Penfed CD @ 3% - 5 year

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Cody
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Penfed CD @ 3% - 5 year

Post by Cody » Thu Jun 07, 2018 10:15 am

Is it reasonable to use this CD as a tax deferred storage of cash if you have not specific libility matching (other than the RMD possiblity - cashing in the CD early to pay RMD of market conditions warrant it). But there is not specific libility that I am anticipating for which this money is "scheduled"

So the sole reason for doing the CD would be to take some of Total Bond Index and purchase the CD to get a more "predictable" return with take portion of fixed income.

Thoughts,
Cody

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friar1610
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Re: Penfed CD @ 3% - 5 year

Post by friar1610 » Thu Jun 07, 2018 10:24 am

Cody wrote:
Thu Jun 07, 2018 10:15 am
Is it reasonable to use this CD as a tax deferred storage of cash if you have not specific libility matching (other than the RMD possiblity - cashing in the CD early to pay RMD of market conditions warrant it). But there is not specific libility that I am anticipating for which this money is "scheduled"

So the sole reason for doing the CD would be to take some of Total Bond Index and purchase the CD to get a more "predictable" return with take portion of fixed income.

Thoughts,
Cody
What you say in the 2nd paragraph is, IMO, sensible. I personally split my FI between a short-term bond fund, an intermediate term bond fund, I-Bonds and CDs. The question you need to answer is whether or not you want to commit the money for 5 years for 3% or if you think interest rates may rise in the near future. I've recently had CDs mature and I decided to split the difference. I put half in a 5 yr/3% CD and half in an 18 month/2.5% one.
Friar1610

onourway
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Re: Penfed CD @ 3% - 5 year

Post by onourway » Thu Jun 07, 2018 10:35 am

PurePoint Financial is offering a 3 year CD at 3% as of today.

https://www.purepoint.com/online-bankin ... high-yield

sport
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Re: Penfed CD @ 3% - 5 year

Post by sport » Thu Jun 07, 2018 11:21 am

5-year brokered CDs are presently being offered at 3.3%.

BlackcatCA
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Re: Penfed CD @ 3% - 5 year

Post by BlackcatCA » Thu Jun 07, 2018 11:29 am

Why lock anything in a 5-yr CD before the FEd meeting next week, when rate is expected to rise?

In several other BH threads, it is noted that the best yield is up to 2 yrs with little gain for longer terms.

megabad
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Re: Penfed CD @ 3% - 5 year

Post by megabad » Thu Jun 07, 2018 5:42 pm

BlackcatCA wrote:
Thu Jun 07, 2018 11:29 am
Why lock anything in a 5-yr CD before the FEd meeting next week, when rate is expected to rise?
Just wanted to point out that CD rates don't necessarily react immediately to Fed maneuvers. Additionally, a similar logic would have you perpetually waiting for a rate hike that may or may not come as there is a Fed meeting every few months and thus another potential rate hike. I remember when it was "expected" that interest rates would rise in 2008, 2009, 2010....

That said, I do believe in diversification and in response to the OP's question, I might suggest a CD ladder for savings with an unknown timeline. That way you are continually rolling into the new rate and spreading out your risk.

Naikansha
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Re: Penfed CD @ 3% - 5 year

Post by Naikansha » Thu Jun 07, 2018 8:46 pm

[quote=onourway post_id=3962120 time=1528385746 user_id=114957]
PurePoint Financial is offering a 3 year CD at 3% as of today.

https://www.purepoint.com/online-bankin ... high-yield
[/quote]

I ordered one of these two days ago. The set-up service was excellent.

Austintatious
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Re: Penfed CD @ 3% - 5 year

Post by Austintatious » Thu Jun 07, 2018 9:13 pm

OP,

you mention using those PenFed 3% for 5 year certificates for tax-deferred accounts. I think that 3% for 5 years offer is for taxable only, and that their IRA certificates paying 3% are actually for 7 years. You might look at the rate schedules for both categories again, to be sure. In my view 7 years and even 5 years is just too long a commitment for a 3% yield in today's environment. PenFed is paying 2.25% for a one year certificate. Tacking on 4 to 6 more years just for an additional .75% is not much of an incentive, in my humble opinion. I have to agree with those advising staying shorter for now.

