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New Issue CD's Rates from Fidelity

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(@pizzaman)
Honorable Member Customer
Joined: 3 years ago
Posts: 430
Topic starter  

CD rates are now bigger than US T-Bills:

New issue CDs by top rates:

All

CDs

3mo

5.05

6mo

5.20

9mo

5.35

1yr

5.30

18mo

5.35

2yr

5.25

3yr

5.00

4yr

5.10

5yr

5.45


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  
Just bought $1,000's worth of CD's from Fidelity's brokered CD offerings. From 3 months to 2 years in length:
3 month - 5.15%
6 month - 5.25%
9 month - 5.35%
1 year - 5.35%
18 month - 5.40%
2 year - 5.05%
Most were in the 9 month, 1 year and 18 month duration.

   
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(@golich428)
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Posts: 88
 

@pizzman, Those are attractive rates, but I want to lock in a reasonable rate for 5 years. I found a non-callable 5 year @ 5% which is reasonable. The 5 years with higher rates are callable. I am not convinced we will see these rates in a few years so I am willing to lock in a slightly lower rate for a longer period. The other problem with the brokerage CD's is they only pay simple interest. Another option for money you don't need now is a 5-year MYGA that pays 5.4% (compounded) from an A rated insurance company.


   
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(@hines202)
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Joined: 3 years ago
Posts: 331
 

@golich428 I wonder if that "A rated" insurance company can sell the MYGA off to some random lower-rated offshore company? Honest question. I've seen it happen with deferred annuities and whole life policies. I'll have to do some digging.

I'm just a bit jumpy after seeing the newest round of volatility in the banking sector, thankfully we have the FDIC insurance there, and the recent debacle on my end with "A rated" Prudential selling off their annuities to Fortitude/Bermuda (who dat?).


   
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(@golich428)
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Joined: 3 years ago
Posts: 88
 

@hines202 I am aware that portions of an insurer's business lines can be sold to another insurer. As far as the MYGA being sold to another company, that is something to be aware of but based on this article this is common practice and should not be a problem. I am not sure I completely agree but I am not overly concerned.

As far as risk of bankruptcy, it is rare for an insurance company to completely fail. It is mostly small insurance companies. When I first started looking at these products, I found data to support my comment about risk of failure, but I can't find it or I would link it. If I find it later, I will share it. Again, you must do due diligence on the product and company you plan to purchase from. There are CANNEX reports, AM Best website to do additional research as well as the companies' financial results by going to the company websites.

The Prudential case you refer to. The company that they sold their variable annuity business to is rated A but I don't think it has been in business very long and that would concern me.


   
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(@hines202)
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Posts: 331
 

@golich428 With all we've seen, I'm wondering if the ratings are even worth looking at. And I'm a big ratings person! Is it all security theater, to make peope feel good but with no real substance behind it?

Prudential sold to Fortitude Re, who might be rated A, but the big concern there is they're based in Bermuda, and hence not even subject to our stringent (but weakened, per Dodd-Frank being kneecapped) regulations and oversight.

It was shocking to see the decisions that the money managers and execs at Silicon Valley Bank were making with their funds. Most people on this forum know better than what they did.

I'm not MYGA, just the industry. You know your stuff very well. MYGAs are pretty simple, short-term tools to fill a gap in time, hence not as risky as more complex, longer-term insurance instruments. Compounded interest on the MYGAs is certainly better than simple interest.


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  

@golich428 Never really looked at MYGA before, interesting. Forbes did a good compare and contrast with CD's: https://www.forbes.com/advisor/retirement/multi-year-guaranteed-annuity/

Interest accrued by CD's in a calendar year are taxable in that year even if the CD has not yet matured, unlike MYGA's, as explained in previous posts. MYGA's are NOT FDIC insured.


   
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(@golich428)
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Joined: 3 years ago
Posts: 88
 

@pizzaman @hines202 I just had two CDs mature so I was going to see what CDs are available around a 5 year maturity that is not callable. There is nothing now? There are many available that are callable, so the banks must think rates are going to keep declining. Fixed income has been on a wild ride since banks started have financial problems.

FYI,

I think of the extra interest you get from a MYGA (3+ maturity) as a risk premium due to the lack of FDIC insurance. However, each state regulates insurance and there are state insurance funds set up to provide some insurance (typically $250,000 but varies by state).

One "big" drawback with MYGA's is the fact that you need to fill out an application and the processing takes some time. That is why I have just purchased brokerage CDs if the rates are not much different.

The other thing to keep in mind is that the rates can vary a lot by carrier and there is not a great correlation between the rating of the insurance company and the rates they offer.

Here is a website where you can compare rates and get other information. You may need to sign up to get all the details, but I have an account and they have left me alone. I just get an email from them when I look at quotes.

There is much better information than what was provided in the Forbes article if you’re interested. I did not think it was up to Forbes' quality. The one thing they did not mention. At maturity, you can simply have the money sent back to you.


   
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(@hines202)
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Joined: 3 years ago
Posts: 331
 

@golich428 You make a good point about knowing what your state's bailout protections are, as part of any annuity decision. I've seen lots of variety there. I think California is 8 cents on the dollar. NJ only covers $100k, from memory, whereas PA covers $250k. It's all over the place and it's part of that risk factor.

