Brokered CDs & other interest-bearing options for cash

It’s been a been a while, decades in fact, but it’s time again to start being more thoughtful about earning interest on deposits. With interest rates rising, you may have seen the financial press giving increased attention to investors’ options for excess cash.

For example, this recent Kiplinger article offers a brief introduction to brokered certificates of deposit (CDs): The Advantages of Brokered CDs. Last Monday’s edition of The Wall Street Journal also touches the same topic: Banks Are Offering 4.5% CDs—Just Not to Regular Customers.

If you’d like to discuss options for managing cash, we warmly invite you to be in touch. We can share perspectives on Treasury bills, brokered CDs and traded money-market funds—all of which are available for purchase and management by us through Schwab—and more, such as Series I savings bonds, available through TreasuryDirect.

Following are a few brief comments about solutions through Schwab:

  • For many years, we’ve purchased brokered Treasurys through Schwab on behalf of clients for purposes of boosting yields on excess reserves. At present, one-year rates exceed 4.5%. (However, our main focus when evaluating these holdings is “yield to maturity,” since their prices can fluctuate, affecting their total return.)
  • We can also readily access brokered CDs through Schwab. For these, one-year rates currently exceed 4.0%. As outlined in the Kiplinger article linked above, brokered CDs are readily marketable, unlike the CDs sold over the counter at your local bank, which typically have lower rates. However, a sale could come with a cost. Brokered CDs don’t typically have the forfeiture of interest feature of bank CDs if sold back before term, but they’ll tend to fluctuate in value like Treasurys—an issue for a seller as rates rise (and prices move inversely). And so, like Treasury bills, these too are better left untouched for the full term.
  • We also favor Schwab for position-traded, no-cost money market options, many of which now yield more than 2.5% without any forfeiture of that interest upon sale. As an aside, the very first holding I ever purchased was a Schwab money market fund. Its 5% rate carried my early savings through the Tech Bubble and eventually the Global Financial Crisis. Not a bad outcome, though if I were doing it over again, I wouldn’t hold it inside a Roth IRA.

Overall, we’re pleased with the Schwab solution set for cash and near-cash management and find that it compares well with the brokerage options some banks offer alongside their depository accounts.