Share Certificate 3 year PenFed 2.02% apy

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TT
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Share Certificate 3 year PenFed 2.02% apy

Post by TT »

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Last edited by TT on Sun Feb 04, 2024 3:51 pm, edited 1 time in total.
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Johm221122
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Johm221122 »

Interesting, the 3,4,5, and 7 are all 2.02%
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by MKP »

Thanks-checked the site early this morning and only the 5 & 7 yr were 2%.
kaneohe
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by kaneohe »

TT........thanks for the info. Virtually grabbed the application from the mailman's hands and resubmitted for some shorter terms .
I checked the site a few minutes ago and initially 12 hrs ago and it reflected what you & john said.
bamajames
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by bamajames »

I have never used pen fed are there any fees or charges other than early withdrawal for share certificates?

Thanks for info

bj
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JamesSFO
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by JamesSFO »

Thanks saw this here before seeing in deposit accounts dot com
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by JamesSFO »

bamajames wrote:I have never used pen fed are there any fees or charges other than early withdrawal for share certificates?

Thanks for info

bj
On 3 yr max of 180 days interest.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Van-Guard23 »

Thanks...went ahead and opened a 3-year CD as I slowly build my CD ladder. Too bad I pulled the trigger too early on the 4-year CD with an APY of "only" 1.76% with PenFed.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by MKP »

Van-Guard23 wrote:Thanks...went ahead and opened a 3-year CD as I slowly build my CD ladder. Too bad I pulled the trigger too early on the 4-year CD with an APY of "only" 1.76% with PenFed.
Man, thats tough, you lost $2.40 per $1000 a year. :shock: :oops:
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Van-Guard23 »

MKP wrote:
Van-Guard23 wrote:Thanks...went ahead and opened a 3-year CD as I slowly build my CD ladder. Too bad I pulled the trigger too early on the 4-year CD with an APY of "only" 1.76% with PenFed.
Man, thats tough, you lost $2.40 per $1000 a year. :shock: :oops:
MKP,
I inquired with PenFed (via their website message center) to see if I can redeem the 4-yr Certificate opened within the last month...to see if I can redeem it (since I have not received a dividend then there is nothing to pay according to their website: "If redeemed within 180 days of the issue date or any renewal date, all dividends will be forfeited") and then deposit the original amount to a new 4-yr Certificate to take advantage of the 2.02% APY (vice 1.76% APY less than a month ago). I guess I will find out soon enough if I can get this done.
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john94549
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by john94549 »

Still pondering this move by PenFed. As in, why did they do it? What is the logic in a totally flat yield curve? As others noted, will this encourage folks to swap? In a rising rate environment, and all that? Do they know something we don't?

Folks, keep us posted.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by JamesSFO »

john94549 wrote:Still pondering this move by PenFed. As in, why did they do it? What is the logic in a totally flat yield curve? As others noted, will this encourage folks to swap? In a rising rate environment, and all that? Do they know something we don't?

Folks, keep us posted.
Supply and demand. They couldn't attract enough deposits at 5/7 being 2.02 and they aren't willing to pay more for 5/7.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Kevin M »

Great news! Thanks for sharing.

Kevin
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kenyan
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PenFed 3-7 year CDs at 2.02%

Post by kenyan »

[Thread merged into this one, see below. -- admin LadyGeek]

Saw this offer this morning. Pentagon Federal Credit Union is offering CDs between 3 and 7 years at 2.02% APY.

https://www.penfed.org/Money-Market-Cer ... WT.ac=1161

For comparison, the current Ally Bank 5-year CD rate is 1.60%, and the next best 3-year CD on Bankrate is 1.45%.
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Re: PenFed 3-7 year CDs at 2.02%

Post by buckstar »

http://www.bogleheads.org/forum/viewtop ... st=1844230

Please see the previous discussion.
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Re: PenFed 3-7 year CDs at 2.02%

Post by wwhan »

