Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

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protagonist
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Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Mon May 22, 2017 6:13 pm

Penfed (IRA CD for those over 59.5 y.o.) vs Advancial.
You would have to hold the latter a minimum of 52 months before you would get an equivalent or better yield than 2.12%. At 59 months you would only get an effective yield of 2.20%.
Which would you take (assuming you don't need the cash for 5 years)?
Last edited by protagonist on Wed May 24, 2017 10:09 am, edited 2 times in total.

boglephreak
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by boglephreak » Mon May 22, 2017 6:16 pm

the latter. i am too lazy to do an early withdrawal anyways. so, unless the market does something insane, i am unlikely to do anything with the CDs anyways.

kaneohe
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by kaneohe » Mon May 22, 2017 10:18 pm

protagonist wrote:Penfed vs .................................................)?
Who has the no EWP? Last time I looked PenFed had the worst EWP.

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by jhfenton » Tue May 23, 2017 8:31 am

I'm with boglephreak.

Assuming that these were emergency funds or at least medium-term investments and that I didn't anticipate needing them within five years, I would go with the 2.69% with EWP.

If there were, say, a one-in-three chance I'd need the money, I'd go with the 2.12% with no EWP.

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by BHUser27 » Tue May 23, 2017 12:18 pm

PenFed: "Early withdrawal penalty will equal 30% of what would have been earned if the certificate had been held to maturity, not to exceed total dividends earned"

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protagonist
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Tue May 23, 2017 9:33 pm

kaneohe wrote:
protagonist wrote:Penfed vs .................................................)?
Who has the no EWP? Last time I looked PenFed had the worst EWP.
Penfed has a no-EWP policy for IRA certificates (CDs) if you are over 59 1/2 y.o.

So does Patelco. But Patelco is difficult to get into, and they just discontinued their 5 yr. 2.75% product. I am a Patelco member and was lucky to purchase it on the last day it was available.
Last edited by protagonist on Tue May 23, 2017 9:39 pm, edited 1 time in total.

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Tue May 23, 2017 9:37 pm

jhfenton wrote:I'm with boglephreak.

Assuming that these were emergency funds or at least medium-term investments and that I didn't anticipate needing them within five years, I would go with the 2.69% with EWP.

If there were, say, a one-in-three chance I'd need the money, I'd go with the 2.12% with no EWP.
I don't need the money. But I believe interest rates will more likely rise than fall, and with rising interest rates often comes rising inflation.

I'm leaning towards the Penfed product. I think something better will likely come along and I would have the flexibility to move my funds penalty-free. I already have a Penfed account. I have a CD maturing in mid-June, which is when I will need to decide, so things could change in the interim.

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by jhfenton » Wed May 24, 2017 7:26 am

protagonist wrote:
jhfenton wrote:I'm with boglephreak.

Assuming that these were emergency funds or at least medium-term investments and that I didn't anticipate needing them within five years, I would go with the 2.69% with EWP.

If there were, say, a one-in-three chance I'd need the money, I'd go with the 2.12% with no EWP.
I don't need the money. But I believe interest rates will more likely rise than fall, and with rising interest rates often comes rising inflation.

I'm leaning towards the Penfed product. I think something better will likely come along and I would have the flexibility to move my funds penalty-free. I already have a Penfed account. I have a CD maturing in mid-June, which is when I will need to decide, so things could change in the interim.
I have no strong conviction on the direction of interest rates, but if I had to predict, I'd consider it unlikely that 5-year CD rates will rise enough soon enough for you to beat 2.69% over 5 years starting out at 2.12% over 5 years.

That guaranteed 0.57% difference seems like a very expensive hedge for a chance what would probably be a modest increase if it materializes at all.

But in the grand scheme of things, it's one of those things that doesn't matter too much one way or the other. :sharebeer

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by BHUser27 » Wed May 24, 2017 9:20 am

Why not go with a 5-yr CD with low EWP?
https://www.depositaccounts.com/tools/e ... nalties=,6

In the Ally example above, if you withdrew early at 12mos you would earn 1.31% after penalty, if you stuck it out for 24mos, you would earn 1.79% after penalty. Stay for the duration and you are at 2.25%

Of course there is some risk that Ally could deny your early withdrawal request.

