Certificats of Deposit

[kenmac]

Don't most of those come with a lot of strings attached, like a certain number of debit card transactions per month and direct deposit?

I can't answer for most, but the one I have doesn't.
I just use this as place to park my fast cash money. maybe 100K
I can take out of my IRA if i need more, but I have to sell stocks to get that money

 

[CloverKnollFarms]

I can still get 5.55% for 12mo. I'll probably get another $20k for now. I'll re-evaluate in January

 

[fruitcakesa]

T-bills offer liquidity, security and higher rates. I ladder 4, 8 and 13 week bills to create a continuous flow of income. Current rates are pushing 5.5% and income is direct deposited into your checking account. And you have control over it all.

 

[Richard]

This isn't investment advice, just throwing some spageti on the wall to think about.

1. Rather than a traditional CD, you might look up a 'market linked' cd. Still FDIC insured but now, instead of the bank taking your money and lending it out for credit cards, loans, other.... it might be invested in the stock market or commodities or other underlying asset. Just like a traditional CD which might have someone file bankruptcy on their loan or credit card.....YOU the CD owner, do not suffer that risk, that belongs to the Bank. On a market linked CD, even if they put funds into commodities or stock market, YOU do not bear that risk.....you bought a FDIC insured CD. The bank takes that risk. YOUR risk might be the credited interest rate. You might have a floor of zero (if market goes down) but a maximum of 10% (if market goes up) Might be worth looking into but your local "banker" won't necessarily have access. If the bank has an investment advisor on their staff, THAT is the person to talk to. You need a securities license to sell one of these.

2. Maybe learn about a Municipal Bond. Virtually every state (and various counties in each state) write/sell muni-bonds. If you buy a bond from the state in which you live, then the interest from the bond is tax free from both state AND federal taxes. if you have sufficient horsepower, you can buy a basket of them. Why? These bonds typically pay twice a year so every six months. If you bought six of them where your dates of interest payments were:

January/July
February/August
March/September
April/October
May/November
June/December

You could build a stream of monthly income that is totally tax free. Note that (especially in a rising interest rate market) I'm not a fan of bond FUNDS.....but rather the individual bonds themselves. Why?

If interest rates go up, (bond values then go down) so in a fund, you might be buried for who knows how long. If you hold individual issues, you can wait until maturity and get your money back.

You can ALWAYS sell the bonds. Your pricing would be subject to interest rate movements but if this is bedrock, long term money, then just take the tax free earnings. If you don't need it, plough it back into another round of bonds to increase the tax free cash flow.


Probably 20 years ago, working at a bank.... had someone come back that a banker coudn't help. He had just come into maybe $400K and what to do.... after talking with him, I mentioned the above idea. Found a baskket of bonds, created a spreadsheet so he could see the cost, the monthly income. He said he'd like to try it.

Roughly two years later, my phone beeps at my desk, "Mr. Jones is calling you". Same person above.

"Hi Richard....long time..... do you know where I am?"
(boy was I full of smart alec comments after two years!)

"How you doing? Nope, I've got no idea where you are!"

"I just left my CPA's office.... wanted to let you know that I had over (I forget) $20,000 of tax free income from those bonds and I didn't owe a PENNY of tax....!!! I just wanted to call you to thank you!!"

NOBODY ever calls me back to thank me like that. I was genuinely impressed and touched by his call.

 

[ultrarunner]

The only bond I have experience with ended badly...

https://www.nytimes.com/1994/12/09/business/a-default-by-orange-county.html

 

[grsthegreat]

I just rolled a cd that matured today into a new 12 month cd at 5%. I dont need access to the money now, so why not.

i have 2 large ones maturing in january, and i plan on rolling those also.

 

[WM75Guy]

This isn't investment advice, just throwing some spageti on the wall to think about.

1. Rather than a traditional CD, you might look up a 'market linked' cd. Still FDIC insured but now, instead of the bank taking your money and lending it out for credit cards, loans, other.... it might be invested in the stock market or commodities or other underlying asset. Just like a traditional CD which might have someone file bankruptcy on their loan or credit card.....YOU the CD owner, do not suffer that risk, that belongs to the Bank. On a market linked CD, even if they put funds into commodities or stock market, YOU do not bear that risk.....you bought a FDIC insured CD. The bank takes that risk. YOUR risk might be the credited interest rate. You might have a floor of zero (if market goes down) but a maximum of 10% (if market goes up) Might be worth looking into but your local "banker" won't necessarily have access. If the bank has an investment advisor on their staff, THAT is the person to talk to. You need a securities license to sell one of these.

