New at PenFed - 3% 5yr certificates

[brewer12345]

Hundreds of thousands? You mean in the retirees as a group or are those retirees choking horses with the roll of bills they are putting into certificates?

Now here's something I'm considering: Let's say I have a $100k 5/5 mortgage on my house that I took out with PenFed 1.5 years ago. The interest rate on that is 3%.

PenFed is offering their current no cost 5/5 home loan for 2.625%, though there are extra hoops a current PenFed mortgage holder has to jump through (middle of last year you had to borrow $50k more than the current loan and the new loan had to be 80% LTV). If one could meet PenFed's conditions for a 5/5 loan is there any reason NOT to make a new 5/5 loan, paying less interest than one is making on the certificates and moving the payoff date out another year or so? $375 interest savings/$100k/year?

It would certainly be hard to hurt yourself this way. One thing you would want to be careful of is effective tax rates. If the 3% is taxed but the mortgage isn't fully deductible due to the standard deduction being bigger than the amount of the extra interest, this does not work.

 

[pb4uski]

Gee, look at our excitement over 3% for 5 years! The thought of interest on savings staying below 3% for five more years is rather depressing. Unless it also means inflation stays low too.

Amethyst

To me it isn't the yield, which is good but not great, but it is no interest rate risk and no credit risk that make these attractive. My hope is that interest rates have normalized in 3-5 years. For me, it is the first CD that I have ever bought.

 

[audreyh1]

To me it isn't the yield, which is good but not great, but it is no interest rate risk and no credit risk that make these attractive. My hope is that interest rates have normalized in 3-5 years. For me, it is the first CD that I have ever bought.

Right - I am comparing this to high-quality intermediate bond funds many of which are yielding less than 3% right now.

And who knows where interest rates will be in 3-5 years. I know lots of people think they know for certain, but there are lots of different pressures on the economy and deflation is still a threat. If interest rates go down or stay the same, you are ahead. If interest rates do normalize in a few years, then you have some new options.

 

[Earl E Retyre]

Thanks Sue J

I just opened my first Penfed account and added a CD. Thanks, Sue for the initial post. And others for your information regarding the CD.

 

[Chuckanut]

Earl, I do like your name. Very Creative.

Yes, Sue is a financial guru, who I am sure has added thousands, and probably tens of thousands of dollars to the collective wealth of this group.

 

[Sue J]

Earl, I do like your name. Very Creative.

Yes, Sue is a financial guru, who I am sure has added thousands, and probably tens of thousands of dollars to the collective wealth of this group.

Ha, if you only knew.....

I'm a lifelong frugal gal who lives by the rule of KISS - Keep It Simple, Sue. Very conservative investor, not wealthy at all, just happy to have enough.

 

[Free bird]

CD question

Seasons greetings to all. I have a question concerning regarding some CDs I currently own. These CDs were originally 60 month CDs with a 120 day penalty for breaking the contract. The rate is 2%. There's 47 months remaining. It seems like breaking these CDs & buying new 60 month penfed CDs makes sense. But then again if rates are 4% on a 60 month this time next year I'd be locked into CDs that have a 365 day penalty instead of the 120 day penalty I have now. Any opinions on this?

 

[brewer12345]

Seasons greetings to all. I have a question concerning regarding some CDs I currently own. These CDs were originally 60 month CDs with a 120 day penalty for breaking the contract. The rate is 2%. There's 47 months remaining. It seems like breaking these CDs & buying new 60 month penfed CDs makes sense. But then again if rates are 4% on a 60 month this time next year I'd be locked into CDs that have a 365 day penalty instead of the 120 day penalty I have now. Any opinions on this?

These are separate and distinct issues. We have no idea what future rates will be, so the only question you can answer is whether it is worth giving p 1% of your current CD for what pen fed offers. Looks like a no-brainer to me. If and when rates move up in the future you will have to answer the same question except that the cost to switch will be 3%.

 

[Free bird]

CDs

Thanks brewer.

 

[pb4uski]

These are separate and distinct issues. We have no idea what future rates will be, so the only question you can answer is whether it is worth giving p 1% of your current CD for what pen fed offers. Looks like a no-brainer to me. If and when rates move up in the future you will have to answer the same question except that the cost to switch will be 3%.

