tag:blogger.com,1999:blog-775967109474059335.post7345973239424092140..comments2023-11-13T00:52:34.306-08:00Comments on Kevin On Investing: Synchrony Bank 5-Year CDUnknownnoreply@blogger.comBlogger11125tag:blogger.com,1999:blog-775967109474059335.post-1011323609510796252015-08-16T22:27:12.670-07:002015-08-16T22:27:12.670-07:00Sorry for the late reply, but for some reason, I h...Sorry for the late reply, but for some reason, I haven't been seeing notifications of new comments.<br /><br />It is only in a taxable account that you have the alternative of using a tax-exempt bond or bond fund (or at least it only makes sense in a taxable account). So for this comparison, you should look at after tax yields (and of course also risk). It was only in comparing to muni bond funds that I discussed looking at after-tax yields, so it's not a matter of taxable vs. tax-advantaged accounts, but of the additional alternative of tax-exempt bonds in taxable accounts.<br /><br />You can compare CDs and Treasury yields directly either in taxable or tax-advantaged accounts, except that Treasuries are exempt from state taxes, so state tax should be factored in in taxable accounts. Other than state taxes in a taxable account, you'll pay the same tax rates on a CD, Treasury, or taxable bond fund earnings, whether in a taxable account or upon distributions from a tax-deferred account.<br /><br />It's true that the magnitude of the difference between after-tax yields is less than the difference between pre-tax yields, but the rank order doesn't change. So the pre-tax difference in yields for a CD at 2% and a Treasury at 1.5% is 0.5% (50 basis points), but at a 25% marginal tax rate, the after-tax yields are 1.5% and 1.125% respectively (e.g., 2% x (1 - 0.25) = 1.5%), so the difference in after-tax yields is less at 0.375% (37.5 bps), but the after tax CD yield still is higher. However, spreads like this usually are discussed without considering taxes.<br /><br />Regarding taxes on traditional IRA distributions, some people actually can get a deduction on contributions and pay nothing on distributions of contributions or interest! This can be the case for people who don't amass large tax-deferred accounts, and don't have a lot of other non-social-security income in retirement. I have relatives for whom this is has been the case (and I did their tax returns, so I know). Pretty sweet deal, providing the best of both traditional and Roth IRAs. This is an example of why a Roth IRA is not always the no-brainer it's sometimes made out to be.Kevinhttps://www.blogger.com/profile/03576910288369216955noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-56313672266875071722015-05-27T19:54:20.121-07:002015-05-27T19:54:20.121-07:00Kevin, thanks very much for sharing this and putti...Kevin, thanks very much for sharing this and putting the link into the Bogleheads forum. I just wanted to ask why you mention the after tax rate only matters in the case of holding the CD in a taxable account. Even if you hold the CD in a traditional IRA, you still get taxed on the earnings when you take distributions from the IRA. So you will eventually pay tax on the tax-deferred rolled over principal along with the interest it earns. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-72458828948304555322015-01-04T17:57:07.204-08:002015-01-04T17:57:07.204-08:00Thanks for the response, Kevin. Hard not to feel ...Thanks for the response, Kevin. Hard not to feel like I'm "fighting the fed", but think I'll resist trying to time the market and just proceed with buying the CD immediately. Best to you and hope you'll be keeping this site going as we go through the post-QE world.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-10239050161745930612015-01-03T20:09:49.025-08:002015-01-03T20:09:49.025-08:00We don't know when the Fed will increase rates...We don't know when the Fed will increase rates, and when they do how it will affect 5-year rates. The Fed exerts the most influence over very short-term rates, especially since ending quantitative easing (buying longer-term bonds). I don't try to predict interest rates, but just look at the comparison between a 5-year CD and a 5-year Treasury. With 5-year Treasury rate at 1.6%, the CD earning 2.25% is a very good deal for the retail investor, especially with the cheap early withdrawal penalty. The market knows as much as we do about potentially rising rates, and that is built into the 5-year Treasury yield.