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Thoughts on buying Penfed 3% CDs
Old 12-27-2013, 10:00 AM   #1
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Thoughts on buying Penfed 3% CDs

I have just transferred $100K into a PenFed IRA from my Schwab IRA (had cash recently uninvested). It's gone from Schwab but not posted yet at PenFed (it's in the wires somewhere).

I am about to retire 12/31 and just work part time (consulting) at the same firm. Maybe 25 - 50% if needed. Age is over 65, financially OK and good health. No debts, no kids at home, paid for house, etc.

I have not determined how to split up the 100K into CDs. My first thought is 10 $5K 3% CDs @ 5 years and leave the rest cash until a few months go by to see if rates rise and I can then invest the balance or a portion of it into a higher rate CD. If rates don't rise, then ladder in 3% CDs $10K at a time for the rest of the year. Although doing this I don't feel so good about letting 50K sit there doing nothing for months.

Any thoughts on a better plan for the $100K?

Thanks,

Tony
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Old 12-27-2013, 10:04 AM   #2
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I think I would do five $20k 3% 5 year CDs. A more manageable number but still gives you lots of flexibility should rates spike.
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Old 12-27-2013, 10:40 AM   #3
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When does the 5-yr 3% CD rate expire (Dec 31)? Not that it can't stay the same for Jan, but it could go up or down too no?
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Old 12-27-2013, 10:46 AM   #4
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I don't see any reason for it to go up - they are already the best in the land by a lot and people seem to be beating a path to their door so why increase the rate when they don't need to?
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Old 12-27-2013, 10:46 AM   #5
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When does the 5-yr 3% CD rate expire (Dec 31)? Not that it can't stay the same for Jan, but it could go up or down too no?
I don't know when the CD rate expires, but 10 year bond rates ticked up to 3% yesterday. I just checked today on PenFed and my account is open but shows zero balance. Maybe I'll call them later this afternoon to see if they have received the fund transfer from Schwab.
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Old 12-27-2013, 10:47 AM   #6
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There really is no official expiration date. They always claim rates are subject to change without notice. I would guess they had a goal to raise a certain amount of funds when they offered the 3% rate, and as they get closer to achieving that goal they will reevaluate how long they want to continue to offer it. Since their auto loans are 1.99%, I don't see this being a very sustainable business model for them. That would lead me to believe it will end sooner than later.

I chased a 1.25% savings rate at TIAA last year, only to see it dwindle down to .49% in less than a year. Of course savings rate are not guaranteed for any time period, the way CD rates are. But the model of offering above market rates to raise cash is not a new business idea. Banks have been doing it for years.
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Old 12-27-2013, 11:18 AM   #7
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Originally Posted by aja8888 View Post
I don't know when the CD rate expires, but 10 year bond rates ticked up to 3% yesterday. I just checked today on PenFed and my account is open but shows zero balance. Maybe I'll call them later this afternoon to see if they have received the fund transfer from Schwab.
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There really is no official expiration date. They always claim rates are subject to change without notice.
It's Dec 31, that's why I mentioned it. I am NOT predicting anything, simply noting we're close to a potential rate change if anyone cares, that's all
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Old 12-27-2013, 11:56 AM   #8
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PenFed did modify the website banner today as it applies to the 3% CD's. May not mean anything!
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Old 12-27-2013, 12:29 PM   #9
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I don't think that means much. Rates can't be "accurate as of" a date into the future. Especially when it states "subject to change at any time. It would seem these two statements essentially negate each other. Realistically though it seems unlikely they will take the rates away before the end of the year.
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Old 12-27-2013, 03:05 PM   #10
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If Wells Fargo ever let's me have access to my money, I'll open a CD. Geez. 10 days for a cashiers check, 3 days on each side for a direct wire transfer after that. I can't believe how inefficient is the finance industry. I literally could have completed this on foot by now.
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Old 12-27-2013, 05:23 PM   #11
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FWIW here is a text of an email I received this evening:

DEPOSITACCOUNTS.com
Heads Up Ref 3% CD's
The following comment has been posted:

"Just opened a CD at PenFed and learned from Rep that the 3.04 rate will be extended through January 2014."

OAG
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Old 12-27-2013, 05:34 PM   #12
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FWIW here is a text of an email I received this evening:

DEPOSITACCOUNTS.com
Heads Up Ref 3% CD's
The following comment has been posted:

"Just opened a CD at PenFed and learned from Rep that the 3.04 rate will be extended through January 2014."

OAG
I also opened up an account today and was told end of Jan.
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Old 12-28-2013, 01:51 AM   #13
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FWIW, I also did $100,000 into a 3% CD for 5 yrs. On Dec 20th, the money was deducted from my Vanguard money market and as of today, 12/27 it has not been set up in Pen Fed. I'm still waiting. I'm sure they sent the money via pony express.
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Old 12-28-2013, 08:52 AM   #14
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Not sure why you would want to split it up. If interest rates rise substantially you will want to reallocate ALL of it. I have just opened one and put all $500k into 1 Certificate. Took 5 days to get the money from my other CU to the CD via the Clearing house and that was over the holiday period. Today I notice the transaction was complete. There are many posts on this, highlighting penalty payments etc. The consensus seems to be if you leave it for 2 years and then pull it to invest some place else the return would be the same as a 2 year CD After all penalties.
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Old 12-28-2013, 09:20 AM   #15
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Not sure why you would want to split it up. If interest rates rise substantially you will want to reallocate ALL of it.
Ahh.... Grasshopper, there are other reasons for needing to break a CD. Contemplate the unforeseen.
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Old 12-28-2013, 09:22 AM   #16
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I guess I think it costs nothing to break them up and if for some reason you need access to those funds you can without paying an early withdrawal penalty on the whole amount.
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Old 12-28-2013, 09:24 AM   #17
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Ahh.... Grasshopper, there are other reasons for needing to break a CD. Contemplate the unforeseen.
+1

I'd hate to give up a full year's interest on that $500K CD if I suddenly needed a big wad of cash to party in the days leading up to the big asteroid strike...
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Old 12-28-2013, 09:37 AM   #18
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Ahh.... Grasshopper, there are other reasons for needing to break a CD. Contemplate the unforeseen.
Oh, Master Po, I see, but should not one keep a few years of emergency expenses in a readily available for. You taught me that many years ago.
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Old 12-28-2013, 09:39 AM   #19
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+1

I'd hate to give up a full year's interest on that $500K CD if I suddenly needed a big wad of cash to party in the days leading up to the big asteroid strike...
I have a fund for Asteroid strikes maturing in 2 months and enough for a 2 month hotel stay in more liquid assets.
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Old 12-28-2013, 09:41 AM   #20
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If Wells Fargo ever let's me have access to my money, I'll open a CD. Geez. 10 days for a cashiers check, 3 days on each side for a direct wire transfer after that. I can't believe how inefficient is the finance industry. I literally could have completed this on foot by now.
Their not inefficient, their keeping the float on your money for as long as the law allows. This is a well known pratice in the financial industry. Keep after them just in case.
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