Stanford Federal Credit union has a 5 year CD at 2.2% ; https://www.sfcu.org/rates/certificates
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kenyan
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Re: PenFed 3-7 year CDs at 2.02%

Post by kenyan »

wwhan wrote:Stanford Federal Credit union has a 5 year CD at 2.2% ; https://www.sfcu.org/rates/certificates
Seems a bit disingenuous to make that direct comparison without mentioning the fine print - to get that rate, you need:

(a) CD of >$100,000 only
(b) checking account with direct deposit of at least $500/month
(c) Key product with SFCU (non-CD account > $50,000, credit card with at least $500/month in charges or carrying a large balance, auto loan, mortgage, HELOC > $50,000 balance)
(d) Second key product from the above categories


Kind of like the 'rewards checking' accounts that will give you decent rates on lower balances if you jump through a few hoops, except that this has even more hoops.

Anyhow, as this is a duplicate thread, I'm going to request to the mods that it be locked.
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Re: PenFed 3-7 year CDs at 2.02%

Post by ogd »

Translation: SFCU doesn't want drive-by CD investors, only ongoing customers. I can only sympathize with that, and I think it's the main gambit of banks / CUs paying more than the going rates anyway, except many of them are hoping that you stay even if you're free to go. Different strategy, same desired outcome.

Something else to consider is that $100K in SFCU's area of operations is not as outrageous as it sounds, if it's your only bank.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by LadyGeek »

FYI - I merged a similar thread into here. This (combined) thread is now in the Investing - Theory, News & General forum (investing news).
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Van-Guard23 »

Van-Guard23 wrote:
MKP wrote:
Van-Guard23 wrote:Thanks...went ahead and opened a 3-year CD as I slowly build my CD ladder. Too bad I pulled the trigger too early on the 4-year CD with an APY of "only" 1.76% with PenFed.
Man, thats tough, you lost $2.40 per $1000 a year. :shock: :oops:
MKP,
I inquired with PenFed (via their website message center) to see if I can redeem the 4-yr Certificate opened within the last month...to see if I can redeem it (since I have not received a dividend then there is nothing to pay according to their website: "If redeemed within 180 days of the issue date or any renewal date, all dividends will be forfeited") and then deposit the original amount to a new 4-yr Certificate to take advantage of the 2.02% APY (vice 1.76% APY less than a month ago). I guess I will find out soon enough if I can get this done.
Just an update...I was able to close the 4-year Certificate opened thru PenFed less than a month ago and opened a new 4-year Certificate to take advantage of the higher APY. Had to go thru some "small" hoops but it was worth it to get the 2.02% APY over the previous 1.76% APY
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Kevin M »

Van-Guard23 wrote: ... I have not received a dividend then there is nothing to pay according to their website ...

Just an update...I was able to close the 4-year Certificate opened thru PenFed less than a month ago and opened a new 4-year Certificate to take advantage of the higher APY. Had to go thru some "small" hoops but it was worth it to get the 2.02% APY over the previous 1.76% APY
Very cool. It's great that the PenFed EWP doesn't eat into principal, which it does at most other institutions at which I own CDs.

Even though you hadn't received a dividend, you still lost the little bit of interest that had accrued since you opened the CD. If you held it one month, you lost about 1.76%/12 = 0.146%, which clearly is worth giving up to get an additional 26 basis points (0.26%) in interest per year for four years. You will make up the lost interest in a little less than 7 months if my calculations are correct. Of course if you only held the CD for 3 weeks, you lost less interest and will make it up faster.

Kevin
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by wwhan »

Yeah, the new Relationship plan at Stanford Federal Credit Union is a bit of a pain & yes I did need to adjust/adapt to reach the new requirements. The SFCU Relationship plan requirements are pretty new & have only been in place for only a few months.

