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Thoughts on 5% IRA CD from La Capital Credit Union in Louisiana?

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  • Thoughts on 5% IRA CD from La Capital Credit Union in Louisiana?

    Stumbled on this 5% "bonus IRA" from La Capital ("La Cap") credit union based out of Baton Rouge, LA from depositaccounts.com while I was looking at their $3k, 4.25% high-interest checking account.

    https://www.lacapfcu.org/traditional-roth-iras

    Apparently they will pay 5% on an direct contributions, compounding monthly and maturing on Dec 31 of the year that bonus IRA is contributed to. Rollovers from elsewhere don't count, which makes sense, otherwise someone could rollover a multi-million dollar retirement funds, which is a big unknown liability for them.

    Since the 2022 IRA contribution limit is $6000, this is basically a chance to make $300 of income in this low-yield, low-interest-rate environment.

    VTSAX has such a crappy yield right now, so I feel tempted to open up this (presumably) NCUSIF-insured bonus IRA, dump in my full 2022 contribution limit, wait for a market crash and, worse-case scenario, pull out my money for an early-withdrawal fee to get into the market once it crashes by 30% or more

    The S&P 500 having an index value of ~4500, as of writing this post, is a complete joke considering the index was at ~3300 in Feb 2020 before the corona panic in markets. The only thing lifting up the stock market is money printing from the Fed to raise all the asset boats in the tide.

    Again feels very tempting to go with this instead of VTSAX with its current 1.16% 30-day SEC yield. Ugh...

    https://investor.vanguard.com/mutual.../profile/vtsax

    What are everyone's thoughts on this account? Still trying to get more info from La Cap's staff about this account. No one has called me back or responded to my email inquiries to get all the information regarding possible fees, how much early-withdrawal penalties are etc.

  • #2
    “What are everyone's thoughts on this account? Still trying to get more info from La Cap's staff about this account. No one has called me back or responded to my email inquiries to get all the information regarding possible fees, how much early-withdrawal penalties are etc.”

    What would you do if you had money in and were trying to pull it out and got a similar response? I don’t think you have contemplated the worst case yet.

    Comment


    • #3
      Originally posted by index2max View Post
      ...wait for a market crash and, worse-case scenario, pull out my money for an early-withdrawal fee to get into the market once it crashes by 30% or more

      The S&P 500 having an index value of ~4500, as of writing this post, is a complete joke considering the index was at ~3300 in Feb 2020 before the corona panic in markets. The only thing lifting up the stock market is money printing from the Fed to raise all the asset boats in the tide.
      Please post here, on this forum, exactly 1 week before this crash. And, once the market starts declining, let us know 1 week before the bottom. What if it only goes down 29%?


      Originally posted by index2max View Post
      Again feels very tempting to go with this instead of VTSAX with its current 1.16% 30-day SEC yield. Ugh...
      Are you investing in VTSAX for the yield?

      Comment


      • #4
        Originally posted by abds View Post

        Please post here, on this forum, exactly 1 week before this crash. And, once the market starts declining, let us know 1 week before the bottom. What if it only goes down 29%?




        Are you investing in VTSAX for the yield?
        You are thinking just like a Boglehead would. I am not considering a 5% interest IRA CD because I expect the market to crash by X% next year. I am saying that I believe the market is overpriced and I am considering alternative investments that provide some income on my money the same way WCI does with his private real estate investments. If Warren Buffet isn't buying much, doesn't that suggest to you the market is way overpriced?

        I am investing in VTSAX like a good little boy because because Jack Bogle and Warren Buffett told me to since I am not a professional investor.Therefore trying to pick individual stock holdings is unlikely to do me much good unless I devote myself to reading more about investing.

        Still hate the idea of holding an investment whose total return is mostly based off of unrealized capital gains that can easily go poof. What I consider winning the game is having enough investment income built up to replace a significant fraction of my earned income (say 50% or more). I don't like the idea of buying an investment strictly for the price appreciation, hoping I can sell 4% of it each year.

        Originally posted by Tim View Post
        “What are everyone's thoughts on this account? Still trying to get more info from La Cap's staff about this account. No one has called me back or responded to my email inquiries to get all the information regarding possible fees, how much early-withdrawal penalties are etc.”

        What would you do if you had money in and were trying to pull it out and got a similar response? I don’t think you have contemplated the worst case yet.
        Well, this credit union is insured by the NCUA. So if it went belly up like a bunch of Rhode Island Credit unions did in the 1990s, I guess I'd have to wait a while for the NCUA's insurance fund, NCUSIF, to get me my money back. Therefore I am less concerned.

        https://events.bryant.edu/event/cris...union_collapse

        Comment


        • #5
          What do you feel like is a fair price for VTSAX?

          Comment


          • #6
            Originally posted by CordMcNally View Post
            What do you feel like is a fair price for VTSAX?
            I want a 5% yield or more

            Comment


            • #7
              You should go for it you found the needle in the haystack that everyone is looking for but can’t find. I find it hard to believe that a small credit union in Louisiana can come out with a product that it better than everything else out there.

              Comment


              • #8
                It is a teaser. The most you can get is $300 per person but they get a chance to win your business. Not worth it.

                Comment


                • #9
                  Originally posted by index2max View Post

                  I want a 5% yield or more
                  If you are really after yield on a long term basis and eventually distributions for income consider buying a stable good yielding company stock and using the DRIP program to automatically purchase you more stock that will compound over time. I have CQP which currently yields 6.81% but have had it long enough that based on the original amount invested my current yearly yield is 10.9%.

                  Comment


                  • #10
                    I was able to communicate by email with La Cap CU about the 5% Bonus IRA account.

                    They sent me back this brochure for details:

                    https://www.lacapfcu.org/sites/www.l...ticeinsert.pdf

                    They also answered some of the questions I had about the account as follows:

                    1. There are no fees to open a Bonus IRA for tax year contribution. There is an IRA penalty for early withdrawal.

                    2. There is no maintenance fee on the account.

                    3. There is a penalty equal 90 day’s dividends on an early withdrawal.

                    4. The dividend period is monthly. Dividends will be calculated, compounded, and credit every month on the tax year contribution and earnings.


                    Still gathering more info from them, but here's who could benefit from this account:

                    1. Those retiring soon with earned income who plan on buying bonds or doing portfolio allocations from stocks to bonds. A 5% yield is nice! Yes, not diversified like vanguard us total bond market fund, but, I believe you get NCUSIF insurance on this 5% IRA. So you could have your cake and eat it too for a year.

                    2. Those who want to contribute to something with a yield of 5%, waiting for the stock market to crash from its stratospheric levels (thanks, Federal Reserve!) by 30% or more. If another crash happens late in 2022, you could pull out all your 5% IRA money, pay a penalty of three-months-worth of interest and dump it into cheaper stocks.

                    Seems like an interesting play. Of course, if far away from retirement, buying and holding VTSAX, even if overpriced, isn't terrible with compounding over 30+ years.

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