Are interest rates going up??

[RSKY]

Thoughts?

Cash in US dollars is a position.

A TIPS ETF has been able to keep up with the super mild inflation we've expereinced. This inflation-fighting investment is performing up to speed - MarketWatch

Why CDs? Why not a preferred equity

This is not my money. It is somebody else's and all they will agree to is CDs. If it were mine it would be in mutual funds.

RSKY

 

[fishheadbob]

Lessen your shopping by going to Bankrate Monitor to see what the offers are in your area. We use that to see what other financial institutions in the area have to offer. As always be sure to read the fine print before you sign as everybody's offers are rarely the same, what are withdrawal penalties, death policies, etc..
And yes, some banks will roll a renewing CD to the lowest rate on that day absent any instructions from the owner.

 

[RSKY]

Lessen your shopping by going to Bankrate Monitor to see what the offers are in your area. We use that to see what other financial institutions in the area have to offer. As always be sure to read the fine print before you sign as everybody's offers are rarely the same, what are withdrawal penalties, death policies, etc..
And yes, some banks will roll a renewing CD to the lowest rate on that day absent any instructions from the owner.

One of the problems I had was the CDs were loosing nearly $200 week between what they were drawing and could draw.

Also nothing on the net compared to dealing face to face. At one bank they had to go all the way to the President to raise their offer. At the next one the 24-year old girl beat that offer without blinking an eye. All I had to do was mention the amount. When I did she politely took the paper I was holding out of my hand, put it back in a pile, opened a drawer and took out another and gave it to me. She then beat the rate shown on that paper by a half a percent. She called me the next week and upped the offer another nine tenths of a percent. Her problem was that early withdrawal cost $35 and TWO YEARS INTEREST. So she lost.

I cashed in CDs at three banks today. Or at least I tried to. The first didn't charge anything that I could tell for withdrawing nearly 50k. Second bank wanted over 1k in fees and penalties for 65k. Third bank wanted less than $100 for withdrawing double the others combined.

Guess who we will never do business with again?

So the second bank's CDs will remain until they come up for renewal when they will be moved. As will the checking account that is there. As will anything else my 'client' has there. They were friendly enough but still..........

Anyway, the money has been withdrawn and redeposited at another bank. Part of the reason I went with that bank was their withdrawal policy and the fact they let me put names on the CDs in groups. Long story that I'm not going to attempt here.

The ordeal is (nearly) over.

Oh yeah, one other thing, my client has annuities at two of the banks. I can already see that it is going to be an ordeal to get them away from the companies holding them. Both companies have been contacted and all I am getting is a runaround. When I talk to them you would think that it is their money and I am trying to steal it. Paperwork after emailed paperwork just to find out what interest they are paying if any. Two of the financial people at banks said that they refused to sell them. Because they are such a bad deal for the purchaser. All shook their heads when I mentioned them and wished me luck finding out anything and getting the money back.

RSKY

 

[dfkrug]

I buy CDs, but also trade stocks and options.

Interest rates are rising, and have been for over a year. You can now get 2% on insured 12 mo. CDs. Since
rates are rising, I would not lock in rates for anything longer than one year. Even with my one-year-max
strategy, I bought some 12-mo CDs early last year at 1.3-1.5%. During last year, rates on money went up to
as high as 1.6% or so. Kind of an inversion there, which I want to minimize.

These rates are not at the corner bank. You have to go national (Synchrony, Ally, Marcus, etc.) or even
"brokered CDs", which buy and sell like bonds. My broker (TDAmeritrade) had one last month at 2.05%-12 mo, and it
was from Wells Fargo. I don't know any WF regular customers getting that rate.

 

[ultrarunner]

Schwab has Brokered CDs and my local Credit Union is offering 2% for 14 months.

I think I will be moving some of Mom's into the Credit Union... she is not interested in Stocks.

Credit Union has always treated us fair... it was something I got the entire family into about 10 years back...

The option is to do nothing at 1.25% and see if the rates go up...

 

[RSKY]

I buy CDs, but also trade stocks and options.

Interest rates are rising, and have been for over a year. You can now get 2% on insured 12 mo. CDs. Since
rates are rising, I would not lock in rates for anything longer than one year. Even with my one-year-max
strategy, I bought some 12-mo CDs early last year at 1.3-1.5%. During last year, rates on money went up to
as high as 1.6% or so. Kind of an inversion there, which I want to minimize.