All Credit Unions have fine print. To buy CDs at PenFed, I had to join the Millitary Families Association, so I made some donations to that non-profit & will do so in the future. My dad was in WWII and my uncle was in the Korean war.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by mephistophles »

TT,
Just my personal opinion, but I think putting money into FCU's five year CD at about 2% makes sense. I believe that we are at the beginning of a gradual trend of rising interest rates. These things are cyclical and rates are unlikely to stay low indefinitely. You really can't lose by buying now. If you surrender the CD in one year to buy a new one at potentially higher rates, you still will have netted 1% on your investment.
I also recommend developing a mindset of using CD's instead of bonds for the fixed portion of your investments.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
Last edited by Bustoff on Sat Nov 09, 2013 6:09 am, edited 1 time in total.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by camaro327 »

Yes, but it needs to arrive at PF before the end of the month. When I've done transfers, they have typically taken about two weeks.

Maybe someone can weigh in with a faster way.
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Re: Share Certificate 3 year PenFed 2.02% apy

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Re: Share Certificate 3 year PenFed 2.02% apy

Post by YDNAL »

Bustoff wrote:Anyone know if you transfer IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
Why wouldn't you investigate on your own?
Opening an IRA Account / ROTH IRA / Converting IRA to ROTH
2. If you would like to transfer a preexisting IRA to PenFed, complete and return all three copies of the IRA Transfer Authorization form on page 12. If you are 70½ or older, please note the special instructions on the form for traditional IRAs.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

YDNAL wrote:
Bustoff wrote:Anyone know if you transfer IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
Why wouldn't you investigate on your own?
I did. However, when I woke up this morning and saw this thread it was before I had my coffee and when I went to the PenFed website and clicked on IRA's, then clicked on Traditional IRA Share Account, (since I have a TIRA) but it showed a rate of only .10%... so I came back here with my question and then had my coffee then went back to the PenFed site then finally noticed "IRA Certificates", then came back here and saw your reply.
YDNAL wrote:Opening an IRA Account / ROTH IRA / Converting IRA to ROTH
2. If you would like to transfer a preexisting IRA to PenFed, complete and return all three copies of the IRA Transfer Authorization form on page 12. If you are 70½ or older, please note the special instructions on the form for traditional IRAs.
Thanks Landy!
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by YDNAL »

Bustoff wrote:... so I came back here with my question and then had my coffee then went back to the PenFed site then finally noticed "IRA Certificates", then came back here and saw your reply.
YDNAL wrote:Opening an IRA Account / ROTH IRA / Converting IRA to ROTH
2. If you would like to transfer a preexisting IRA to PenFed, complete and return all three copies of the IRA Transfer Authorization form on page 12. If you are 70½ or older, please note the special instructions on the form for traditional IRAs.
Thanks Landy!
Good. In the link, pull the PDF under the title above, read it carefully, and complete forms as requested.

Now my question. Why would you cancel a Vanguard IRA, go through the entire process to transfer to a Credit Union for the *grand return* of 2.02% (per OP) 3-year CD ???
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

YDNAL wrote:
Bustoff wrote:... so I came back here with my question and then had my coffee then went back to the PenFed site then finally noticed "IRA Certificates", then came back here and saw your reply.
YDNAL wrote:Opening an IRA Account / ROTH IRA / Converting IRA to ROTH
2. If you would like to transfer a preexisting IRA to PenFed, complete and return all three copies of the IRA Transfer Authorization form on page 12. If you are 70½ or older, please note the special instructions on the form for traditional IRAs.
Thanks Landy!
Good. In the link, pull the PDF under the title above, read it carefully, and complete forms as requested.

Now my question. Why would you cancel a Vanguard IRA, go through the entire process to transfer to a Credit Union for the *grand return* of 2.02% (per OP) 3-year CD ???

Landy - in all honesty it's Fear. I have way too much sitting in Prime Money Market that I afraid of putting into Total Bond Fund.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by john94549 »

Landy, a custodian-to-custodian IRA transfer is relatively painless. You phone PenFed, they send you the forms, you send them back. Each time I've done it, I indicate on the instructions (which go to Vanguard) which fund (or part of a fund) to tap. Usually, it's VMMXX.

