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This is a nice alternative to an annuity. It's actually better since you will get your principle back. You can gift it to someone or use it as a way to finance
by WheelsAtLarge 3y ago
This is a nice alternative to an annuity. It's actually better since you will get your principle back. You can gift it to someone or use it as a way to finance you retirement and be sure of the regular income for a very long time. You can even put it in your Will.
- koolba 3y agoFDIC insurance would be the real gain here. That’d cover accrued interest as well. 4.75% perpetual FDIC insured CD vs 30 year treasuries paying about 3.8% right now is interesting.
- ghaff 3y agoA number of very large brokerages have short-term largely treasury accounts returning in the 4-5% range right now. I wouldn't toss all my money there but it seems like a pretty good place to park cash for the next year or two until rates drop.
- mlyle 3y agoThere's a 10 year interest penalty for early withdrawal.
- ghaff 3y agoThat doesn't seem like a good deal at all then. The brokerage accounts are basically "like cash" sweep accounts.
- mlyle 3y agoThe deal is in locking in the interest rate forever. Of course, this is only a great deal if the money is taxed at a very low rate and your horizon is very, very long.
- koolba 3y agoShort term treasuries are paying more than that. 6 month is at about 5.3% and that’s State tax free. Bond yields can only be compared apples to apples at similar durations and at similar credit risks (which FDIC insurance normalizes).
- u801e 3y agoWhat's interesting is that until very recently, the interest rate on treasury bills were higher for shorter term ones versus longer term. That is, the 4 week ones had a higher interest rate compared to the 26 week ones. In fact, the daily treasury bill interest rate for May 26, 2023 was 5.78% for 4 weeks 5.30% for 8 weeks 5.16% for 13 weeks 5.28% for 17 weeks 5.18% for 26 weeks 4.98% for 52 weeks [1] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2023 https://home.treasury.gov/resource-center/data-chart-center/...
- kasey_junk 3y agoThis is the famous inverted curve. It’s generally been a predictor of recession. But this time it’s been inverted for over a year with no recession (yet). One of the many baffling parts of the economy currently.
- pgwhalen 3y agoThe yield curve inversion to recession lag is typically around 18 months (with big error bars), so it’s not super notable yet.
- IAmGraydon 3y agoLocking yourself into an interest rate for a long time period right now is like buying the stock market at the top. Get a high interest savings account with Wealthfront at 4.55%, for example. You’ll be glad you did when rates hit double digits over the next decade. Rates aren’t going back to zero ever.
- iakh 3y agointerest rates have been falling for over 700 years [1]. I wouldn't bet against that over a single unprecedented year 1. https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018 https://www.bankofengland.co.uk/working-paper/2020/eight-cen...
- thegaulofthem 3y agoIt is more than a single year and this happened during the 1970’s and 1980’s stagflation era. Of course worse inflationary crises have happened in Western history and while they returned on a large enough time scale that really didn’t matter all to much for all the poor citizens for whom their hard earned wealth was nukes from orbit.
- Mat3777 3y agoIsn't this cherry picking data?
- fragmede 3y agoYour time machine is as good as mine. Rates can keep going up and up and up like the 70's, or they could crash back down when AI and robots put us all out of jobs, or the dollar could become worthless along with everything else after a nuclear holocaust.
- dc_rog 3y agoYou can do both to hedge that interest rate risk. Some fixed, some floating. No one knows where rates are headed and savings account providers can change rates at any time.
- rising-sky 3y agoIt’s capped at 150,000 so not much in terms of income. Article doesn’t specify if this cap is per account or individual
- toomuchtodo 3y agoProbably best not to exceed FDIC limits for a novel bank product.
- charcircuit 3y agoA CD isn't novel.
- toomuchtodo 3y agoA 100 year CD is, from the first new mutual bank in the last fifty years.
- charcircuit 3y agoDoing the same thing but longer isn't novel.
- readthenotes1 3y agoTry telling that to the world's oldest person!
- deelowe 3y agoFDIC insurance is by account, not individual.
- toomuchtodo 3y agoMy point was that this is somewhat of new and exotic product, and interested parties should be mindful to ensure their exposure does not exceed insurance limits. While you might find a way to buy more of this CD than the bank permits through their limits, that doesn't necessarily mean you should. https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d... > The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. > The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met. > All deposits that an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.
- golem14 3y agoWhat good is it to get the principal back in 100 years ? If inflation stays between 2 and 3%, the principal would only be worth between 5 and 13% of what it is today. If inflation is between 4 and 5%, principal in 100 years would be worth between 0.7and 2% of todays value.
- vineyardmike 3y agoPeople buy annuities for the guaranteed income. That's an existing product people want. Annuities get ~5% interest, and when you die you usually forfeit the principal. It's also not FDIC insured. This CD is 4.75%, FDIC insured, and you get the principal back. It's superior to an annuity for a good chunk of people. Sure the principal degrades in post-inflation buying power (excluding the interest payments), but that's not the point because it's competing with $0.
- alexpotato 3y ago> but that's not the point because it's competing with $0. If the option is "Buy the CD or do nothing" though, correct?
- snypher 3y agoI believe it's [buy this CD, buy an annuity]
- soligern 3y agoCan you withdraw the interest penalty free before the term is up?
- vineyardmike 3y agoThe interest can either add to the principal or be a regular distribution.
- monomers 3y agoWith global population stagnating in the coming decades I wouldn't bet on inflation staying the same. I think it's more likely that we are headed into a deflationary crisis worse than 1930 Germany.
- benj111 3y agoHow does inheritance tax treat this annuity? Are you landing your loved ones with a tax bill without liquid assets to pay it off.