These rates are not at the corner bank. You have to go national (Synchrony, Ally, Marcus, etc.) or even
"brokered CDs", which buy and sell like bonds. My broker (TDAmeritrade) had one last month at 2.05%-12 mo, and it
was from Wells Fargo. I don't know any WF regular customers getting that rate.

I am getting 2.4% for 55 months with two 'bump ups' during the life of the CD. I was offered 2.6% but the withdrawal penalties were huge on that one. It was strongly hinted that the rates were going up but of course they couldn't really know or say. As I have stated several times on this thread this is not my money but somebody else's. So I had to do as they wished and invest the money locally in CDs. If it were my money I would have done differently. The withdrawal penalties mean a lot to the owner because they are over ninety years old. And they want the money readily available in case it is needed for deteriorating health. Also in case of health problems I have instructions as to how to handle the money. To put it bluntly the owner is preparing for their death. They wanted things arranged in a certain way and I have done so. My original question about what everybody thought about the interest rates rising was to help me make a decision between the 2.4% with bump up later, or the 2.6%.

I also thought it would be a good topic for a discussion.

RSKY

 

[npalen]

It is a good topic for discussion and I've learned from it.

 

[RSKY]

One point I have failed to make in this discussion. Do NOT depend on the online information. Several people have mentioned different websites. These should only be used as a guide. If you are investing in CDs or anything else go to the banks and talk to the people there. I was told several times that each CD is individually negotiated. What you get depends on the amount you are investing. The bank I mentioned above that wanted such a high amount for early withdrawal also seems to be losing market share in our area and may be in trouble. Or so I was told at a couple other places. Another surprising fact is that when I mentioned the banks that I had been to the older financial people would loose their smile at the mention of one of their competitors, but not others. One young lady even told me I would get higher rates from a competitor if I took one of her ink pens and made sure they knew I had been talking to her. Said they hated her because she had hired three people away from them.

As I have said the entire ordeal has been very educational.

RSKY

 

[dfkrug]

My original question about what everybody thought about the interest rates rising was to
help me make a decision between the 2.4% with bump up later, or the 2.6%.

No one can perfectly predict the future, but the interest rate trend is certainly up right now. If you get locked in
for any significant period, over say 12-mo, then there is a risk of missing out on rates that may be as high as 3-4%
or more in a few years. If I or my client was 90yo, I would not be in any CDs over maybe 3mo, or no CDs at all.

Also, note that FDIC insurance is good to only $250K per person. So spreading money around to multiple institutions
has value. Not just to the 4 too-big-to-fail mega banks here in the US.

More on brokered CDs: these CDs have no cost to the buyer when sold as original issue, but they WILL incur commissions
if sold (or bought) on the secondary market. When interest rates rise, previously issued CDs are worth less when sold
before maturity. Just like bonds.

 

[RSKY]

No one can perfectly predict the future, but the interest rate trend is certainly up right now. If you get locked in
for any significant period, over say 12-mo, then there is a risk of missing out on rates that may be as high as 3-4%
or more in a few years. If I or my client was 90yo, I would not be in any CDs over maybe 3mo, or no CDs at all.

Also, note that FDIC insurance is good to only $250K per person. So spreading money around to multiple institutions
has value. Not just to the 4 too-big-to-fail mega banks here in the US.

More on brokered CDs: these CDs have no cost to the buyer when sold as original issue, but they WILL incur commissions
if sold (or bought) on the secondary market. When interest rates rise, previously issued CDs are worth less when sold
before maturity. Just like bonds.

Your points in order.

The CDs I purchased have two "bump ups" during their 55-month life. If rates go up a significant amount, say half a percent, I call the bank and give the financial officer the CD number and tell him I want the rate bumped. The CDs then are adjusted to the higher rate. That is the reason I chose the lower initial rate. I will have to depend on a spread sheet to decide when to give them a bump.