That said, as to the larger issue, some folks might prefer a 3-yr at 2%, with no principal risk, than a bond fund. Nothing wrong with IRA CD ladders. Starting to build a ladder with a 3-yr at 2% is reasonable, in my view. In addition, there's nothing to prevent a person from building (or rolling) an IRA CD ladder while still investing in tax-advantaged bond funds. We do.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by YDNAL »

john94549 wrote:Landy, a custodian-to-custodian IRA transfer is relatively painless. You phone PenFed, they send you the forms, you send them back. Each time I've done it, I indicate on the instructions (which go to Vanguard) which fund (or part of a fund) to tap. Usually, it's VMMXX.

That said, as to the larger issue, some folks might prefer a 3-yr at 2%, with no principal risk, than a bond fund. Nothing wrong with IRA CD ladders. Starting to build a ladder with a 3-yr at 2% is reasonable, in my view. In addition, there's nothing to prevent a person from building (or rolling) an IRA CD ladder while still investing in tax-advantaged bond funds. We do.
John, yes a matter of preference. But it should be a matter of overall diversification, effectiveness, liquidity, ease of withdrawal for the retired, etc. etc. BTW, I don't recall many "CD ladder" threads 5-6 years ago, but I do see today many yield-chasing threads - *strategy du jour*.

Bustoff is 60yo and 1/2 the portfolio in Vanguard tax advantaged - presumably IRA.
http://www.bogleheads.org/forum/viewtop ... 5#p1567535
I wouldn't move 50% of assets to a credit union to chase yield.
Bustoff » Sat Nov 09, 2013 8:21 am wrote:Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
2¢
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

YDNAL wrote:
john94549 wrote:Landy, a custodian-to-custodian IRA transfer is relatively painless. You phone PenFed, they send you the forms, you send them back. Each time I've done it, I indicate on the instructions (which go to Vanguard) which fund (or part of a fund) to tap. Usually, it's VMMXX.

That said, as to the larger issue, some folks might prefer a 3-yr at 2%, with no principal risk, than a bond fund. Nothing wrong with IRA CD ladders. Starting to build a ladder with a 3-yr at 2% is reasonable, in my view. In addition, there's nothing to prevent a person from building (or rolling) an IRA CD ladder while still investing in tax-advantaged bond funds. We do.
John, yes a matter of preference. But it should be a matter of overall diversification, effectiveness, liquidity, ease of withdrawal for the retired, etc. etc. BTW, I don't recall many "CD ladder" threads 5-6 years ago, but I do see today many yield-chasing threads - *strategy du jour*.

Bustoff is 60yo and 1/2 the portfolio in Vanguard tax advantaged - presumably IRA.
http://www.bogleheads.org/forum/viewtop ... 5#p1567535
I wouldn't move 50% of assets to a credit union to chase yield.
Bustoff » Sat Nov 09, 2013 8:21 am wrote:Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
2¢
Thanks Landy - It's actually only the portion of my IRA sitting in Prime Money Market with an expense ratio that's 16X higher than it's yield. My IRA also holds Wellesley Admiral, Total Bond Market Admiral and Short-Term Bond Index Admiral Shares. I just don't feel comfortable having the entire IRA balance at risk.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by camaro327 »

TT wrote:I noticed PenFed has this verbiage at bottom of the page now.I thought they honored the posted rates for an entire month?"Annual Percentage Yield (APY) is accurate as of November 01, 2013 - November 30, 2013 and is subject to change at any time."
Yes, I've only know them to stop in the middle of the month once. It's best to initiate an IRA transfer to a credit union at the beginning of the month, since CUs tend to reset on the first of the month.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by island »

Thanks for posting about this. An ad for it popped up on my computer yesterday and I was thinking it was the best rate I've seen for that short a term without a significant catch. I've never banked at PenFed.

I have a significant amount of cash just sitting at Barclay earning about .8 so was thinking it might be better to move it into this PenFed share certificate. If I know I won't need it before 5 years so should I go for the 5 year term or is there an advantage for going shorter and taking the 3 year?

