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Message
Brokered CDs. yea or nay
Posted on 3/6/24 at 4:51 pm
Posted on 3/6/24 at 4:51 pm
My mother (83 y/o) is dead set on putting money that has just matured back into CDs. whatever.
She keeps quoting me the rates that her local hometown brick and mortar banks give her. 3.5%. 4.25% etc.
She has a TD Ameritrade (soon to be Schwab) account. I'm tempted to just put into that account and buy brokered CDs just to have most of the money in one broker.
Either that or Marcus CDs (she has an account with them as well).
From what I read there aren't that many cons especially if you get the non-callable ones.
She keeps quoting me the rates that her local hometown brick and mortar banks give her. 3.5%. 4.25% etc.
She has a TD Ameritrade (soon to be Schwab) account. I'm tempted to just put into that account and buy brokered CDs just to have most of the money in one broker.
Either that or Marcus CDs (she has an account with them as well).
From what I read there aren't that many cons especially if you get the non-callable ones.
4
Posted on 3/6/24 at 6:59 pm to Jmcc64
Really no issue with them, I think I would do the same based on your needs. I do something similar for my mom as well
Posted on 3/6/24 at 7:03 pm to Jmcc64
I buy them through Ed Jones. Never an issue.
Posted on 3/6/24 at 7:31 pm to Jmcc64
Three drawbacks (but almost certainly still worth it):
1) there is no penalty to sell one before maturity, but the resale price is market driven. If interest rates have gone up, you will likely get back less than your principal. If they’ve gone down, you will likely get back more than your principal. Either way, the resale value down the road is uncertain vs the fixed, known penalty that regular banks charge.
2) they’re not as simple to redeem in the event of death. In LA, for example, they’re still going to go through probate. The estate clause on the CD will let you redeem it, but that doesn’t mean the brokerage company will release the funds without handling the entire account. They’re also not redeemed as quickly as a local CD would be.
3) the interest doesn’t compound
If she already has a brokerage account, the issues with item 2 are probably moot, but I try to discourage older clients in LA from opening an account just to buy CDs. If you’re in another state you can eliminate that issue by using a TOD account.
1) there is no penalty to sell one before maturity, but the resale price is market driven. If interest rates have gone up, you will likely get back less than your principal. If they’ve gone down, you will likely get back more than your principal. Either way, the resale value down the road is uncertain vs the fixed, known penalty that regular banks charge.
2) they’re not as simple to redeem in the event of death. In LA, for example, they’re still going to go through probate. The estate clause on the CD will let you redeem it, but that doesn’t mean the brokerage company will release the funds without handling the entire account. They’re also not redeemed as quickly as a local CD would be.
3) the interest doesn’t compound
If she already has a brokerage account, the issues with item 2 are probably moot, but I try to discourage older clients in LA from opening an account just to buy CDs. If you’re in another state you can eliminate that issue by using a TOD account.
Posted on 3/6/24 at 7:42 pm to slackster
I have no experience with brokered CDs, but what the hell is this?
So, just simple interest?
quote:
3) the interest doesn’t compound
So, just simple interest?
Posted on 3/6/24 at 7:51 pm to TDTOM
You buy a $10,000 CD at 5% for a year, you probably get a $500 payment every 6 months. 2 years would be the same. You can reinvest the interest however you’d like, but you can’t retroactively buy the CD you bought 6 months ago, so it doesn’t compound in the CD. If you invest it in a money market each payment, you can compound it there.
It’s reinvestment risk, and it’s true of corporate bonds, treasuries, and brokered CDs, among other things.
It’s reinvestment risk, and it’s true of corporate bonds, treasuries, and brokered CDs, among other things.
Posted on 3/6/24 at 8:35 pm to Jmcc64
Like Slackster said, -P.O.D. on a CD is very convenient to handle at Brick and mortar bank. If this is for your mom and you are her eventual heir, that may matter at time when you least want complications.
Don't know how much money you are dealing with, but if she is near the SPIC coverage limit in her brokerage or FDIC at her bank, then it is worth keeping in mind.
-Even if she is not near the insurance coverage caps, it might not be a bad idea to have CD accounts in different entities because in the event of bank or brokerage being taken under, the processing time by the agency reorganizing may be longer than you would anticipate. Hopefully the odds that both would go under are unlikely, though if you were in Silicon Valley Bank and Charles Schwab last March you might have a different view.
So far as 3.5%, 4.25%, Hancock in S La. is offering 5% as of this morning.
Best wishes for you with your mom, been there myself, it can be a challenge to figure out the best boundaries for decision-making.
Don't know how much money you are dealing with, but if she is near the SPIC coverage limit in her brokerage or FDIC at her bank, then it is worth keeping in mind.
-Even if she is not near the insurance coverage caps, it might not be a bad idea to have CD accounts in different entities because in the event of bank or brokerage being taken under, the processing time by the agency reorganizing may be longer than you would anticipate. Hopefully the odds that both would go under are unlikely, though if you were in Silicon Valley Bank and Charles Schwab last March you might have a different view.
So far as 3.5%, 4.25%, Hancock in S La. is offering 5% as of this morning.
Best wishes for you with your mom, been there myself, it can be a challenge to figure out the best boundaries for decision-making.
Posted on 3/7/24 at 7:12 am to DeCat ODahouse
I'm leaning toward a ladder at Goldman since she's already set up there and I think she "trusts" them.
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