SaveBetter No-Penalty CD (2.55% APY):
Today we respond to a viewer’s question about bank certificates of deposit versus brokered CDs.
Here is the viewer’s question:
“I’d like to move some [money] to a CD – and don’t understand the difference in buying a CD through my brokerage (Fidelity) – which is showing products with high rates or buying directly through a bank like the SallieMae Save Better listed in the newsletter? I feel confident in Fidelity and I’m not sure about an online bank I’ve not done business with/can trust?”
It’s a great question, In the video, I cover traditional bank CDs, no-penalty CDs, brokered CDs and short-term (1 year or less) Treasuries.
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I’m the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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Bank CDs vs Brokered CDs vs Treasuries: Which is “Best” for Short-Term Cash?
When it comes to short-term cash investments, it’s important to find a reliable and secure option that offers competitive returns. Bank certificates of deposit (CDs), brokered CDs, and US Treasuries are three popular choices for conservative investors. Let’s take a closer look at each of these options to determine which one is the “best” for short-term cash.
Bank CDs, also known as time deposits, are offered by banks and credit unions. They provide a fixed interest rate and term, typically ranging from a few months to several years. Bank CDs are insured by the Federal Deposit Insurance Corporation (FDIC), which protects deposits up to $250,000 per account holder per insured bank. This insurance gives bank CDs a high level of security, making them ideal for risk-averse investors. The interest rates offered by bank CDs are generally lower compared to other options, but they tend to be more stable.
Brokered CDs, on the other hand, are available through brokerage firms and offer a wider range of CDs compared to those offered by individual banks. When purchasing a brokered CD, investors can choose from various banks and credit unions, enabling them to diversify their investment across different institutions. Brokered CDs can offer higher interest rates than traditional bank CDs, making them an attractive option for those seeking better returns. However, it’s important to note that brokered CDs are not insured by the FDIC. Instead, they may be covered by other securities such as the Securities Investor Protection Corporation (SIPC) or private insurance.
US Treasuries are debt securities issued by the US government. They are considered one of the safest investments available, as the US government has never defaulted on its debt obligations. Treasuries come in different maturities, ranging from short-term to long-term. Short-term Treasuries, known as Treasury bills (T-bills), have maturities of one year or less. They are highly liquid, which means investors can easily buy and sell them in the secondary market before they mature. While Treasuries don’t offer as high returns as CDs, they provide a safe and stable investment option.
So, which option is the “best” for short-term cash? It depends on your priorities and risk tolerance. If preserving capital is your top concern, bank CDs are a solid choice due to the FDIC insurance. However, if you’re looking for higher returns and are willing to take on slightly more risk, brokered CDs might be more appealing. If safety is your main priority, US Treasuries are an excellent option.
Before making a decision, it’s crucial to consider your investment goals, time horizon, and risk tolerance. Evaluate the interest rates, insurance coverage, and liquidity of each option. Additionally, consult with a financial advisor who can provide personalized guidance based on your unique circumstances.
In conclusion, when it comes to short-term cash investments, Bank CDs, brokered CDs, and Treasuries all have their advantages. Each option offers varying levels of security, return potential, and liquidity. By assessing your financial goals and risk appetite, you can determine which choice aligns best with your needs and make an informed decision regarding your short-term cash investment strategy.
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In comparing to buying a $1000.00 12-month CD @ 5.15 % vs leaving $1000.00 in a saving account with 5.15% APY. Would you earn more than 5.15% with saving by letting the monthly interest from the 1000 earn monthly compound interest for 12 month? I am trying to figure out if saving this way would beat the CD rate.
Can you do a video on a real life of say under the fdic insured amount maybe $240K in a 1 year ladder cd, say 5.30% across the board and what the return would be every 3 months. I think a lot of us get confused with cd ladders. Ty
Right now fidelity has 5.30% cd's available for 1 year. I want to invest $200K but am thinking the feds will raise the rates another 1/4 percent. Would it be wise to wait and see if the feds raise the rate before investing $200K or just buy now?
Ally has a no penalty CDs 11 month for 4.25%. I got the CD a few months ago for 4.75%
Alliant Credit Union tends to have some of the highest certificate APYs that I find.
Enjoyed your program. I did not understand why you put any of your kitchen money in CD’s instead of the T-bills. It looked like from what you said about both CD’s and T-bills, that your kitchen money would have been a better in the T-bills. Help. Thanks Fred in Raleigh
Hey Rob, CDs are still looking really good. I have a question: Via my brokerage firms, Fidelity and Vanguard, I want to invest in multiple CDs with a total cumulative value in excess of the FDIC maximum insured amount of $250k. Also, these are IRA and 401k accounts. How are these purchases treated by FDIC: Does the FDIC $250k cap apply to all CDs at both brokerage firms? Is each FDIC insured CD treated as a separate CD and therefore covered by $250k unto itself? What if i purchase 2 CDs from the same bank using two different brokerage firms? The FDIC website is not clear this. Cheers!
What happens to CD’s & Treasury bonds when dollar collapses this summer?
When I buy CDs through Fidelity I always pay attention to the Coupon Frequency. I usually select one with a monthly payout if available even though the payout is usually slightly lower. I like the flexibility of having some money coming in over time. Just depends on your situation.
Great Lesson ! I'd like to know if I could build my Bond portfolio using these instruments . Seems like I keep getting kicked and disappointed with bond funds . There is certainly more certainty with these vs funds . Especially now with interest rates up in the air .These sort of mimic Buffett's short term bond fund recommendations . I just came across your lessons and am doing a deep dive into them now , just as I'm decluttering my portfolio . Thanks again Rob . Great lessons !
Fidelity 12 month CD ladder paying 5.3%
Look at Ally Bank no penalty CD. 4.75%
What a big difference in 7 months. from 2.75% to 5% Now.
