Going to the dark side (Synchrony Bank)

[dualstow]

I think I'm going to give up most of my short-term notes and get a 2.25% 5-YR CD at Synchrony bank. That's not so terrible, is it?

Just need to talk to them about about the details. Penalties, etc.

[Xan]

For me, the major risk of chasing yield with a long-term CD is that if interest rates jump, my "cash" won't be able to take advantage of that for 5 years.  It isn't really "cash" unless its return responds quickly to short-term interest rates.

However, maybe that event is extremely unlikely.

[MachineGhost]

I think I'm going to give up most of my short-term notes and get a 2.25% 5-YR CD at Synchrony bank. That's not so terrible, is it?

Just need to talk to them about about the details. Penalties, etc.

You're doing it wrong.  You need to check the early withdrawal penalties.  According to my spreadsheet which was last updated in early September, Capital 360 and Barclays had the highest 5-year rate and lowest penalty.  Synchrony isn't on the list so they probably suck.  So what you want to do is split your capital into quintuples and buy five 5-year CD's.  I'm sure you can figure out the rest....

[dualstow]

I agree. What turned the tide for me, Xan, is that my friend said he has the instrument I mentioned above and that although it says, 5-Year, he can pull it out without a penalty after a short period. I didn't have time to bug him about the details, and I'm just going to do my own due diligence directly with the bank.

If I have to hold it for say, 6 months before I can take it out, that would be worth it to me to have 2.25% in interest instead of the ~ 1.19% average that I'm getting on my 3-year notes. I'm not going to take it out anyway, unless things change drastically.

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Edit: oh, believe me I will, MG. I will check.

[dualstow]

Capital 360 and Barclays had the highest 5-year rate and lowest penalty.  Synchrony isn't on the list so they probably suck.

I just checked Capital 360 and they offer 2.1% Close, but if the penalty period at Synchrony isn't bad, I'll stick with them. As for Barclay's, it's just a matter of time before they get wiped out by some rogue trader. ;-)

So what you want to do is split your capital into quintuples

Into fifths, yes. That's exactly what my friend does. If only I could quintuple it...

[sophie]

Totally understandable!! As long as you're spreading your investments to minimize risk, it's kind of hard to pass up free money isn't it?

Do remember that Treasuries are exempt from state and local taxes.  Depending on your situation that may narrow the gap enough that it's not worth making the switch.

You might want to look at Ally Bank's "raise your rate" CD.  The return is a bit lower (2%), but you can get a 4 year CD and change the rate to the current offering twice in that period. 

[MachineGhost]

I just checked Capital 360 and they offer 2.1% Close, but if the penalty period at Synchrony isn't bad, I'll stick with them. As for Barclay's, it's just a matter of time before they get wiped out by some rogue trader. ;-)

Looks like Synchrony and Barclays are tops:

https://www.depositaccounts.com/tools/e ... 65245,5207

Now, assuming I already have a 5-year CD stack, how exactly do I determine if its feasible to break them for higher yields?  I assume that my new average rate should be higher than what my net average current rate is?  i.e. 2.5 yr duration?  Or should we consider the effective annual return after year one, etc vs the new effective annual return for year one, etc.?

[Pointedstick]

Per the table in MG's link, it looks like the penalty-free zone starts at 6 months, but the break-even time starts at a year. That is to say, if you withdraw after 12 months, you've made less in interest (1.12%) than you would have sticking with whatever's giving you 1.19% right now.

[dualstow]

Do remember that Treasuries are exempt from state and local taxes.  Depending on your situation that may narrow the gap enough that it's not worth making the switch.

Definitely. That's the number one reason I have never bothered with CDs, well above the fear that I wouldn't get my money back. In fact, my treasuries are held in Fidelity and Vanguard so if there were a run on banks, I'd have to receive a check from those houses, which I would cash where? I don't know how that works and  I guess I don't want to think about it.

I'm in a low tax bracket and my state taxes are low enough. Local taxes are high. Also it just seems less complicated to give up some yield and not even trouble myself with more taxes.

Maybe I should keep buying treasury notes and muni bonds until the pp is large enough that 2.25% interest vs 1.19% is more meaningful.

[dualstow]

Per the table in MG's link, it looks like the penalty-free zone starts at 6 months, but the break-even time starts at a year. That is to say, if you withdraw after 12 months, you've made less in interest (1.12%) than you would have sticking with whatever's giving you 1.19% right now.

Thanks. Hmm, I should really consider doing nothing. The 1.19% is an average on mostly 3-year treasury notes.

[MachineGhost]

Per the table in MG's link, it looks like the penalty-free zone starts at 6 months, but the break-even time starts at a year. That is to say, if you withdraw after 12 months, you've made less in interest (1.12%) than you would have sticking with whatever's giving you 1.19% right now.

Thanks. Hmm, I should really consider doing nothing. The 1.19% is an average on mostly 3-year treasury notes.

But we have to hold 20-25% cash anyway, so you have time in your favor.  The odds that you would need to break a 5-year stack is remote, except when interest rates start rising (and I'm still unclear how to determine when to break or not).

If you're getting 1.19% now you're missing out on 1.06% less taxes.  Is it actionable?  I think I locked in my 5-year CD's at 2% which doesn't seem actionable to me.

EDIT: I just checked to be sure and I'm locked in at 1.75%.  Which after 2.5 years is earning between 1.31% and 1.46% if I break.  Seems to me like its a no-brainer?  I should have been more diligent checking each year at virtual maturity.  Can anyone argue a case why I should NOT break and redeploy into 2.25%?

[dualstow]

3%? Nice!

[MachineGhost]

Wow that's really tempting!

How reliable are these Bogleheads groupies in not piling into a deal then having regrets later?

It looks like the offer is gone already. 

[dualstow]

Thanks. Hmm, I should really consider doing nothing. The 1.19% is an average on mostly 3-year treasury notes.

One small correction: they are actually 5-year notes that are due in 3 years.

[MachineGhost]

Thanks. Hmm, I should really consider doing nothing. The 1.19% is an average on mostly 3-year treasury notes.

One small correction: they are actually 5-year notes that are due in 3 years.

Mine too.  I would have to call to break 'em so I've been delaying until they are formally 3 years old.  I wish banks would get with the times and do everything online.

[dualstow]

Mine are in brokerage houses, so I can just trade'em away if I decide not to keep them.

[BearBones]

Great thread, so going to revive.
Your link to the early withdrawal calculator was very helpful, MG! Looks like Synchrony still the best. Seems to beat the others, and is likely a better then even Ally's Raise-Your-Rate CD posted by Sophie.

But looks like people's experience at Synchrony has been horrible. What did you end up doing, Dualstow, and what was your experience?

[dualstow]

But looks like people's experience at Synchrony has been horrible. What did you end up doing, Dualstow, and what was your experience?

I stuck with treasury notes. I have 2- 3- and 5- year notes, but everything is now due in under three years.
My friend grumbled about his Synchrony experience.
In the end, my decision was based on keeping things simple, not lowering my already low taxes.