2. Maybe learn about a Municipal Bond. Virtually every state (and various counties in each state) write/sell muni-bonds. If you buy a bond from the state in which you live, then the interest from the bond is tax free from both state AND federal taxes. if you have sufficient horsepower, you can buy a basket of them. Why? These bonds typically pay twice a year so every six months. If you bought six of them where your dates of interest payments were:

January/July
February/August
March/September
April/October
May/November
June/December

You could build a stream of monthly income that is totally tax free. Note that (especially in a rising interest rate market) I'm not a fan of bond FUNDS.....but rather the individual bonds themselves. Why?

If interest rates go up, (bond values then go down) so in a fund, you might be buried for who knows how long. If you hold individual issues, you can wait until maturity and get your money back.

You can ALWAYS sell the bonds. Your pricing would be subject to interest rate movements but if this is bedrock, long term money, then just take the tax free earnings. If you don't need it, plough it back into another round of bonds to increase the tax free cash flow.


Probably 20 years ago, working at a bank.... had someone come back that a banker coudn't help. He had just come into maybe $400K and what to do.... after talking with him, I mentioned the above idea. Found a baskket of bonds, created a spreadsheet so he could see the cost, the monthly income. He said he'd like to try it.

Roughly two years later, my phone beeps at my desk, "Mr. Jones is calling you". Same person above.

"Hi Richard....long time..... do you know where I am?"
(boy was I full of smart alec comments after two years!)

"How you doing? Nope, I've got no idea where you are!"

"I just left my CPA's office.... wanted to let you know that I had over (I forget) $20,000 of tax free income from those bonds and I didn't owe a PENNY of tax....!!! I just wanted to call you to thank you!!"

NOBODY ever calls me back to thank me like that. I was genuinely impressed and touched by his call.

I like municipal bonds as well but mine are in funds that pay monthly. While my principal did go down since interest rates went up, my monthly dividend has increased. It is now up to 4.24% tax free. Doesn't sound like a lot to some folks but to get the equivalent taxable return at my 37% tax rate, I would have to be getting 5.8%. I don't look to sell my funds any time soon. With the price down and being able to re-invest the dividends I am coming out ahead.

 

[Richard]

The only bond I have experience with ended badly...

https://www.nytimes.com/1994/12/09/business/a-default-by-orange-county.html

Unable to read full article, seems you have to be a subscriber.

That said, there are various types of bonds.... a couple:

1. "G.O." = General Obligation: This type bond is covered by the full taxing authority of the unerlying issuer. So, if that was an Orang County GO bond, they can "simply" raise tax rates or whatever tools they have at hand to raise the funds. However, the moment I saw California, I just sigh.

2. "Revenue" bonds = repaid via the revenue of the issue. Example, a new stadium might be a revenue bond and revenue from the stadium is what covers the debt. What happens if your team leaves town and there's nothing there to go pay to see? (so a GO bond might be more preferred than a revenue)

Choosing Municipal Bonds: GO or Revenue?

You're interested in investing in municipal bonds, but which type—general obligation or revenue—is best for you? We break it down.

www.schwab.com

(partial copy/paste) Side comment, I am not affiliated with Schwab, found it via a google search.

Choosing Municipal Bonds: GO or Revenue?​

​

January 18, 2023 Cooper Howard


You're interested in investing in municipal bonds, but which type—general obligation or revenue—is best for you? We break it down.

Given all the municipal bonds to choose from, how do you decide which ones should make up the core of your portfolio? With $3.6 trillion of muni debt outstanding spread among roughly 35,000 to 40,000 issuers, the choice may seem daunting, but we'll help you break it down.
Municipal bonds are issued by local and state governments to help fund public projects or municipal government operations, like building new schools or repairing city sewer systems. Their interest payments are usually exempt from federal income taxes and may be exempt from state income taxes if the bond issuer is located in the investor's home state. For these reasons munis are often attractive to income-oriented investors looking to reduce income tax bills.