Also, the bank I purchased from has much better rules for withdrawing money from a CD. I could have got a 0.2% higher rate elsewhere but the withdrawal penalties were wicked. Two years interest on the entire CD and $35. For CDs over $200,000 that is a LOT even at 2.6%. The bank I chose only penalizes one year's interest FOR THE AMOUNT WITHDRAWN plus $25. So we could take out $10,000 and it would cost $265 instead of over $5000. THAT was the biggie. I ran into problems with this at the second bank when I went to cash in the old CDs. They wanted over $1000 to cash in around $65,000.

This also allowed me to get larger CDs and not have to purchase a bunch of smaller equal ones to avoid penalties in case they are needed for health reasons.

If there are two names on CDs they are EACH insured for $250,000. Or that was what I was told at the banks and what I read online. Each of the three CDs purchased had at least four names on the title, the original and the PODs.

In my limited experience brokered CDs have not worked out well for anybody in my family. Another long story. Anyway, due to the owner's instructions they were not something I looked at.

I have done the best for my client or clients. I have studied on this problem for a month and talked to financial officers at nine different banks (I think that is correct). And I have talked to financial people at different branches of the same bank. THAT was interesting.

Tomorrow I have to start helping another 'client'. Also over ninety years old. And I have to start digging into the annuity problem for the first client. That may be a major problem. One lady whom I talked to has worked in banks for 44-years said there was no way in he11 she would sell anybody one and would not let any of her family buy one. I have got to remember not to loose my temper.

RSKY

 

[ultrarunner]

I was not happy when Mom rolled her 401k into an annuity... all these years later I feel bad because it has been paying 5% for a very long time... maybe she was one of the lucky ones but that annual check is a nice supplement.

I think I will pull the trigger on the 2% credit union 14 month CD... and insured for the dollar amount she has.

What I do see is a lot of seniors with money collecting 1/10 of a percent or less in Bank M/M checking deals... sad.

I remember putting together 10k so I could buy a CD paying 12%... many today think a 10-12% CD existed only in Fairy Tales...

 

[steveja]

The problem w/ CDs is that you can rarely keep ahead of inflation, but if that's the requirement ...

1/ The Fed will raise its inter-bank lending rate, which defines the short-end interest rates.
2/ The US deficits mean the supply of new T.Bills will be plentiful. If for any reason demand doesn't keep pace, then long rates will increase.
3/ A number of factors (money supply & velocity of money) are "poised" to cause inflation. That doesn't mean 1980 type rates, nor does it mean this is likely to happen in the next 2 years (if ever). [predicting inflation is a losers game].
4/ Odds are you will see better rates 1, 2 and 3 years out. So I'd ladder in the <5year range.

I see you can get >2% for 18month CDs, and you don't get much of a premium going farther out. Personally I'd "do the math" assuming you'll see an additional ~0.5% return a year out. That's about an additional 20% return (2% -> 2.5%) .

I'm a pretty serious investor, but I rarely touch bonds & CDs except money market funds for cash. My personal view is that today's market is a great time to get ahead of future potential inflation.

AFAIK the only time you really "win" on CDs is if you lock-in long CDs before interest rates decline. If the other party can't tolerate growth stocks, I wonder if they could tolerate a small (10%) position in bank stocks or utilities ? Many offer dividends that rival CD returns.

 

[dfkrug]

Yeah, the end of 10 years of artificially low interest rates is here. The FED has to unwind $3T on its books. One
year CDs at 2% indicate that inflation is a bit higher than that. You are not going to beat inflation with CDs.

FDIC insurance is per-person, so a couple has protection up to $500K per bank acct. Who knows how good
that insurance is going to be in the next banking crisis. Dodd-Frank guarantees protections for the mega banks,
so they will be inclined to take Bigger risks.

Annuities generate huge commissions for the seller, and lock in a return rate. Market rates go up? Tough.
Getting out of an annuity is also costly. Advantages of an annuity to the owner are few.

