Moving money from mutual funds to CD in Vanguard

[Smilinggirl]

Hi all. I've gotten some good guidance from this forum in the past, and could use some advice once again. I have my retirement money in Vanguard, mostly in target retirement funds, but I also have about 50k in my taxable account (VMFXX I believe). I'm okay-ish (as much as one can be I suppose) with riding out the downturn and not touching my IRAs, which I won't start to tap for another 10 years, but the cash is money I will likely need over the next 3-7 years, so I need to make sure it's secure, even if it earns less. I'm wondering if I should move it into CDs so it will be secure. I was thinking of doing a maturity ladder so some will be available at different times if/when I need it, then I can just roll it into a new CD if I don't need it. I'd rather earn only a little interest than lose any of it.

I know all this is common sense to many of you here, but it just doesn't come naturally to me, so I'd appreciate either reassurance that my idea makes sense or maybe ideas for what may be more secure. I'm comfortable for now in my own fairly modest way, but I'm definitely not as comfortable as many of you here, so while I applaud those who say "buy the dip", and see this situation as an exciting prospect, I need to just feel as secure as possible.

Thank you for any helpful input you can offer!

[james.hendrickson]

Why not buy some treasuries with the cash in the account? Its about as safe as you can be while still remaining liquid.

[Smilinggirl]

To be honest, I understand how CDs work, but I've never purchased treasury bonds. I like that CDs are locked into a rate so I know how much (or little) I will earn, but I also know I won't lose anything. I thought treasury bonds could fluctuate. Doesn't that mean they could potentially lose money?

[ua_guy]

I just purchased a handful of 3-month CD's at ~4.3% to ride out the volatility and re-assess direction in the short term. Call-protected, FDIC insured up to $250k per depositor per institution. I picked a few West Coast banks (local to me) and bought.

I'll also be buying during the dip via my regular paycheck contributions to retirement in a handful of Vanguard Admiral share index funds. But, the nest egg? It's safe.

[Jluke]

Is this your emergency fund / pile of cash?

VMFXX had a 7-day yield of 4.2% or so. And your money is not locked up like it is in a CD.

not sure what cd rates are right now but just wanted to point out.

[Smilinggirl]

It's not my immediate emergency fund. I keep around 10k in a regular savings for that, but I've been easing into retirement for a while now, so I'll pull money from the 50k as needed to supplement my income. That sounds like what I was thinking as far as the rate for now, but it looks like CDs are around the same amount and they're secure, whereas VMFXX could go down (or up). All of that together is why I was thinking of a CD ladder.

[Smilinggirl]

I just purchased a handful of 3-month CD's at ~4.3% to ride out the volatility and re-assess direction in the short term. Call-protected, FDIC insured up to $250k per depositor per institution. I picked a few West Coast banks (local to me) and bought.

I'll also be buying during the dip via my regular paycheck contributions to retirement in a handful of Vanguard Admiral share index funds. But, the nest egg? It's safe.

I'm continuing to put a little into a 401k for now, which I guess is my version of buying the dip, and I plan to keep pushing forward with that for now since I can always adjust later if needed, but I guess you could say this 50k is my nest egg. I think of it more as a security blanket.

[disneysteve]

It's super easy to buy either CDs or Treasuries at Vanguard. Log into your account and click on Products and Services on the top menu bar, then CDs.
Click on View CD rates
Click on detailed CD rates
Select the account you are shopping for
You'll then see a grid showing CDs, Treasuries, and Bonds sorted by maturity and for the CDs, callable and non-callable
Just select the duration you want and a list of available offerings will pop up and you can buy from there

I like that grid because it makes it simple to see if you are better off with a CD or a Treasury for any given duration

Keep in mind that there is no state tax on Treasuries so that can make them more appealing than CDs depending on where you live even if the interest rate is slightly lower

[Smilinggirl]

I looked at all the CD options and I've done more reading on laddering CDs. I'm thinking I'll do every 6 months or so up to 18 months, then a 2 and a 3 year one. Does that make sense?

[disneysteve]

I looked at all the CD options and I've done more reading on laddering CDs. I'm thinking I'll do every 6 months or so up to 18 months, then a 2 and a 3 year one. Does that make sense?

It all depends on your goals and your timeline for when you might need the money but that sounds perfectly reasonable.