Two broad classes of munis​

Munis can generally be classified into two camps—general obligation bonds and revenue bonds. General obligation, or GO, bonds are backed by the general revenue of the issuing municipality, while revenue bonds are supported by a specific revenue source, such as income from a toll road or sewer system.

• General obligation bonds account for 28% of the investment-grade muni market and are usually backed by the taxing authority of the bond issuer. Most states and local governments issue GO bonds to help fund operations or specific projects. The dollar value of GOs issued by states compared to local governments is roughly equal, even though there are fewer states than local governments. In other words, the amount of debt issued per state is much larger than the amount of debt issued per local government.
• Revenue municipal bonds, or revenue bonds, account for nearly two-thirds of all investment-grade munis outstanding, but they tend to get less attention than their more popular counterpart, general obligation bonds. Credit quality varies more with revenue bonds compared to GO bonds, but they can be an attractive option for muni investors looking to round out a diversified portfolio or to add investments that may have higher yields, if they're willing to accept additional risks.

 

[ultrarunner]

I'm not equipped to fully understand the complexity or variations and that is my problem.

Dean Witter Reynolds broker recommended Orange County Bonds for higher tax advantage yield for my nest egg that had been in Bank CD.

I'm thinking municipal bonds are good and Disneyland is in Orange County what could be the risk?

Learned I really have no business investing in what I don't understand just because it was offered by my Broker...

Somewhere around that time Sears bought Dean Witter Reynolds if memory serves...

 

[Molalla1]

This isn't investment advice, just throwing some spageti on the wall to think about.

1. Rather than a traditional CD, you might look up a 'market linked' cd. Still FDIC insured but now, instead of the bank taking your money and lending it out for credit cards, loans, other.... it might be invested in the stock market or commodities or other underlying asset. Just like a traditional CD which might have someone file bankruptcy on their loan or credit card.....YOU the CD owner, do not suffer that risk, that belongs to the Bank. On a market linked CD, even if they put funds into commodities or stock market, YOU do not bear that risk.....you bought a FDIC insured CD. The bank takes that risk. YOUR risk might be the credited interest rate. You might have a floor of zero (if market goes down) but a maximum of 10% (if market goes up) Might be worth looking into but your local "banker" won't necessarily have access. If the bank has an investment advisor on their staff, THAT is the person to talk to. You need a securities license to sell one of these.

2. Maybe learn about a Municipal Bond. Virtually every state (and various counties in each state) write/sell muni-bonds. If you buy a bond from the state in which you live, then the interest from the bond is tax free from both state AND federal taxes. if you have sufficient horsepower, you can buy a basket of them. Why? These bonds typically pay twice a year so every six months. If you bought six of them where your dates of interest payments were:

January/July
February/August
March/September
April/October
May/November
June/December

You could build a stream of monthly income that is totally tax free. Note that (especially in a rising interest rate market) I'm not a fan of bond FUNDS.....but rather the individual bonds themselves. Why?

If interest rates go up, (bond values then go down) so in a fund, you might be buried for who knows how long. If you hold individual issues, you can wait until maturity and get your money back.

You can ALWAYS sell the bonds. Your pricing would be subject to interest rate movements but if this is bedrock, long term money, then just take the tax free earnings. If you don't need it, plough it back into another round of bonds to increase the tax free cash flow.


Probably 20 years ago, working at a bank.... had someone come back that a banker coudn't help. He had just come into maybe $400K and what to do.... after talking with him, I mentioned the above idea. Found a baskket of bonds, created a spreadsheet so he could see the cost, the monthly income. He said he'd like to try it.

Roughly two years later, my phone beeps at my desk, "Mr. Jones is calling you". Same person above.

"Hi Richard....long time..... do you know where I am?"
(boy was I full of smart alec comments after two years!)

"How you doing? Nope, I've got no idea where you are!"

"I just left my CPA's office.... wanted to let you know that I had over (I forget) $20,000 of tax free income from those bonds and I didn't owe a PENNY of tax....!!! I just wanted to call you to thank you!!"

NOBODY ever calls me back to thank me like that. I was genuinely impressed and touched by his call.

If it was me Richard (and your advice) made me 20K, I would have definitely reached out to you . . . .