 

[check]

I don't think it was as much being played as it was getting older and not paying attention. There were three banks involved in one of the individuals, but as far as I know now only one on the second. Notices had been sent every time the CDs were ready to be renewed. I spent an entire day going thru twenty years of notices stuck in drawers. Let me give you an example. Four CDs were bought at an Integra Bank sometime in the early 2000s. That bank failed in 2008-9 (I think). The CDs then went to a Bank in Evansville, Indiana that I've never heard of, then they were bought (??) by a bank in our home town. Others CDs were bought at a 'Liberty Bank' which was itself bought by 'Peoples First' which was bought by 'Union Planters' which was bought by 'Regions'. I am trying to trace all these down. At another bank I gave the not very friendly lady by name, SS number, and POA papers and she looked it all up on her computer and started laughing. Said they had been trying to contact the owner but were getting no replies to their letters. She said she was relieved to see me. She admitted on the second visit that at first she thought I was going to try to take money from the accounts for my own use. Surprisingly the bank people have directed me as to which of their competitors were paying higher rates and giving better terms. I have received a very good education on CDs and financial dealings in the past month. We are going to move a LOT of money from three banks to another. The bank paying the highest interest in not the winner. The one with a slightly lower rate but better rules on withdrawal won the contest. The way they are going to let me structure the CDs will also make it easier to remove money if the owner needs it for their care. At their age it is highly likely that they will. Also there will be a total of eighteen names on the CDs. Did I say this was complicated? Most banks said it would have to be eighteen different CDs but the one bank will let me structure all this into three different groups consisting of all children, all grands, and all great grands. They will all be POD also. Which means Pay On Death to the second name on the CD. This is so nobody will know about it until the owner passes. Sadly this is considered a necessity by some involved. The penalties and fees for early withdrawal of all the financial instruments (big words, ha) will be made up in two weeks and two days at the new rates. Understand why I have had constant indigestion for the past month? All of the banks have penalties for early withdrawal. Most are a cash amount, $25-$35, and the interest for a certain time. At all the banks except one you must cash in an entire CD, get the money you need, pay the penalty ($25 + a year's interest on the entire CD), and roll the remainder into another smaller instrument. The bank we have chosen will allow us to take out the money needed from the CD and only pay the $25+a year's interest ON THE AMOUNT WITHDRAWN. This is not my money. I am doing this because the person trusts me and knows I will not cheat them. EVERY SINGLE PERSON I have dealt with at eight to ten banks, I forget exactly, has been polite and helpful. Some were skeptical of me at first. I have heard enough horror stories from them to understand why. Also heard about the brother and sister who came in one bank earlier this year asking about their recently deceased parent's checking and savings accounts. Said they knew their parents didn't have much because they had been putting money into their checking each month for years so they could buy groceries. They were surprised when told that they now had over a hundred thousand in CDs they didn't know existed. Their parents had been buying CDs with the extra money they got each month. RSKY

Wow - put your money in a Canadian bank. (They have US denominated accounts). They NEVER fail - not once.

 

[dfkrug]

Wow - put your money in a Canadian bank. (They have US denominated accounts). They NEVER fail - not once.

True! Back in what we called the "Great Depression", thousands of US banks failed, but no Canadian banks
did. Of course, I think Canada had only 8 banks at the time, IIRC. The big diff was US regulations made it difficult
or impossible for banks to span large customer bases, across state lines. This would have spread the risk of failure
beyond local towns, cities, or whole states.

The facts are that US New Deal policies extended what would have been a 1 or 2 year recession into
a decade of misery. In other parts of the western world, recovery was much quicker. The recession of
1920 was actually deeper than the one in 1930, but recovery took about a year. There was little
government or FED intervention then, and the govt actually reduced spending.

 

[ultrarunner]

If a person adds POD (Payable on Death) names to a CD does that increase the Insurance Coverage in 250k increments for each named?

 

[RSKY]

If a person adds POD (Payable on Death) names to a CD does that increase the Insurance Coverage in 250k increments for each named?

Yes. I didn't know that until I started on this task. I thought you had to spread the money around to different banks. If there are four names on a CD they are each insured for 250k.

RSKY

 

[RSKY]

double post

 

[ultrarunner]

I may add POD to my CD... last thing I would want is to have a simple error erase decades of saving.

 

[dfkrug]

If a person adds POD (Payable on Death) names to a CD does that increase the
Insurance Coverage in 250k increments for each named?

I don't see how. Those beneficiaries are not named owners of the acct. Yet. After it transfers, then maybe so.

BTW, California has a car titling feature that allows for automatic transfer upon death, too.

All people with assets and kids, or others you want to benefit from your death, should have a living
trust. I have been a successor trustee, and liquidating such a trust after death avoids massive probate fees
and dealing with courts or lawyers.