If that's a stupid Q please don't flog me with it, you experienced Bogleheads often point out an angle or wrinkle I didn't think of! :oops:
Thanks.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by LadyGeek »

If you don't know the answer, it's not a stupid Q. The idea is that you should match your investments to your time horizon.

If you have 30 years to retirement, then you setup your investments with 30 year bonds. If you need the money to buy a house in 5 years, then buy a 5 year CD.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by island »

LadyGeek wrote:If you don't know the answer, it's not a stupid Q. The idea is that you should match your investments to your time horizon.

If you have 30 years to retirement, then you setup your investments with 30 year bonds. If you need the money to buy a house in 5 years, then buy a 5 year CD.
Thanks Lady Geek. Not so straight forward because I don't have a time line for that $. Not earmarked for anything in particular at this point, but do want to keep it in something relatively liquid incase that changes and don't want to lock it up for ages if a better rate comes along. If that makes any sense.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by LadyGeek »

Sure, that makes sense. The other part of the answer is how much of a penalty you will take for early withdrawal. If you need the money earlier, where's the break point that makes going with the longer term worthwhile?

See: Comparing CDs
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by YDNAL »

Bustoff wrote:
YDNAL wrote:Bustoff is 60yo and 1/2 the portfolio in Vanguard tax advantaged - presumably IRA.
http://www.bogleheads.org/forum/viewtop ... 5#p1567535
I wouldn't move 50% of assets to a credit union to chase yield.
Bustoff » Sat Nov 09, 2013 8:21 am wrote:Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
2¢
Thanks Landy - It's actually only the portion of my IRA sitting in Prime Money Market with an expense ratio that's 16X higher than it's yield. My IRA also holds Wellesley Admiral, Total Bond Market Admiral and Short-Term Bond Index Admiral Shares. I just don't feel comfortable having the entire IRA balance at risk.
Thanks.

I would weigh the overall implications and ramifications of having another account at a credit union. After all, interest rate moves/changes, and we discussing here a rate of 2.02% [nominal] for 3 years. I realize that you are concerned with Bonds (and Bond funds) by your many threads on this. I also fear that you may not fully-comprehend *duration*, and may not be matching your Fixed Income with need.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

YDNAL wrote: I realize that you are concerned with Bonds (and Bond funds) by your many threads on this. I also fear that you may not fully-comprehend *duration*, and may not be matching your Fixed Income with need.
Can you recommend some reading material or other source of guidance on duration and matching ones Fixed Income with need ?
Thanks
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by LadyGeek »

It's a popular topic, if you know what to search for: match duration time horizon - Google Search

This article from Fidelity looks useful: Schwab Bond Insights: Why Your Time Horizon Matters in Fixed Income Investing

This discussion might be straying a bit from CDs. Feel free to start a new thread, or find an existing one to jump on.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by YDNAL »

Bustoff wrote:
YDNAL wrote: I realize that you are concerned with Bonds (and Bond funds) by your many threads on this. I also fear that you may not fully-comprehend *duration*, and may not be matching your Fixed Income with need.
Can you recommend some reading material or other source of guidance on duration and matching ones Fixed Income with need ?
Thanks
This is not a new subject since Robert Merton (Applying life-cycle economics) has worked on this subject.

Of course, I also like Bernstein e-book on liability matching. HERE is Wade Pfau's review and synopsis.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Kevin M »

island wrote: I have a significant amount of cash just sitting at Barclay earning about .8 so was thinking it might be better to move it into this PenFed share certificate. If I know I won't need it before 5 years so should I go for the 5 year term or is there an advantage for going shorter and taking the 3 year?

If that's a stupid Q please don't flog me with it, you experienced Bogleheads often point out an angle or wrinkle I didn't think of! :oops:
Thanks.
It's an excellent question.

The main advantage of of the 3-year is that there is less term (interest-rate) risk. Either way the interest-rate risk of one of these CDs is minimal compared to a bond of comparable maturity or a bond fund. Usually longer-maturity debt instruments have higher yields to compensate for the term risk. With this deal you are getting the yield of a 5-year CD but with the term risk of a 3-year CD.

