Rental Property Investor · Phoenix, AZ · Member since 2015 · 224 posts · 50 votes
On Ally, their savings accounts are 1.75% right now. I was looking at their other products... why would anyone even consider a money market at 0.9%-1.0% and CDs that are <1.75%? Is there something I'm missing about these products?
I disagree. I think the fact that you have to hold the treasury for ten years in order for it to be risk-free is not irrelevant at all. That's why the interest rate on the ten year is higher than for treasuries that are shorter term.....to account for the interest rate risk. You claim the ten-year treasury is virtually risk free,....all I'm saying is that I agree, provided you are sure you will keep it for ten years. If not, then the only way you will be able to sell that note is either at a discount or a premium, depending on which way interest rates went since purchase. Why do you think the coupon on the 90-day rate is so much lower? Oh yeah, that's right...because that's the security that TRULY has no risk....as it will mature in 90 days.
I really didn't want to get pedantic on this thread. You are technically correct that a longer duration security will by definition have more sensitivity to interest rates. But all of you've done is defined duration. When speaking of US Tsy, the principal is assured, therefore the "risk" is zero as defined by loss of principal. Can there mark to market gyrations? Of course. Will it ever be worth 0? No. It will be the definition of "risk free rate" in many a financial model, even if some guy on the Internet doesn't agree with it.
The reason you should be paid more for a longer duration bond is because of term premium. Although, there have been many times in our history (even as recently as 2004 ) that the rate curve inverted. Meaning you were getting higher yields on shorter dated treasuries. We're actually not far off from that now, with the 10/30s at 12bps.
I disagree. I think the fact that you have to hold the treasury for ten years in order for it to be risk-free is not irrelevant at all. That's why the interest rate on the ten year is higher than for treasuries that are shorter term.....to account for the interest rate risk. You claim the ten-year treasury is virtually risk free,....all I'm saying is that I agree, provided you are sure you will keep it for ten years. If not, then the only way you will be able to sell that note is either at a discount or a premium, depending on which way interest rates went since purchase. Why do you think the coupon on the 90-day rate is so much lower? Oh yeah, that's right...because that's the security that TRULY has no risk....as it will mature in 90 days.
I really didn't want to get pedantic on this thread. You are technically correct that a longer duration security will by definition have more sensitivity to interest rates. But all of you've done is defined duration. When speaking of US Tsy, the principal is assured, therefore the "risk" is zero as defined by loss of principal. Can there mark to market gyrations? Of course. Will it ever be worth 0? No. It will be the definition of "risk free rate" in many a financial model, even if some guy on the Internet doesn't agree with it.
The reason you should be paid more for a longer duration bond is because of term premium. Although, there have been many times in our history (even as recently as 2004 ) that the rate curve inverted. Meaning you were getting higher yields on shorter dated treasuries. We're actually not far off from that now, with the 10/30s at 12bps.
All I've done is defined duration? I don't even know what that means... If you think the ten-year maturity period is insignificant, that's your prerogative. The only reason I'm continuing to harp on this topic is that during periods of rising interest rates, buying a 10-year treasury is NOT an investment I would recommend for any purpose including capital preservation because the chances are high that you're going to want to use that money when the next real-estate cycle begins.
You're saying that you think the ten-year treasury is risk-free because principal is assured after ten years. I understand...you and I just have very different definitions of risk because in the real world, principal is not assured.
Haha, BTW, very nice private message you sent me there Kon Zel. You're a real potty mouth, aren't you?
Investor · Cincinnati, OH · Member since 2008 · 319 posts · 243 votes
8y
Risk with 10 year treasury is with inflation. Will the spending power be reduced by 30% at the end of 10 years, or 100% which has happened in modern US History.
The only value I see in holding such a security for personal finance is that it can be collateralized or used to show a strong balance sheet. Might have value when running out the shot clock, but that isn't something I spend much thought on.
Olathe, KS · Member since 2018 · 148 posts · 207 votes
8y
Are there any banks which allow seamless transfer from a brokerage account to a personal account, all at the same bank? It seems like they're all separate. Or maybe I should state what I'm looking for which is a quick way to get money in and out of a brokerage account. It seems like no matter what brokerage I use, the funds transfer in and out takes several days. That makes it less convenient to use when you think you might need cash with less than a two weeks notice, you're not sure if you can actually get the money in time.
Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
8y
@Aaron Taylor, you may be running up against the settlement period, which is established by the SEC. Two business-day minimum to convert securities to settled cash in your account. Then (usually) another business day to move the cash from broker to bank.
@Michael Lee, Thanks for your response. The disdain you heap on the financial planning/investment advising industry was all earned. I think it's getting better, but the hole we have to climb out of is deep!
Olathe, KS · Member since 2018 · 148 posts · 207 votes
8y
@Paul Allen who can transfer it in one day? I have accounts with 3 different online brokers and they're all super slow about adding/removing money via ACH. It seems like by the time I sell it, do the transfer, and it shows up in my other account it has been about a week at best.
Rental Property Investor · Phoenix, AZ · Member since 2015 · 224 posts · 50 votes
8y
I appreciate all the lively discussion on my thread here, but this did certainly get away from just a silly question I had while I perusing the ally website. I thank you to those that addressed the very simple question of why would someone choose a CD carried with it a rate that is lower than just a general savings account in my Ally example.
