Money For the Rest of Us
More Ways to Lock in Higher Yields in Case Interest Rates Fall
Jan 31, 2024
The podcast discusses options for locking in higher yields, including the risks of buying long-term bonds, the impact of volatility drag on bond ETFs, and why interest rates won't necessarily go up when the government issues more bonds. They also explore CDs, fixed annuities, and zero-coupon bonds as alternative investment options. The episode highlights the performance of the iShares 20+ Year Treasury Bond ETF and discusses different investments and their limitations. Additionally, it covers zero-coupon bonds and the concept of tax equivalent yield and portfolio diversification.
27:01
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Quick takeaways
- Bank certificates of deposits (CDs) and fixed annuities are two options to lock in higher yields with fixed terms and low default risks.
- Zero coupon bonds provide an option to lock in higher yields without cash flow concerns, although they are more interest rate sensitive and used for speculating on interest rate changes.
Deep dives
Locking in Higher Yields: Bank Certificates of Deposits
Bank certificates of deposits (CDs) offer a way to lock in higher yields. CDs are issued by banks or credit unions and are insured by the government. They have a fixed term and offer interest, which is credited to the CD. Although there may be early withdrawal penalties, broker CDs can provide more flexibility. CDs can be taxed annually on the interest earned. For example, Schwab offers 5-year broker CDs with a 4.1% yield.
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