For a direct CD (purchased directly, not through a broker), the term risk is limited to the early withdrawal penalty (EWP). The EWP for the 3-year CD is 180 days of interest; for the 5-year it's 365 days of interest. For a 2% CD this caps your downside at 1% for the 3-year and 2% for the 5-year. So, for example, if rates go up a lot in one year and you want to "break" the CD to reinvest at the higher rate, you will still earn 1% on the 3-year after paying the EWP, but 0% on the 5-year. At two years you'd earn a cumulative 3% on the 3-year and 2% on the 5-year. I'm ignoring compounding which is minimal anyway.

Similarly, the shorter 3-year term allows you to roll the CD into another CD with no penalty in 3 years instead of 5, which is good if interest rates are higher three years from now. So at 3-years you'd earn a cumulative 6% on the 3-year (no penalty) and 4% on the 5-year (if you broke it). Of course the converse is true; if rates are lower three years from now, you'll wish you had purchased the 5-year CD. Personally I would bet on higher rates in three years, and go for the 3-year. Or, you could hedge your bets and buy one of each, creating somewhat of a ladder.

A nice feature of PenFed CDs is that the EWP does not eat into principal, so if you were to do an early withdrawal in less than 180 days you would earn 0% on either CD; i.e., you would get all of your principal back.

My partner has been deploying money from a real estate sale into CDs over the last few weeks. All have been 5-year CDs earning 2% with EWPs of 180 days of interest. When this PenFed 3-year CD came out, she jumped on it. Incidentally, like you, her cash for this particular CD was at Barclays.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Bustoff
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

LadyGeek wrote:It's a popular topic, if you know what to search for: match duration time horizon - Google Search

This article from Fidelity looks useful: Schwab Bond Insights: Why Your Time Horizon Matters in Fixed Income Investing

This discussion might be straying a bit from CDs. Feel free to start a new thread, or find an existing one to jump on.
Thank you LadyGeek.
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Bustoff
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

YDNAL wrote:
Bustoff wrote:
YDNAL wrote: I realize that you are concerned with Bonds (and Bond funds) by your many threads on this. I also fear that you may not fully-comprehend *duration*, and may not be matching your Fixed Income with need.
Can you recommend some reading material or other source of guidance on duration and matching ones Fixed Income with need ?
Thanks
This is not a new subject since Robert Merton (Applying life-cycle economics) has worked on this subject.

Of course, I also like Bernstein e-book on liability matching. HERE is Wade Pfau's review and synopsis.
I read the e-book also. Do you remember what Bernstein recommended for Fenwick Frick's IRA ?
Thank you very much for the Merton link !
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Van-Guard23
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Van-Guard23 »

island wrote:Thanks for posting about this. An ad for it popped up on my computer yesterday and I was thinking it was the best rate I've seen for that short a term without a significant catch. I've never banked at PenFed.

I have a significant amount of cash just sitting at Barclay earning about .8 so was thinking it might be better to move it into this PenFed share certificate. If I know I won't need it before 5 years so should I go for the 5 year term or is there an advantage for going shorter and taking the 3 year?

If that's a stupid Q please don't flog me with it, you experienced Bogleheads often point out an angle or wrinkle I didn't think of! :oops:
Thanks.
island,
I opened a 3-year and 4-year Share Certificates with PenFed recently to slowly build my CD ladder. You mentioned "a significant amount of cash"...note that a single Share Certificate account is capped at $25,000. The maximum amount is not explicitly stated on the website but you will see this in fine print as you go through the process of opening an account (unless this only applied to external bank transfers into PenFed). Just FYI to temper expectations.
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Kevin M
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Kevin M »

