bank rates

Time To Start Simplifying My IRA Portfolio

two hands holding a white egg with the letters IRA on it.I have IRA CDs maturing at Alliant Credit Union this month, and I intend to use the occasion to begin simplifying my IRA portfolio.

About 80% of that portfolio consists of CDs established directly at 11 banks and credit unions.

The balance includes obligations (primarily brokered CDs) held at online brokerage firms Fidelity and Vanguard.

This multiplicity of institutions and accounts reflects persistent rate-chasing on my part in the face of low CD yields.

But my portfolio has become unwieldy, difficult to manage. And effective rate-chasing can be problematic.

As I’ve posted before, establishing IRA CDs directly at banks or credit unions – and then closing them and transferring their balances to other institutions at maturity – is paperwork-intensive and time-consuming.

And it sometimes isn’t possible to lock in a favorable CD rate before completing a transfer of funds.

Brokered CDs don’t present the same portfolio management problems. Once funds are in your IRA account, brokered CDs can be bought and sold, at market prices, with a few mouse clicks during a single trading session, without new paperwork.

Maturing CD funds can be invested in new CDs with the same ease.

Unfortunately, the best rates available on brokered CDs usually aren’t as favorable as the best rates available on direct CDs. That’s why I’ve shied away from them for the most part.

But the prospect of gradually rising rates, as well as certain immutable biological facts (I’m 68 and not getting any younger), have convinced me to move my IRA funds into online brokerage accounts as my direct IRA CDs mature.

Starting with my Alliant CDs.

Here are the CD renewal APYs I could currently get at Alliant, compared with the yields to maturity for new-issue, FDIC-insured brokered CDs of the same maturities purchased at Vanguard:

Term Alliant Vanguard
2-year 1.10% 1.00%
3-year 1.30% 1.45%
4-year 2.10% 1.90%
5-year 2.10% 2.20%

I could obtain somewhat higher yields than available at either Alliant or Vanguard by opening new IRA CDs directly at a handful of other institutions, but that would be subject to the usual hassles and uncertainties of the IRA transfer process.

Of course, brokered CDs have their own portfolio management negatives, including the inability to reinvest posted interest at the same rate in the same CD.

But I’ve decided the overall convenience of brokered CDs outweighs the negatives.

So I’m going to stop chasing rates with IRA funds.

Who knows? With rates going up, maybe I’ll eventually find myself buying U.S. Treasury securities again – as I did before the financial crisis and the uber-dovish Fed came along.

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