Then there's the case in this new WSJ article about thousands of people who forked over their entire savings and are now screwed, because the fraudulent agent that sold them the policies won't go bankrupt, hence no state bailout fund. I'm adding that scenario to my many reasons I'm very against these products, in almost every case. This is just a horrible story and so infuriating. And yeah, you could buy it from a more trustworthy source, but then they could sell it.

Thousands of Retirees Can’t Withdraw Savings Invested in Firms Controlled by Indicted Financier Greg Lindberg - WSJ


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  

The best 5 year brokered CD from Fidelity that is call protected is 4.75% from Morgan Stanley (as of 3/27/23).


   
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(@golich428)
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Joined: 3 years ago
Posts: 88
 

@pizzaman @hines202 I just checked Vanguard and found a 5 year CD at 5%. It is pretty wild how frequently the available CDs change. Given the warning (see below) on the CD page on Vanguard's website, I think it is a good idea to do a little due diligence on the banks that you may be purchasing CDs from. Looks like CDs are no safer than MYGA. It will be interesting to see how long it takes for this warning to go away since that would indicate how long your money is tied up in the process. FYI, I checked the bank out on the FDIC website before I purchased the CD. The FDIC number was on the Vanguard site so it was pretty easy.

On Vanguard Site:

Alert for Certificates of Deposit issued by Silicon Valley Bank and Signature Bank of New York: Silicon Valley Bank and Signature Bank of New York CDs are covered by FDIC insurance. FDIC protects insured depositors (including owners of brokered CDs) by arranging a sale to a healthy bank or by paying depositors directly for their deposit accounts. The process and timing may vary for each situation. Once the FDIC determines next steps, Vanguard will take the appropriate steps on our clients behalf. To learn more about FDIC insurance click here. Your brokerage account is also covered by SIPC insurance, click here to learn more.


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  

I believe the warning from Vanguard is referencing deposits greater than $250,000. The Feds made a big deal that ALL deposits would be covered for those two banks referenced. So total CD values of $250,000 or less (per bank) are insured assuming the bank is covered by FDIC.


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  

Here is a good overview on account protections: https://www.cnn.com/2023/03/28/success/protections-insurance-financial-accounts-your-money/index.html

More info on SIPC protections:

SIPC protection is not available with respect to fixed annuities and is limited with respect to claims for variable annuity contracts. SIPC does not protect against the risk of default by the issuer of a variable annuity contract (usually an insurance company) and does not protect the value of the annuity contract.

CDs qualify as "securities" under the Securities Investor Protection Act, are eligible for SIPC protection as such, and therefore are subject to the $500,000 protection limit applicable to securities, not the $250,000 limit applicable to cash.

Treasury bills qualify as a “securities” under the Securities Investor Protection Act and therefore are eligible for SIPC protection.

Money market mutual fund shares held in a customer’s account at a brokerage firm qualify as “securities” under SIPA and therefore are subject to the $500,000 limit of protection, not the $250,000 limit applicable to cash.

SIPC protection is available only with respect to cash and securities credited to a customer account at a SIPC-member brokerage firm in liquidation or in a direct payment procedure under the Securities Investor Protection Act (SIPA).


   
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(@pizzaman)
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Joined: 3 years ago
Posts: 430
Topic starter  

The past few posts got me to thinking, are all my retirement accounts protected? From SIPC web site:

SIPC protection of customers with multiple accounts is determined by "separate capacity." Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits.

Examples of separate capacities are:

  • individual account;
  • joint account;
  • an account for a corporation;
  • an account for a trust created under state law;
  • an individual retirement account;
  • a Roth individual retirement account;
  • an account held by an executor for an estate; and
  • an account held by a guardian for a ward or minor.

https://www.sipc.org/for-investors/investors-with-multiple-accounts

So, if I have a Roth IRA and regular IRA in my name, each is covered by $500,000 ($1,000,000 total). If I have a joint taxable account, $500,000. If I have an individual taxable account, $500,000. Put the four together I am covered for $2,000,000.

We have our accounts with Fidelity:

In addition to SIPC protection, Fidelity provides its brokerage customers with additional "excess of SIPC" coverage through Lloyd's of London. The excess coverage would only be used when SIPC coverage is exhausted. Like SIPC, excess protection does not cover investment losses in customer accounts, including losses due to market fluctuation. For example, fraud claims would not be covered if the brokerage firm was still in operation. Total aggregate excess of SIPC coverage available through Fidelity's excess of SIPC policy is $1 billion. Within Fidelity's excess of SIPC coverage, there is no per customer dollar limit on coverage of securities, but there is a per customer limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry. https://www.fidelity.com/why-fidelity/safeguarding-your-accounts.

So I just squeezed under Fidelity's limits!! 🤑 All is good!


   
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(@patton525)
Eminent Member Customer
Joined: 3 years ago
Posts: 24
 

@pizzaman Two questions....

So, in the case of Fidelity, does "brokerage customer" in the last paragraph include individuals with mutual fund IRA accounts and post tax brokerage accounts?

If a person has 5 different IRA mutual fund accounts, but in the same name, does the SIPC limit of $500k apply to each separately?


   
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