dollars image

Recent Articles


Sexy and Dangerous: Avoid the 3.50% Toronto Dominion Callable Step-Up CD

Rate information contained on this page may have changed. Please find latest cd rates.

TD Ameritrade is sending out notices to some of its clients offering a new callable step-up CD offered by Toronto Dominion, its parent.

This new product - which offers an initial 3.50% APY interest rate - is dramatically more sexy than their offerings just a few months ago which we discussed and recommended against here.  

After two years, the newly-offered Toronto Dominion CD will pay 4.50% APY for years 3 and 4 and 5%, if it isn’t called away sooner by the issuer.   The issuer has the right to call the CD any time after year 1.   

BestCashCow has never liked brokered CDs.   We recommended that they be avoided when rates where much lower and we basically recommend against them now for the same reason.  Since they cannot be broken with the payment of an early withdrawal penalty, they represent a significant risk to anyone who may require earlier liquidity.   Since this CD has a maximum maturity of 5 years, should you need to get out of it in the early years, you could take a real bath trying to find liquidity in a market that doesn’t exist (where TD Ameritrade is the only buyer).    Should you die before the CD’s maturity, your heirs will likely inherit a fraction of what they would inherit were you to buy a straight 5-year CD.

Moreover, interest rates are presumably still rising and the Fed is likely poised to bring the Fed Funds rate above 3% by the end of 2019.   If you must reach for yield, you can get 2.70% on a one-year CD and then have the liquidity in 12 months to find a new product with a higher rate.  

But, we’ve just had an election that has left the US in an even worse place than we were immediately after the Russians handed Trump the Presidency 2 years ago.   And, that opens up the prospect of falling rates.   Should that happen, this product will be called away on the first possible call date in November 2019.   While you may have brought in 80 basis points more than you would have made in the 1-year CD that pays 2.70%, you will not have been compensated for the risk that you took. 

Sexy?  Yes.

But, dangerous as hell.  

Your better bet is to look at online one-year CDs.

Editor’s Note: The Toronto Dominion product is listed under CUSIP 89114QER5.


How to Avoid Early Withdrawal Fees on A CD

As interest rates have begun to rise, I’ve received numerous questions from readers asking about ways that they can get out of paying early withdrawal fees on long-term Certificates of Deposit that they may have bought a couple of years ago, but that are no longer attractive.

As I stated in an earlier article, I strongly recommend against breaking any CD until the rate that you are earning falls below the current rates on comparable savings rates.   In a rising rate environment, you do not want to break a CD in order to get another CD that you may then need to break.   I have 2 years left on a 5-year CD at 2.25% and I will not break it until online savings rates are firmly above 2.25%.  

If you do need to withdraw your money early, the withdrawal is entirely at the discretion of the bank or credit union.   Most banks and credit unions will waive it because of death or adjudged incompetence of the holder, or because a bank merger causes the holder to be over FDIC limits.  Early termination fees may be waived due to other hardships at the bank’s or credit union’s discretion.

Reg D forbids banks from allowing any withdrawal within 7 days of issuance (this restriction also applies to No Penalty CDs), but there are no other limits on a bank’s ability to waive early withdrawal fees.   Any bank officer (or other website) that will tell you that they are lawfully required to charge the early withdrawal fee is misinformed.

However, a contract is a contract and you enter into a time deposit contract when you purchase a CD.   When you break a contract, any contract, the counterparty has a right to extract penalties.  In this case, the bank has made commitments based on its expectation that they are borrowing the money for the course of the CD at the indicated rate.

As with any contract, the party entitled to a penalty can exercise its discretion not to extract the penalty (to waive it).  But, if I were an officer of a bank or credit, I would not be inclined to waive it simply because the customer can now get a higher rate.  Would I waive it if the customer committed to do further business with my bank or credit union?   Would I waive it on a one-time basis if the customer agreed to roll into a higher yielding but longer term CD?   Maybe.


Could Trump Fire Fed Chairman Jay Powell?

It is very standard practice that the Chairman of the Federal Reserve is appointed to a 4-year term by the President of the United States.   It is also custom that in between appointments, the President refrains from commenting on Federal Reserve policy.

It has already been several months since the President defied custom by trying to jawbone Federal Reserve Chairman Jerome Powell into not raising rates.

Jerome Powell acted independently, raising the Fed Funds rate to 2.00% to 2.25% in September, while indicating that further rate moves are on the way.

Now that the stock market has begun to fall, the President is escalating his rhetoric, including telling the Fox News microphone that the Fed has “gone loco”.

This brings into question the issue of whether Trump would try to fire Powell should the stock market continue to fall precipitously.   Actually, with this President, the question is not “would he” but “could he”.

And, my analysis after reading the Federal Reserve Act of 1913 is he could.   Section 10.2 gives the President broad latitude to remove any member of the Federal Reserve “for cause”.   It states.

The members of the Board shall be ineligible during the time they are in office and for two years thereafter to hold any office, position, or employment in any member bank, except that this restriction shall not apply to a member who has served the full term for which he was appointed. Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President. Of the persons thus appointed, 1 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Chairman of the Board for a term of 4 years, and 2 shall be designated by the President, by and with the advice and consent of the Senate, to serve as Vice Chairmen of the Board, each for a term of 4 years, 1 of whom shall serve in the absence of the Chairman, as provided in the fourth undesignated paragraph of this section, and 1 of whom shall be designated Vice Chairman for Supervision.

There is a host of legislation and precedent laying out what constitutes "cause" for removal of an appointed official.   I believe that the President inherently has broad authority to do this (especially when he is unchecked on this matter, as he is now, by the legislative branch).   Precedent in the form of the 1935 case of Humphrey’s Executor v. United States would indicate that the President’s power may be limited, but it has been widely suggested that Justice Kavanaugh would provide the deciding vote in overturning that case.   Under any circumstance, there is an open issue here, and with this President that means it could happen.

I’ve stated on BestCashCow frequently and repetitively that I see little reason to buy CDs in the current environment.   That view would change quickly if Trump continues to jawbone Jay Powell and takes further action towards firing him.