Van-Guard23 wrote:...note that a single Share Certificate account is capped at $25,000. The maximum amount is not explicitly stated on the website but you will see this in fine print as you go through the process of opening an account (unless this only applied to external bank transfers into PenFed). Just FYI to temper expectations.
Perhaps this is because you just became a member of PenFed? My partner just bought a $100K certificate (non-IRA) with an ACH transfer from a bank that was not even previously connected to PenFed. I do seem to recall that she previously had a problem transferring an even smaller amount to buy two IRA CDs online, but she called and the rep was able to override the daily transfer limit. That may have been when she first joined the CU. When I first joined a few years ago, I purchased a $100K certificate via a custodian to custodian IRA transfer.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Kevin M »

Bustoff wrote:Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
Yes, and unlike some others who have replied to you, I think it's an excellent idea. I have done a number of partial transfers out of IRAs at Vanguard and Fidelity to buy CDs at banks and credit unions, including PenFed. As already pointed out, there is a risk that the rate will drop before the transfer is complete, and in my experience PenFed will not honor the rate if this happens (it happened to my Mom). To speed up the process, do as much as you can online and by email and fax, and use overnight mail. Give them Vanguard's overnight mail address on the form, and ask PenFed to use overnight mail. You also can ask if they will reverse the transfer if the rate drops below an acceptable rate before it is complete.

Just because you have a 30-year investment horizon does not mean you should be buying 30-year bonds. I suspect most Bogleheads have most of their fixed income in short to intermediate term bond funds, with average maturities between 3 and 8 years. The popular Total Bond Market index fund has an average maturity of 7.4 years and duration of 5.4 years.

Taking advantage of direct CDs is not yield chasing. It is taking advantage of an opportunity only retail investors have (because of the limited federal insurance) to get a better risk/return tradeoff than with bonds or bond funds. "Yield chasing" is more often applied to those who are taking more risk for higher yield, like buying high-yield bond funds, longer-maturity bond funds or even dividend paying stocks. With direct CDs you are actually earning a higher yield with less risk. A 3-year treasury yields 0.6%, so with the PenFed 3-year CD you are earning more than 3X as much without taking the term risk. A 5-year treasury yields 1.4%, so the PenFed 5-year CD also is a much better deal.

Total Bond Market SEC yield is a 2.15% (Admiral shares). Why is it yielding more than a 5-year treasury? Because it is riskier. It includes corporate bonds and some longer-maturity bonds, as well as lower yielding treasuries. A 5-year direct CD earning 2% gives you about the same yield with less risk. A 3-year direct CD earning 2% gives you almost the same yield with even less term risk.

Yes, there are other concerns besides yield and risk, like simplicity, liquidity, etc., and of course these things should be considered. Also, CDs obviously aren't an option in 401k/403b/457 retirement plans.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Bustoff
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by Bustoff »

Kevin M wrote:
Bustoff wrote:Anyone know if you can transfer an IRA to PenFed 3y CD ?
I would be interested in moving my Vanguard IRA sitting in Vanguard Prime Money Market to PenFed.
Yes, and unlike some others who have replied to you, I think it's an excellent idea. I have done a number of partial transfers out of IRAs at Vanguard and Fidelity to buy CDs at banks and credit unions, including PenFed. As already pointed out, there is a risk that the rate will drop before the transfer is complete, and in my experience PenFed will not honor the rate if this happens (it happened to my Mom). To speed up the process, do as much as you can online and by email and fax, and use overnight mail. Give them Vanguard's overnight mail address on the form, and ask PenFed to use overnight mail. You also can ask if they will reverse the transfer if the rate drops below an acceptable rate before it is complete.

Just because you have a 30-year investment horizon does not mean you should be buying 30-year bonds. I suspect most Bogleheads have most of their fixed income in short to intermediate term bond funds, with average maturities between 3 and 8 years. The popular Total Bond Market index fund has an average maturity of 7.4 years and duration of 5.4 years.