<br /><br />Hope that helps,<br /><br />KevinKevinhttps://www.blogger.com/profile/03576910288369216955noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-36495511062276519262015-01-03T08:22:33.131-08:002015-01-03T08:22:33.131-08:00Hi Kevin - Not sure if you are keeping this site a...Hi Kevin - Not sure if you are keeping this site active, but I'm interested in your opinion. Just had a large CD expire and trying to decide what to do next. Would like to just roll it over to a new 5 year CD at Barclays yielding 2.25% but am concerned that the fed will be raising rates beginning in 2015. I like your philosophy of just paying the EWP if rates go up too much, but not sure the conditions where this would make sense. So do you think its smarter to just sit in a mmf at 1% until rates rise, or is it better to lock in a new 5 year cd at 2.25% with 180 days interest EWP?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-50441119001145392942014-07-22T11:29:29.857-07:002014-07-22T11:29:29.857-07:00Sorry, I read "Nanny" as "Nancy&quo...Sorry, I read "Nanny" as "Nancy"; comment above was for Nanny813.Kevinhttps://www.blogger.com/profile/03576910288369216955noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-21362269372681609652014-07-22T11:26:48.386-07:002014-07-22T11:26:48.386-07:00Nancy, each institution has its own procedures, bu...Nancy, each institution has its own procedures, but if you designate your children as beneficiaries with a Payable on Death (POD) registration, there should be a straightforward process for each beneficiary to withdraw their share of the CD upon death of the owner. All the CD terms I've seen waive the early withdrawal penalty on death.<br /><br />I recommend that you discuss with the bank or credit union the procedure for a beneficiary withdrawing from the CD upon death of the owner. A death certificate will be required, and they probably have a standard form for the beneficiary to fill out. Each beneficiary will have follow whatever procedure they have.<br /><br />This brings up another point. Someone who has an expected lifetime of only a few years can buy even longer-maturity CDs through a broker for the higher rates, but without exposing her heirs to any interest-rate risk. Most brokered CDs have a "death put" (survivor option), which allows the heirs to sell the CD at face value upon death of the owner. The death put allows the heirs to get out of the CD without penalty if rates have risen much by the time the owner dies.<br /><br />For example, I see a 10-year new issue 10-year CD being offered by Vanguard at 3.35%, which is significantly higher than the 2.3% offered by Synchrony Bank for their 5-year CD. This allows you to earn the higher rate now, and if rates are higher when the heirs inherit, they can sell the CD for full face value and reinvest at the higher rate.Kevinhttps://www.blogger.com/profile/03576910288369216955noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-14212983131929307932014-07-21T08:55:21.741-07:002014-07-21T08:55:21.741-07:00Kevin-- My accounts will all be P.O.D accounts. Do...Kevin-- My accounts will all be P.O.D accounts. Do you think there will be any problems with the beneficiaries getting the funds paid out from 5 year CD'S? <br />I really would like the interest income for whatever time I have left but don't want my children to have problems receiving the funds. Thanks,Nanny 813https://www.blogger.com/profile/06788538358979485271noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-86205128866336248942014-06-11T18:24:14.605-07:002014-06-11T18:24:14.605-07:00Rick, whether or not to reinvest the interest or h...Rick, whether or not to reinvest the interest or have it distributed depends on your situation. If you don't need the income, then why not reinvest it at this attractive rate? If you are retired and living off of your investments (at least partially), then having the interest distributed could reduce the need to sell other investments that you may not want to sell.Kevinhttps://www.blogger.com/profile/03576910288369216955noreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-38739507565068811482014-06-05T16:45:15.779-07:002014-06-05T16:45:15.779-07:00Hi Kevin,
Thank you for sharing this information.
...Hi Kevin,<br />Thank you for sharing this information.<br />With the CD's do you recommend taking the the interest or reinvesting it?Ricknoreply@blogger.comtag:blogger.com,1999:blog-775967109474059335.post-11509009303563178832014-06-02T05:34:34.216-07:002014-06-02T05:34:34.216-07:00Kevin, this is a very helpful post. I'm worki...Kevin, this is a very helpful post. I'm working to help my 88 year old parents select a single bond fund for their IRA's at Vanguard (the remainder of their portfolio is in 3% CD's at PenFed). They are OK with a bit more risk than a CD, but still want to minimize drawdowns since their investment timeline is relatively short (most likely). I don't like the Total Bond fund much, especially the MBS component. I'm torn between the Intermediate Treasury and the short term bond index fund. Any thoughts on this? Thanks.Desertnoreply@blogger.com