There are rumors that
Pentagon Federal Credit Union may be coming out with 6.25% certificates starting on December 28th and should be available for 3 months. A reader heard this from Penfed. The terms of these CDs are not known for sure but may be 3 to 5 years. As typical with Penfed, these should also be good for IRAs.
We'll have to wait for the 28th before we know for sure, but based on Penfed's history, they often come out with high rate CDs early in the year. Last year, Penfed came out with a 6% 7-year CD, a 5.75% 5-year CD and a 5.50% 3/4-year CD at the end of December (see
post). For comparison, the best 60-month CD that was listed at Bankrate.com at that time was 5.15%.
I was worried that long-term CD rates had dropped so much lately that Penfed may feel they don't need to offer 6% CDs anymore to be competitve. So if we see 6.25% CDs, that would be great.
You may ask if you want to lock into a long-term CD when money market accounts are paying up to 5.50%. One reader made the very good point that these high yield online savings accounts could be a "clever ploy by the banks to cut risk" since they discourage people from locking into high rate CDs. When the Fed starts dropping rates, savings account rates will fall quickly and banks will have fewer high yield CDs to pay out.
The reader also makes a good point that you can always break a CD if rates do shoot up sometime in the future. Be sure always to check the early withdrawal penalty of a CD. Penfed's early withdrawal penalty is 180 days of interest for long-term CDs. If you break the CD before 180 days, you lose all the interest, but no money is taken from the principal. See my
Bank CD Tool to see if it pays to break a CD.
Please refer to this
post for info on Penfed CDs (please note that the rates in the old post are out-of-date but the CD info is still valid). For information about joining Penfed and opening a Penfed CD, please refer to this
post.
Thanks to the reader who provided the Penfed info and the reader who provided the useful CD opinions.