My father-in-law recently opened a brokerage account and deposited a significant amount to get the bonus. That money is now sitting there and will be for about six months. In the interim, he’s thinking about buying 3 to 6 month CDs. The brokerage doesn’t pay any interest on any money that is sitting idle. Would the 3 to 6 month CDs be a good idea?
–TIA for your input.
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It may depend on what CD offerings the brokerage has access to, but those available from my brokerages seem to have lower interest rates than those discussed here. On the other hand, a low rate would still beat the no interest he’s getting now. He could also see if a money market mutual fund is available. Schwab, for instance, has a fairly good yield on one of their money markets, but don’t really tell you its available.
The money is sitting there for 6 months regardless. If he isnt going to invest it otherwise, in stocks or bonds or anything, it’ll be earning nothing for those 6 months. Isnt a 6 month CD a no-brainer, no matter how (un)competitive the rate may be?
Not as good as buying a money market fund like VMFXX or SPRXX. They’re yielding almost 2% right now, will move up or down with interest rates, and don’t require any commitment. Your choices for CDs at brokerages will suck.
Thanks everybody for your input. I’m going to pass the info along. I guess if there is a money market fund available, that might be the way to go.
Thanks again, everybody!
It’s a brokerage account, so all mutual funds are available. The only thing to do is find one that has the best yield and lowest cost (to buy and sell). For example, a Vanguard brokerage will have a bunch of no-fee Vanguard funds, including VMFXX.
ETFs like BSCI or IBDH holding very short term bonds earn about 2%. They’re auto-liquidating ~6 month CDs at this point.
Money market and short term bond funds seem like good alternatives, but FWIW not all of the CD choices at brokerages suck. Looking through the 3-6 month CD choices in the Fixed Income screener on my Merrill Edge account, the top four choices yield 2% or more, which is pretty competitive with the returns others are mentioning.
Thanks, Scripta. The brokerage is Ally Investment (previous Trader King).
Thanks, Lurker. Since this is with Ally Investments, I’ll recommend to see if there are CDs from Ally Bank among the offerings.
I see comparable rates on CDs available on the Ally Invest website. I chose Trading–Fixed Income and clicked CD then entered a date range of 12/1/18 to 1/31/19 and clicked Find Bonds. The first three showed yields of 2% or more. (I haven’t evaluated the offering banks at all, but I presume they’re FDIC insured.)
Thanks for the help, Lurker. I appreciate it very much!.