Hi Rob, thanks for the video. My brokerage account is with InteractiveBrokers, and their disclaimer states that their CDs are NOT FDIC-insured although they're issue by FDIC-insured banks. How can that be?
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Interest on brokered CDs is not compounded (but rather paid out in regular intervals) as it is with CDs you'd get directly at a bank. I may get a slightly higher rate with a brokered CD over a bank CD, but need to calculate to see which will give the best overall yield given the compounding factor! Also, I note that Investopedia says, "Brokered CDs are technically not FDIC-insured. However, the broker’s underlying CD purchase from the bank is insured (if that bank is a member of FDIC). That makes it essential to buy them from a financially sound company."
Why would anyone buy a CD when T-bills are at double the rate and so safe?
Rob – excellent video as I am looking at moving some bond fund monies to brokered CD (not callable). Looking at long term performancee on bonds vs guaranteed +4.5% (don't need the money)
SaveBetter was down for 4 days for planned mantainance/upgrades and after that was over promplty went down again today. During all that time they didn't (still don't) allow new signups. It looks like they are having a hard time scaling up. Do you have anything else to recommend?
So a brokered cd at 4.2 that settles 1/30/23 matures 2/28/23 . If I invested 10k. What actually do I get at maturity?
How about high yield savings accouyfrom lending club
Are the CDs on save better callable? I don't see that in the fine print but I know a lot of CDs especially those sold by brokerages are callable.
Since this video is 5 months old, 10-2 Treasury yields have been in inverted since June ‘22. Why would anyone buy a 13-17 month CD? A retiree should be focusing on yields. Your best bet would be 3-6 month Treasury Bills with substantially higher yields.
Capital one online gives 4.00% for one year
Is Savebetter holding your money or is Sallie May? Saillie May doesn't offer the 27 month CD at 5% directly on their website now that interest rates have gone up.
I see Brokerage CD offer higher rate than bank CD but do not know it is safe investment and covered by FDIC insurance.?
Great info thanks
FDIC insured is worth 1.04 for every 100.00 invested in the bank. so much for that !
Why not buy bonds directly using Treasury Direct account ? I bonds are over 6% and 17 week are at 4.6%. KISS keep it simple, mange and o all this yourself online with no fees…
When you discuss interest rate risk, does this mean there is never principle risk in any of the three investments you discussed here?
What does it matter. Biden will make most savings useless if he is left unchecked. Keep voting Democrat if you want to lose your retirement.
How can I turn my 401 into a cd and not pay 20% taxes on it
I'm also looking at what do with some cash slated for a kitchen remodel! I've got cash that has just been sitting, but the interest rates are so much more attractive right now.
I've also been looking at CD rates…now going 4.5% one 14 month for 4.6%. Brokered CD's are a little better, maybe, through Schwab. Treasury ladders paying over 4.7%
1/6/23 Rockland federal credit union. 4.5% 12 month CD. 4.0% on 15 month CD
It looks like the government bonds have a buy minimum that is very high?
If I am looking at investing between 1-3 years, should I be looking at high-yield CDs? And how does that compare with Treasury I-bonds? I am not very familiar with Treasury bonds though you mentioned it in the video. Not sure if those are T-bills, I-bonds, etc. Thanks!
WOW!!!!! Today is Jan 2, 2023… and how things have CHANGED!!!!! The whole interest rate fixed income market is totally different than it was just a few months ago when this vid was posted… for the uncertainty and all the "doom & gloom" forcasted for this yr, I'm stashing a lot of money in CDs and or bonds for about 2 to 3 months… the whacky yield curve makes it completely idiotic to buy long term fixed income instruments… my biggest problem is that thru E-Trade, the pickins can be hard… they have US Treasuries… but sometimes the minimum offering is 1000 bonds… theat's a MILLION BUCKS!!!! But I did get a few 4.75% CDs maturing in two months, so I'm not concerned about penalties… the longer term offerings are in the 3% range, and we just need to see what the Fed is going to do.
Marcus by Goldman is paying 3.5% on money maker account.
Appreciate your work here Rob. Also Corporate Bonds are offering even higher rates for those people looking to get more for their money. Just be aware most will be Callable & beyond a 5 year term. Have to consider the company issuing the Bond too ( will it still be around so the risk factor there ). I inherited a Bank Of America Corporate Bond that pays
6 % every month / Not Callable / Matures in 2036 . Couldn't find anything more than Quarterly payments in todays world. I understand T-Bills are a great option though because they are No Risk.
Just a question? Is there any bank or investment company CDs that pay out better than inflation?
At 9:46 you speak about call protection where the bank may want to end the deal. Is that compulsorily implied by bank or is it still optional for customer to accept or reject?
How do I find financial institutions not pushing or being pushed by EDI requirements? Blackrock and Vanguard in particular , are acting in ways I don't want to leverage with my money.
How would these choices compare to a money market fund? I mean, beside the lack of FDIC…
I just made the same choice you eluded to and bought a large amount of short term treasuries over CD's (both offered through Fidelity) to save the state tax
Am I correct that you're saying that brokered CDs are only subject to this value variability if sold prior to maturity? At maturity are you guaranteed to receive the face value of the CD as a worst case scenario?
BTW, I went to the Savebetter site and they also have a "high yield CD" option. Am I correct that this is simply a vanilla bank CD? Any potential "gotchas" to know here?
A broker, makes you broker….lol. A CD is free at a bank… Never trust a Broker…. They are crooks
Fidelity recently started Fractional CDs; I'm going to give those a try. Also, I can't help but notice your slabbed copy of ROM # 1 – that's some Frank Miller goodness! – "alternative" asset, lol?
I have all three.