I’ve been listening to Clark saying his favorite CD’s are from brokerages like Vanguard. However, in checking on them at Vanguard, I find only simple interest CDs, many callable. I fail to see why a simple interest CD or even one that compounds quarterly or semi annually is competitive with a bank CD, even one with a slightly lower interest rate, that compounds daily.
Found this:
Assume you have a starting principal of $1,000. Here’s the difference for all you compounding periods assuming a 6% interest rate at the end of first year:
FV=PV(1+0.061)1=1000(1.06)=1,060��=��(1+0.061)1=1000(1.06)=1,060 Yearly
FV=PV(1+0.0612)12=1000(1.005)12=1,061.68��=��(1+0.0612)12=1000(1.005)12=1,061.68 Monthly
FV=PV(1+0.0652)52=1000(1.0012)52=1,061.80��=��(1+0.0652)52=1000(1.0012)52=1,061.80 Weekly
FV=PV(1+0.06365)365=1000(1.00016)365=1,061.83��=��(1+0.06365)365=1000(1.00016)365=1,061.83 Daily
For more than one year, just multiply the exponents by the number of years and recalculate (leaving the periods the same.
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Good question. Clark mentions two advantages of brokered CDs in an October 2023 article “3 things Clark says you should do with CDs right now”- discount brokers are able to get you the best rates and if you have millions you can simplify by using 1 brokerage. I wonder if the first statement is always accurate. Vanguard’s current listing is 5.25% yield for its 10–12-month CDs while bankrate.com lists multiple banks with 1 year CD APYs, ie with compounding, in the 5.3 to 5.5% range.
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CDs are very shoppable. Check all your local banks and credit unions. Then look online. I’ve had money market and savings accounts with Ally for many years. Their rates aren’t the highest but pretty close. Plus in my experience they’re convenient, website and app are easy to use, and they have great phone support. I don’t have CDs there as I’d rather not lock up my savings just to get an extra quarter- or half-point. Money market accounts let you transfer or write checks so you can have your funds in a day or two, not a year. Keep in mind that chasing yields and spending lots of time researching may only pay off 10 or 20 bucks a year depending on amounts saved.
I hear you about the money market acct but they will not always have high interest. In fact, my MMA at Vanguard didn’t earn a single penny in the first 10 years I owned it, so I kept most of my money elsewhere until this recent boon. I plan to move it out as soon as rates drop too low. This sentiment was echoed by my PAS advisor at Vanguard. Also, Vanguard MMAs do not allow check writing.