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protagonist
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Wed May 24, 2017 9:46 am

BHUser27 wrote:Why not go with a 5-yr CD with low EWP?
https://www.depositaccounts.com/tools/e ... nalties=,6

In the Ally example above, if you withdrew early at 12mos you would earn 1.31% after penalty, if you stuck it out for 24mos, you would earn 1.79% after penalty. Stay for the duration and you are at 2.25%

Of course there is some risk that Ally could deny your early withdrawal request.
The difference between 2.12% and 2.25% is, in my mind, trivial enough to not justify a 5 mo. EWP.

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protagonist
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Wed May 24, 2017 10:03 am

jhfenton wrote: I have no strong conviction on the direction of interest rates, but if I had to predict, I'd consider it unlikely that 5-year CD rates will rise enough soon enough for you to beat 2.69% over 5 years starting out at 2.12% over 5 years.
That guaranteed 0.57% difference seems like a very expensive hedge for a chance what would probably be a modest increase if it materializes at all.
For what it is worth, this is from depositaccounts.com blog:
"The chance of a June and December Fed rate hike did go up in the last week according to the Fed funds futures. They now show an 83% chance of a June Fed rate hike, that’s up from 69% last week. For December, the chance that there will be at least two rate hikes is now about 48%, up from 44% last week. "

I agree that it is probably a crapshoot. I do expect rates will rise within the next five years. I have no idea by how much, but a 12 mo EWP certainly discourages early withdrawal. Withdrawal within the first year would even mean loss of principal, and withdrawal before the first 4 years 4 months would still result in a lower account value than with the 2.12% product. The 2.69% product would only really win significantly over the 2.12% product if both were held all the way to term.

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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by jhfenton » Wed May 24, 2017 11:26 am

protagonist wrote:For what it is worth, this is from depositaccounts.com blog:
"The chance of a June and December Fed rate hike did go up in the last week according to the Fed funds futures. They now show an 83% chance of a June Fed rate hike, that’s up from 69% last week. For December, the chance that there will be at least two rate hikes is now about 48%, up from 44% last week. "
The Fed is likely to raise the FFR, so short-term rates are likely to rise. But short-term rates don't tell us much about 5-year and 10-year rates. On December 14, 2016, the day the Fed hiked the FFR 25 bp, the 5-year treasury closed at 2.02%. (It was 1.92% the day before.) Now the 5-year treasury is at 1.8% with the market expecting another increase in a few weeks. And you see basically the same trend with the 10-year (down from 2.54% to 2.2%).
protagonist wrote:I agree that it is probably a crapshoot. I do expect rates will rise within the next five years. I have no idea by how much, but a 12 mo EWP certainly discourages early withdrawal. Withdrawal within the first year would even mean loss of principal, and withdrawal before the first 4 years 4 months would still result in a lower account value than with the 2.12% product. The 2.69% product would only really win significantly over the 2.12% product if both were held all the way to term.
That works both ways, which I why I said it probably didn't matter much. :sharebeer It's Boglehead nature--mine included--to sweat the tiny details.

But to beat holding at 2.69% for 5 years, you would need to see a significant rate bump early in your five-year holding period. Even if you're able to trade up to 3% two years in, figure out how much you're actually gaining over the 2.69% sure thing. It's essentially a wash. You would need to see a huge run-up in rates or a significant (1%) jump in the first year to come out significantly ahead.

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protagonist
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Re: Survey: 5 yr. CDs: 2.12% with no EWP vs 2.69% with 12 mo EWP?

Post by protagonist » Thu May 25, 2017 5:12 pm

jhfenton wrote: That works both ways, which I why I said it probably didn't matter much. :sharebeer It's Boglehead nature--mine included--to sweat the tiny details.
Thanks for your input. I agree with you.

For that reason I will probably go with Penfed, since I already have an account there. Less hassle.

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