+1 looks to me that after ~1 year you are even. If you stay, your $100 will be $102 a year from now. If you leave you'll have $99.33 invested ($100 - .66 withdrawal penalty) which a year later at 3% will be $102.31.

 

[Sarpy]

Tried to set up an account tonight online, but first message was to call them. They're either flooded with enthusiasts and/or they're ready to shut this down. Too late to call now.

 

[audreyh1]

Tried to set up an account tonight online, but first message was to call them. They're either flooded with enthusiasts and/or they're ready to shut this down. Too late to call now.

Try a different browser.

 

[jazz4cash]

Called Penfed today to see how long this offer might last. They said it should be good to the end of the month....of course they could change at any time.

I plan to do a rollover from my 401k to Penfed, but Fidelity will only mail a check to my address on file. Penfed said they can initiate the rollover, but I think I have time to wait for a check to be mailed.

 

[clifp]

Added a small one. I was going to take advantage of the 3 years 2% but 5 year 3% seems like a better. I may add more once I finish tax loss selling.

I still haven't figured out how Penfed makes money. I have 50K (now 45K) 6 year car loan at 1.74% and approximately twice that much in CD maturing between June 2014 and Jan 2021 at interest rates ranging from 3% to 5%

 

[Free bird]

That ACH system is pretty slick & instantaneous. I'm on the penfed party train. If the economy picks up more speed in 2014 that 3% cd may get redeemed sooner rather than later.

 

[calmloki]

That ACH system is pretty slick & instantaneous. I'm on the penfed party train. If the economy picks up more speed in 2014 that 3% cd may get redeemed sooner rather than later.

Be aware you are looking at 365 days interest penalty after the first year for early redemption, if you redeem in the first year you earn $0 for interest. Also I think you have a substantial time (weeks?) to back out of the cd if you decide against it. (but I'm in the same boat - show me a good enough better deal and I may jump ship on PenFed).

 

[Free bird]

I'm just a bear with a very small brain but I think rates could climb just as fast as they fell. Buyer beware applies to any & all things financial. Chasing rates stocks or women my results are mixed on all three counts. Good luck to me.

 

[Chuckanut]

Free Bird, I tend to agree with you that caution is a good idea along with one of my favorite preventive medicines - diversification. A ladder of CD's from 1-5 years, with the money evenly spread is my plan for my CD's. If I find that I can read the Fed Chairman's mind, or glue my crystal ball together, or get my time machine working, I may do something different.

 

[Free bird]

I didn't used to get a mental hernia buying a cd but ever since the banks hurled a financial asteroid at me & Ive had to learn what QE is. I've had learn what to big to fail means. I had to learn that I'm the lender of past resort. I used to only know one Buffet & he plays a guitar. Are we having fun yet?

 

[Spanky]

Be aware you are looking at 365 days interest penalty after the first year for early redemption, if you redeem in the first year you earn $0 for interest. Also I think you have a substantial time (weeks?) to back out of the cd if you decide against it. (but I'm in the same boat - show me a good enough better deal and I may jump ship on PenFed).

Does early redemption (less than a year) reduce the principal in the CD?

 

[audreyh1]

Does early redemption (less than a year) reduce the principal in the CD?

No.

 

[Chuckanut]

Today's article in the WSJ about how central banks are frustrated by the very low inflation rates (?!?!) makes me think the 3% PenFed deal may be better than first thought. According to the article most developed countries are seeing overall inflation rates of 1% to 2%, and some central bankers are fearing a deflation might be possible. I have to wonder about that. In any event, 3% actually puts us ahead in today's game, even after taxes.
Of course, predicting the future is not my best skill.

 

[Free bird]

The penfed 60 month CD with a 12 month dividend forfeiture spanking is a bet by them that borrowing costs will normalize to reasonable degree. That 12 month forfeiture keeps everyone honest. Advantage penfed. No suprises there.

 

[photoguy]

Thanks to this thread I opened a small CD with penfed. Signing up was surprising easy (even though the penfed site looks stone age).

 

[pb4uski]

I had originally split my PenFed IRA into a 2% 3 year CD and a 3% 5 year CD. You guys convinced me that the 5 year was the way to go because even if I break it after 3 year I end up with the same balance as I would with the 3 year CD so anything beyond that is gravy. So I called and changed what I had to five 5 year CDs so if I do want to make changes the penalty won't be on the whole balance. That said, I expect i will hold the entire 5 year term unless interest rates rise a lot.