Taking advantage of direct CDs is not yield chasing. It is taking advantage of an opportunity only retail investors have (because of the limited federal insurance) to get a better risk/return tradeoff than with bonds or bond funds. "Yield chasing" is more often applied to those who are taking more risk for higher yield, like buying high-yield bond funds, longer-maturity bond funds or even dividend paying stocks. With direct CDs you are actually earning a higher yield with less risk. A 3-year treasury yields 0.6%, so with the PenFed 3-year CD you are earning more than 3X as much without taking the term risk. A 5-year treasury yields 1.4%, so the PenFed 5-year CD also is a much better deal.

Total Bond Market SEC yield is a 2.15% (Admiral shares). Why is it yielding more than a 5-year treasury? Because it is riskier. It includes corporate bonds and some longer-maturity bonds, as well as lower yielding treasuries. A 5-year direct CD earning 2% gives you about the same yield with less risk. A 3-year direct CD earning 2% gives you almost the same yield with even less term risk.

Yes, there are other concerns besides yield and risk, like simplicity, liquidity, etc., and of course these things should be considered. Also, CDs obviously aren't an option in 401k/403b/457 retirement plans.

Kevin
Kevin - Thank you for an excellent post.
island
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Re: Share Certificate 3 year PenFed 2.02% apy

Post by island »

Kevin M wrote:
island wrote: I have a significant amount of cash just sitting at Barclay earning about .8 so was thinking it might be better to move it into this PenFed share certificate. If I know I won't need it before 5 years so should I go for the 5 year term or is there an advantage for going shorter and taking the 3 year?

If that's a stupid Q please don't flog me with it, you experienced Bogleheads often point out an angle or wrinkle I didn't think of! :oops:
Thanks.
It's an excellent question.

The main advantage of of the 3-year is that there is less term (interest-rate) risk. Either way the interest-rate risk of one of these CDs is minimal compared to a bond of comparable maturity or a bond fund. Usually longer-maturity debt instruments have higher yields to compensate for the term risk. With this deal you are getting the yield of a 5-year CD but with the term risk of a 3-year CD.

For a direct CD (purchased directly, not through a broker), the term risk is limited to the early withdrawal penalty (EWP). The EWP for the 3-year CD is 180 days of interest; for the 5-year it's 365 days of interest. For a 2% CD this caps your downside at 1% for the 3-year and 2% for the 5-year. So, for example, if rates go up a lot in one year and you want to "break" the CD to reinvest at the higher rate, you will still earn 1% on the 3-year after paying the EWP, but 0% on the 5-year. At two years you'd earn a cumulative 3% on the 3-year and 2% on the 5-year. I'm ignoring compounding which is minimal anyway.

Similarly, the shorter 3-year term allows you to roll the CD into another CD with no penalty in 3 years instead of 5, which is good if interest rates are higher three years from now. So at 3-years you'd earn a cumulative 6% on the 3-year (no penalty) and 4% on the 5-year (if you broke it). Of course the converse is true; if rates are lower three years from now, you'll wish you had purchased the 5-year CD. Personally I would bet on higher rates in three years, and go for the 3-year. Or, you could hedge your bets and buy one of each, creating somewhat of a ladder.

A nice feature of PenFed CDs is that the EWP does not eat into principal, so if you were to do an early withdrawal in less than 180 days you would earn 0% on either CD; i.e., you would get all of your principal back.

My partner has been deploying money from a real estate sale into CDs over the last few weeks. All have been 5-year CDs earning 2% with EWPs of 180 days of interest. When this PenFed 3-year CD came out, she jumped on it. Incidentally, like you, her cash for this particular CD was at Barclays.

Kevin
Kevin- Thanks for taking the time to post this and your other detailed responses. Very helpful to read your rationale. I think the 3 year term makes the most sense for me.

Van-Guard- Thanks for the heads up about account limit. OK expectations tempered, but bummer, I was hoping to sock away more that that. An amount morer similar to Kevin's partner was what I had in mind. I don't have an account there and maybe they do limit size for new accounts. I'll have to check it out tomorrow. Not even sure if I qualify to open one there at all. Need to check out all those qualifications.

LadyGeek- Thanks for the additional links. You are Link Guru and I appreciate it!
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