, then $80 a year = 0.80% per year. This service is meant for those with larger balances. You are allowed to cancel the service and keep the bank accounts, but then you may lose their specially-negotiated rates and cannot switch between banks anymore.

High-yield savings accounts
Since the huge megabanks STILL pay essentially no interest, everyone should have a separate, no-fee online savings account to piggy-back onto 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.

  • The leapfrogging to be the temporary “top” rate continues. Milli.bank (app-only) at 5.25% APY. CIT Platinum Savings at 5.05% APY with $5,000+ balance.
  • SoFi Bank is now up to 4.50% APY + up to $275 new account bonus with direct deposit. You must maintain a direct deposit of any amount each month for the higher APY. SoFi has their own bank charter now so no longer a fintech by my definition. See details at $25 + $250 SoFi Money new account and deposit bonus.
  • There are several other established high-yield savings accounts at 4.25%+ APY that aren’t the absolute top rate, but historically do keep it relatively competitive for those that don’t want to keep switching banks.

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 4.90% APY with a $1,000 minimum deposit. Ally Bank has a 11-month No Penalty CD at 4.55% APY for all balance tiers. Marcus has a 13-month No Penalty CD at 4.50% APY with a $500 minimum deposit. Consider opening multiple CDs in smaller increments for more flexibility.
  • Blue FCU via SaveBetter has a 9-month No Penalty CD at 5.25% APY. Minimum opening deposit is $1. No early withdrawal penalty. Withdrawals may be made 30 days after opening.
  • Northern Bank Direct has a 11-month certificate at 5.60% APY. $500 minimum. Early withdrawal penalty is all the interest earned.

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 losses.

  • Vanguard Federal Money Market Fund is the default sweep option for Vanguard brokerage accounts, which has an SEC yield of 5.24%. Odds are this is much higher than your own broker’s default cash sweep interest rate.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 5.47% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 5.52% 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 8/4/23, a new 4-week T-Bill had the equivalent of 5.38% annualized interest and a 52-week T-Bill had the equivalent of 5.36% annualized interest.
  • The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 5.29% SEC yield and effective duration of 0.10 years. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 5.10% SEC yield and effective duration of 0.08 years.

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 2023 and October 2023 will earn a 4.30% 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 2023, 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.

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.

  • Genisys Credit Union pays 5.25% APY on up to $7,500 if you make 10 debit card purchases of $5+ each, and opt into receive only online statements. Anyone can join this credit union via $5 membership fee to join partner organization.
  • Pelican State Credit Union pays 5.50% APY on up to $10,000 if you make 15 debit card purchases, opt into online statements, and make at least 1 direct deposit, online bill payment, or automatic payment (ACH) per statement cycle. Anyone can join this credit union via partner organization membership.
  • The Bank of Denver pays 5.00% APY on up to $25,000 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. Thanks to reader Bill for the updated info.
  • All America/Redneck Bank pays 5.30% APY on up to $15,000 if you make 10 debit card purchases each monthly cycle with online statements.
  • Presidential Bank pays 4.62% APY on balances between $500 and up to $25,000 (3.625% APY above that) if you maintain a $500+ direct deposit and at least 7 electronic withdrawals per month (ATM, POS, ACH and Billpay counts).
  • 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.

  • Dept of Commerce FCU has a 60-month CD at 4.67% APY $500 minimum. The early withdrawal penalty is 180 days of interest. Anyone can join this credit union via partner organization.
  • Lafayette Federal Credit Union has a 5-year certificate at 4.42 APY ($500 min), 4-year at 4.68% APY, 3-year at 4.84% APY, 2-year at 5.09% APY, and 1-year at 5.20% APY. They also have jumbo certificates with $100,000 minimums at slightly higher rates. The early withdrawal penalty for the 5-year is very high at 600 days of interest. Anyone can join this credit union via partner organization ($10 one-time fee).
  • 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 non-callable CD at 4.55% APY (callable: no, call protection: yes). Be warned that both Vanguard and Fidelity will list higher rates from callable CDs, which importantly means they can call back your CD if rates drop later.

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 CDs at (none available, non-callable) vs. 4.08% for a 10-year Treasury. Watch out for higher rates from callable CDs where they can call your CD back if interest rates drop.
  • 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, currently 2.50% for EE bonds issued from May 2023 to October 2023. As of 8/4/23, the 20-year Treasury Bond rate was 4.36%.

All rates were checked as of 8/7/2023.

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