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weltschmerz
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Re: Penfed CD @ 3% - 5 year

Post by weltschmerz » Thu Jun 07, 2018 10:00 pm

I read the title of this thread, and I thought it was referring to the old CDs from 2013. Back then, in Dec. 2013, PenFed came out with the 3% 5 year CD, and it blew every other bank away! It was way higher than everyone else, and lots of people here jumped on it, including myself. Now 5 years later, the money is coming due at the end of the year. Interesting to see that rates are so high now. I'll probably just pull the money and put into a money market, simplification is my goal these days. But I am thankful to have gotten 3% for the last 5 years.

smectym
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Re: Penfed CD @ 3% - 5 year

Post by smectym » Fri Jun 08, 2018 12:33 am

weltschmerz wrote:
Thu Jun 07, 2018 10:00 pm
I read the title of this thread, and I thought it was referring to the old CDs from 2013. Back then, in Dec. 2013, PenFed came out with the 3% 5 year CD, and it blew every other bank away! It was way higher than everyone else, and lots of people here jumped on it, including myself. Now 5 years later, the money is coming due at the end of the year. Interesting to see that rates are so high now. I'll probably just pull the money and put into a money market, simplification is my goal these days. But I am thankful to have gotten 3% for the last 5 years.
Weltschmerz, a couple years further back PenFed was hanging tough with 3.85% for the 7-yr. We bought a bunch, figuring that 7 years was basically forever, and anyway rates would DEFINITELY be higher at maturity. The last ones are maturing this year; as yet no equivalent deal in sight

Smectym

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goodenyou
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Re: Penfed CD @ 3% - 5 year

Post by goodenyou » Fri Jun 08, 2018 10:01 am

friar1610 wrote:
Thu Jun 07, 2018 10:24 am
Cody wrote:
Thu Jun 07, 2018 10:15 am
Is it reasonable to use this CD as a tax deferred storage of cash if you have not specific libility matching (other than the RMD possiblity - cashing in the CD early to pay RMD of market conditions warrant it). But there is not specific libility that I am anticipating for which this money is "scheduled"

So the sole reason for doing the CD would be to take some of Total Bond Index and purchase the CD to get a more "predictable" return with take portion of fixed income.

Thoughts,
Cody
What you say in the 2nd paragraph is, IMO, sensible. I personally split my FI between a short-term bond fund, an intermediate term bond fund, I-Bonds and CDs. The question you need to answer is whether or not you want to commit the money for 5 years for 3% or if you think interest rates may rise in the near future. I've recently had CDs mature and I decided to split the difference. I put half in a 5 yr/3% CD and half in an 18 month/2.5% one.
This has been my approach as well. It is a Goldilocks approach to FI investing with an attempt to diversify across duration to mitigate interest rate risk. I am struggling with the "sweet" spot between the spread (alpha) of prime money market (taxable) and tax advantaged short term bond funds and intermediate bond funds. Not sure how many basis points difference would be necessary for me to be incentivized to take NAV risk in bond funds in a rising interest rate environment. Part of it is that I need to rid myself of the notion that bonds somehow are sacrosanct and should be shielded from fluctuation of asset value. Although I know that, with time, the yield increase with "correct" the NAV loss, I have been unwilling to watch the deterioration of the value in the underlying asset. It is an emotional error that I am working through :oops: and it is easy to get flamed here for market timing bonds.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

Cody
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Re: Penfed CD @ 3% - 5 year

Post by Cody » Fri Jun 08, 2018 10:11 am

I just checked the short term bond index and the 5 year returns were .83%.

Was the Penfed 3% CD of 5 years ago (which we had) the clear winner then with 3% returns.

Not say it will be in the future but in the past......

OP
Cody

DiMAn0684
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Re: Penfed CD @ 3% - 5 year

Post by DiMAn0684 » Fri Jun 08, 2018 12:18 pm

I wouldn't do this, too long of a term for 3% today. I occasionally see 2.5-2.75% for 12-18 mos, would rather go for that.

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munemaker
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Re: Penfed CD @ 3% - 5 year

Post by munemaker » Fri Jun 08, 2018 12:22 pm

I just bought a brokered 3 year CD through Vanguard at 3%. So 3% for a 5 year CD does not seem like a high enough rate to me.

I don't recall what 5 year brokered CDs are paying.

Cody
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Re: Penfed CD @ 3% - 5 year

Post by Cody » Sat Jun 09, 2018 7:47 am

Could you give me a quick primer on the process of getting a brokered CD at VG? I know about the not so good idea to early withdraw a brokered CD but is the process complicated?

Thanks,
Cody

sport
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Re: Penfed CD @ 3% - 5 year

Post by sport » Sat Jun 09, 2018 9:19 am

The process is very simple. Click on the one you want, enter the dollar amount, submit. BTW, there is no "early withdrawal". If you want your money early, you have to sell the CD on the open market. Since there is not a big market in CDs, the spreads tend to hurt you. Of course, if rates go up, you get less and if rates go down you get more, just like a bond.
You do need to have the money in your sweep account.

stan1
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Re: Penfed CD @ 3% - 5 year

Post by stan1 » Sat Jun 09, 2018 10:24 am

3% for an FDIC insured "zero risk" investment five years ago seemed like a good deal back then and I'd assess that it played out nicely for someone who wanted a "zero risk" investment.

I do not think 3% for the next five years is a good deal, but that's just me speculating. I'd use something like Prime Money Market or a 12-18 month CD in the 2.25%+ range and see where rates are after that. Or, switch back to a ladder approach using 5 year CDs where 20% of the CD portfolio matures each year.

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