Personally, I have our ladder going every 3 months for 3 years plus a couple of longer durations thrown in there as well.

[Smilinggirl]

I talked with someone from Vanguard yesterday, just to make sure I would be doing things correctly. I appreciate the specific instructions Steve, since the lady on the phone seemed to know less than I did, which is rather concerning given my limited understanding. Anyway, I spent quite a while figuring different possibilities, so decided to wait until this morning to actually make the changes. The site is down for maintenance this morning, so I will try again later today.

One question, really just for reassurance, I didn't recognize the name of most of the CD providers, but that's okay, right? They are all FDIC insured and safe, correct? Some offered monthly payouts (I forget the correct term), while others just paid at the end of the term. Is there any benefit of one over the other if you don't plan to need the money right away? I doubt I'd invest more than 10k in any one CD, so it's not like I'll be making huge returns off them anyway.

Thank you!

[Jluke]

For CD interest at my credit union, it pays monthly and the interest is added to the CD balance, so I’m earning a little more each month.

maybe a coincidence but there’s a vanguard CD thread today

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=451554&newpost=8294310&view=unread#unread

[ua_guy]

I talked with someone from Vanguard yesterday, just to make sure I would be doing things correctly. I appreciate the specific instructions Steve, since the lady on the phone seemed to know less than I did, which is rather concerning given my limited understanding. Anyway, I spent quite a while figuring different possibilities, so decided to wait until this morning to actually make the changes. The site is down for maintenance this morning, so I will try again later today.

One question, really just for reassurance, I didn't recognize the name of most of the CD providers, but that's okay, right? They are all FDIC insured and safe, correct? Some offered monthly payouts (I forget the correct term), while others just paid at the end of the term. Is there any benefit of one over the other if you don't plan to need the money right away? I doubt I'd invest more than 10k in any one CD, so it's not like I'll be making huge returns off them anyway.

Thank you!

The number of financial institutions that offer CD's is dizzying. Vanguard should indicate whether the CD is FDIC insured, and whether or not it can be called before maturity (call protection), and any Blue Sky rules (CD's that can't be sold in particular states).

The institution you choose shouldn't matter too much. The financial health of institutions varies, but IMO that shouldn't be too big of a concern right now. Is there more reason to going with a big bank like Bank of America, versus a small community bank limited to a particular region? Yes and no... Some folks might find comfort in going with a bigger bank, "too big to fail", while others might prefer a known, local, or regional bank with which they are familiar. And then there's a lot of institutions which are neither! But the products they offer are basically equal, you are still FDIC insured, and the interest your CD earns is 100% money!

There are things to understand if you want to get into total knowledge of CD's like New issue versus secondary, brokered CD's. Some involve fees to trade, some can be traded before maturity. Some are issued at par value $1,000 per CD, others are fractional and can be purchased in lower denominations. The simplest is to go with a new issue CD, there shouldn't be a fee. Interest is compounded per the schedule listed, and you may be given an option to auto-enroll your funds in another CD when the current one expires.

[disneysteve]

I talked with someone from Vanguard yesterday, just to make sure I would be doing things correctly. I appreciate the specific instructions Steve, since the lady on the phone seemed to know less than I did

I find that random strangers on the internet (here, ER, Bogleheads, etc.) generally know far more than customer service reps because we're the people actually doing these things and have firsthand experience regarding how it all actually works.

One question, really just for reassurance, I didn't recognize the name of most of the CD providers, but that's okay, right? They are all FDIC insured and safe, correct? Some offered monthly payouts (I forget the correct term), while others just paid at the end of the term. Is there any benefit of one over the other if you don't plan to need the money right away?

As long as they are FDIC-insured, it makes no difference. As for interest frequency, when you walk into a bank and buy a CD you can choose to have the interest added to the balance each month or paid out to you. With brokered CDs, they only pay out. You can't have the interest compound. Interest is taxable in the year it is paid unless it's a tax-sheltered account so just be aware of that. If you buy a 1-year CD today, monthly interest payments will be taxable this year while payment only at maturity would be taxed next year.

[disneysteve]

The simplest is to go with a new issue CD

It's just as simple to buy a brokered CD at Vanguard (or Fidelity I'm sure) and very frequently the brokered CDs will pay higher interest. No fees of any sort at least at Vanguard.