I've been using Ally for all my savings buckets for personal finance (i.e. vacation, car repair, property taxes, real estate savings, etc.). I've have been thinking of moving my rental's savings buckets (vacancy, repairs, capex,etc.) over to Ally also since they get nothing sitting in the WF business account.
I'll probably look into some of the ideas mentioned here on what I can do with savings above and beyond the high interest savings accounts, but I want to make sure I'm keeping most of these funds as liquid as possible (not same day, but maybe same week?). However, some of these buckets, especially on the personal side, are only drawn from at set times of the year (biannual property taxes, annual insurance, etc.) and my 'real estate' savings buckets has only been added to over couple of years, so maybe some new strategy there above what I'm doing now.
Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
8y
@Aaron Taylor Fidelity moves mine in a day, but it must 'settle' first. Here is the typical timeline for me to convert a stock to cash:
Sell the stock Monday morning.
It settles on Wednesday and I can request the withdrawal. (Actually I can request the withdrawal on Monday, but they won't process it until after settlement.)
Money is in my bank account at COB Thursday.
If I sell the stock Monday afternoon I probably won't have cash until Friday.
Seems like in the internet age it could be faster, but I don't really mind the delay. If I meant for that money to be invested elsewhere, it wouldn't be in stocks in the first place. If I need it for spending I plan ahead. Worse things happen to me than having external controls enforcing my financial plan.
On Ally, their savings accounts are 1.75% right now. I was looking at their other products... why would anyone even consider a money market at 0.9%-1.0% and CDs that are <1.75%? Is there something I'm missing about these products?
I use Discover Bank and current rate is 1.75% for an FDIC insured savings account with no minimum balance. You can get a CD from Discover Bank that yields 2.25% at 12 months. If you lock in for 10 years it goes up to 2.91%. I prefer to keep my money liquid, so I don't do the CD's. I could get a higher yield in an index fund, but my Discover account is FDIC insured, so guaranteed I won't lose money. Stock market is gambling in the short term. I need my cash secure for a buying opportunity.
This is a thread I started a few months ago that was discussing where to park your money. Lots of good options discussed here.
Los Angeles, CA · Member since 2017 · 32 posts · 8 votes
8y
current inflation is AT LEAST 2%, (using CPI index); any savings account or CD you are going to lose money. You can do safe dividend stocks at 4%, and accounting for inflation you'll still make a spread of at least 1-2% (ie dividend yield @ 4% minus inflation @ 2.8% = spread of 1.2%). You can also do a covered call option, which is pretty safe and compound the premiums paid to you (just do it on a stock you wouldn't mind owning and pays a dividend). Of course, theres risks to stocks, and covered call options are safe because they're covered (you own the stock directly), but these are the only main feasible alternatives that I would recommend / think of.
@Aaron Taylor Fidelity moves mine in a day, but it must 'settle' first. Here is the typical timeline for me to convert a stock to cash:
Sell the stock Monday morning.
It settles on Wednesday and I can request the withdrawal. (Actually I can request the withdrawal on Monday, but they won't process it until after settlement.)
Money is in my bank account at COB Thursday.
If I sell the stock Monday afternoon I probably won't have cash until Friday.
Seems like in the internet age it could be faster, but I don't really mind the delay. If I meant for that money to be invested elsewhere, it wouldn't be in stocks in the first place. If I need it for spending I plan ahead. Worse things happen to me than having external controls enforcing my financial plan.
Best of Luck With Your Real Estate Investments!
Thanks. My work uses UBS and they're slow as molasses when doing anything. I think the last one took 7 days from sale to into my bank account. Now normally I wouldn't need cash on short notice, but occasionally there might be 'deal' where I need quite a bit of cash on fairly short notice...that only happens every couple years though.
I keep my cash in FFRXH. 4.24% yield and doesn’t move much. Pretty liquid.
Not recommending or endorsing. Just sharing what I do since no one else is ‘giving their secret sauce’.
Surprised to not see much discussion on tax impact of cash savings options. A good federal tax exempt fund with low expense ratio and low volatility we use to park funds prior to real estate purchases is FHIGX. Tax equivalent yield of 4.41%.
Financial Advisor · Leawood, KS · Member since 2018 · 60 posts · 20 votes
8y
What’s the goal? Liquid safe savings? If safety is the goal - Banks won’t pay much or charge you penalties to take your money out. Online savings accounts will pay better and are pretty good, but there will be a delay on getting the funds. Not a bad thing though. Someone had mentioned using FFRHX, but this fund actually lost 25% if it’s value during the last market crash. I wouldn’t use it for your savings money. (Fine for some non-savings money) I’ve been using SWVXX (Schwab Value Advantage Money Fund) for my clients safer/short term money lately. It’s a money market, pays 1.82% yield currently, and doesn’t fluctuate. Only drawback is you have to buy and sell it like a mutual fund. But if you sell it, cash is available the next day. It’s an option.
Rental Property Investor · Knoxville, TN · Member since 2015 · 16 posts · 4 votes
6y
@Ryan Moore response to: "why would anyone even consider a money market at 0.9%-1.0% and CDs that are <1.75%". I am putting a deposit down with my local utility company. That deposit either will sit with them at 0.19% or I can get the highest CD rate I can and assign my local utility district that CD through the use of their form. That's what brought me to this tread and is the reason I'm considering a CD because I'm not going to settle for 0.19% on my deposit if I don't have to.