My HYSA is giving me 4% APY while all CDs I find in Fidelity are below this (except those with 10+ yr maturity). Does this mean that HYSA are outcompeting CDs? Or am I missing something?
All CDs Fidelity offers have worse APY than my current HYSA, am I doing the math wrong?
byu/gilbert322 inpersonalfinance
Posted by gilbert322
11 Comments
You are missing that the HYSA interest rate could drop to 0% next year, while the CD rate is (generally) locked in for the duration.
CDs lock in your interest rate over the duration of the CD. HYSAs are dynamic and can be changed at any time. Rate cuts are expected soon, so you will need to accept a lower interest rate to lock in the rate on a CD. When interest rates are expected to increase, the opposite will occur.
CDs are sometimes lower because the rate is constant. Your 4% HYSA can drop to 3% tomorrow, if the bank chooses to.
Brokered CDs are pricing in an expected decline in interest rates as signaled by jpow
Expect your HYSA to decline when that happens
Yield curve is all sorts of wonky right now
Money market funds are what you should be comparing at Fidelity.
For example, have a look at SPAXX, one of the core money market funds where your cash gets swept if you just plunk it in an ordinary brokerage account.
* https://fundresearch.fidelity.com/mutual-funds/summary/31617H102
Look for the “7-Day Yield.” This is what you can use to compare to the bank’s published APY.
What you will find is that the difference is inconsequential.
Where it may become more interesting is if your specific State has an income tax. Then, you look at FDLXX.
* https://fundresearch.fidelity.com/mutual-funds/summary/31617H300
With this, you may note that the yield is slightly lower. But the yields are not subject to State/Local tax. So when you calculate an after-tax yield, the Treasury Only Money Market fund may end up being better than your bank’s HYSA.
Think long and hard about buying a brokerage CD, as opposed to a bank CD.
Bank CDs let you close out the CD early, for a small interest penalty. You at the very least get 100% of your principal.
Brokerage CDs do not let you do that. You *might* be able to find a buyer on the secondary market, but you will likely take a significant loss on the deal – if you can find a buyer at all.
CDs have fine print clause that they can be recalled at the bank discretion. There was an article earlier on this topic
Anytime you see HYSS outpacing longer term CDs it’s because the bank expects rates to reduce over the period of time between now and the end of the CD term.
As others have said, HYSAs are now-looking and CDs are future looking. The market is expecting rate cuts for the remainder of the year. If that actually happens, the CD is probably a little advantageous. Enough so to be worth tying up your money semi-longterm? Not sure.
3 month CDs are 4.05% at Fidelity. Longer durations are just below 4%
My local bank doesn’t publish all of their CD rates. So, in order to get the best rates, you have to physically go in and sit with a banker. Sure, it can be a little frustrating, but I was able to get a 15-month CD at 5.4% APY last October.