About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Update on Future PenFed 10-Year CDs


I just received news from my PenFed contact regarding future 10-year CD and IRA CD at PenFed. I'm afraid there is still no new information on a potential release date for the 10-year CD. I was told the product release is on hold for now. Back in September they had January as a preliminary target for the 10-year CD launch.

I wasn't told of the reason for the hold. Perhaps it's a combination of the low interest rate environment and weak loan demand. They have been recently advertising auto loan promotions.

For those who weren't able to participate in the September Watch It Grow promotion, there were hopes that all members would be able to open 10-year CDs in January with rates higher than the 7-year CD rates.

Those who were able to participate in this Watch It Grow CD promotion last September could open 10-year CDs in January with a 5% APY. Other options included a 4.25% APY 7-year CD and a 3.50% APY 5-year CD. These promotional rates are no longer available. Unfortunately, the new rates are much lower. In the last few months, PenFed has been lowering its CD rates at the start of each new month. The 7-year CD is now 2.75% APY and the 5-year CD is now 2.25% APY. These and the other CD rates are listed at PenFed's Money Market Certificates page as of 3/8/2011.

Some may question opening a 10-year CD even with a 5% APY. I was told the early withdrawal penalty matched that of the 7-year CD (up to one year of interest). So if you close the CD at year 2, your effective yield after the penalty would be close to half of 5% (2.5% is a rate much higher than any 2-year CD that's available today). This effective yield goes up for each month you hold on to the CD.

With PenFed current low CD rates, you'll probably be better off with other banks like Kaiser Federal Bank which is offering a 5-year CD special with a 3.00% APY (as of 3/8/11) and with only a 6-month early withdrawal penalty or Ally Bank which is offering a 2.40% APY 5-year CD with only a 60-day early withdrawal penalty. I described the benefits of this Ally 5-year CD and the benefit of Ally's No-Penalty CD in this Ally Bank CD review.

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Anonymous   |     |   Comment #1
Lock into a 5% 10 year CD in the current economic climate with rising commodity and oil prices? I think not!
Anonymous   |     |   Comment #4
The difference is it comes with a 'put' option and NCUA insurance, probably at the expense of  lower yield than some of your bonds.  Maybe appropriate for more risk-averse portfolios.
Anonymous   |     |   Comment #5
To buy bonds--

If you have to sell your bonds when rates are up you can loose a lot of principal. I think long term bonds are very risky.
Anonymous   |     |   Comment #6
i received notice effective March 15,2011 that the penalty for 5 year cd's is going to be one year vs. the present six months.
RogerzT   |     |   Comment #7
Don't count on breaking those long-term CD's based on the stated penalties, they can change.   That's really faulty analysis.  Ask any banker.
Andy   |     |   Comment #10
I have one of the these 10 year 5% CDs. The paperwork PenFed sent us to sign and return has no mention of any early withdrawal penalty for the 10-year. It just mentions the shorter term 7-year and below CD penalty rates. This leads me to believe they ****ed up and I guess a class action suit could be brought up if they try to charge a fee for breaking the 10-year....
Anonymous   |     |   Comment #11
To the previous poster.  I think they would be limited to the same penalty as the 7yr, since it can be logically implied it is the term that is most like the 10yr.  Omitting the penalty terms would preclude anything greater.
moneysaver   |     |   Comment #12
I took out some of PFCU's 10-year promotional CDs at 5% APY, and I'm glad I did...

I wouldn't suggest someone lock up all, or most, of their available liquid funds into the 10 year CDs, and I didn't... But if you're doing like is advised, and that is building a ladder of different investments that mature at different times with different rates, then to me it makes good sense...

I'd be very surprised if the market CD rates rise above 5% mark in the U.S. anytime during the coming two years.... And even if they rise above 5% in the years beyond that, as I suspect they might, then that's no problem, because I'll have other maturing funds that will be available for investment then besides the 10 year PFCU CDs....

I look at them as a kind of revenue insurance policy... I know I'm going to be getting 5% (not today's 2 or 3%) on my funds pretty much no matter what happens in the marketplace... And PFCU isn't likely to go bust... If in future years I can place other CDs that have even higher rates with other dollars, that's all to the good too -- provided inflation doesn't eat up all the earnings.

Anonymous   |     |   Comment #13
nylon fabric is spam and should be removed where are the spam police
Len   |     |   Comment #14
I'd buy 10 year 5% right now no problem.  This intense fear of higher rates and inflation is overblown, as it was in Japan.  We are most likely in for a long period of a sick economy, high unemployment, no one able to make any money by investing passively or in a business, and low interest rates at least at the short end of the curve driven by the government trying to stimulate things (which won't get traction).  Just like Japan.  The low rates will last longer than everyone thinks.  I'd take 5% with NCUA insurance on a big chunk of money right now.
Anonymous   |     |   Comment #16
I'm in 3 10y CD from Jan and I'm glad I was in.

even 3 years ago all were about newer rates will be higher, but so far it didn't happen.

building CD ladder is right thing IMHO.

I try to lock in 4 APR if I can

After all that fraud at wall street I don't trust any bonds any more - you can loose all "bonds" money there is no guarantee for principal return at all, yes you may get higher APR

When State issues bond and gets into bancrupcy what will you get from bonds you paid for?

yes, corp bonds are diff, but can you trust corp more than State
Anonymous   |     |   Comment #19
Kaiser just lowered their 5YR CD to 2.75% today. Oh, well!
lou   |     |   Comment #20
To poster # 8  Where are you finding 5 to 6% corporate and muncipal bonds less than 10 years. These would have to be junk issues with very low credit ratings. The Penfed 5% certificates were very competitive with high grade bonds, in fact I don't think you really can find an investment grade bond of less than 10 years with better rates. Like another poster said, I also like the put option if interest rates go way up.
LuvCD   |     |   Comment #40
Lou, I'm taking the liberty of this post to respond to your Kaiser comment today. For your consideration...once one hones in a kaiser doctor there is little likelihood of losing that doctor b/c kaiser doctors cannot take their clients/patients if they may want to leave, i.e. they don't leave the system. ...A beauty with kaiser is you can go off line and pay out of pocket for tests, get the results, and then show to kaiser doc and say, "fix it!" Those adverse results cannot be ignored. There are many other benefits too long to mention here. A downer is not seeing redacted survey results for individual doc...they are only for PR purposes.
lou   |     |   Comment #41
Here's the problem, LuvCD: I had a very good friend who needed his bladder removed and a new one made from a graft taken from elsewhere in his body. This very complicated operation could be done in several hospitals and by quite a few surgeons, but only a few doctors in California were considered experts or highly qualified to perform this surgery. I don't know about you but if I am ever in this situation, I want to go to the very best facility and surgeon, who has extensive experience and has also achieved excellent results performing this intricate procedure. I want maximum flexibility to choose my health care providers, which I don't think is possible if you use the Kaiser network.
LuvCD   |     |   Comment #42
Experimental is usually not covered by anyone...thus out of network whether HMO or PPO. Save $ now by HMO and then have $s available out of ANY network. And there is Medi-Cal in Ca but u have income/assets restraints for it AND a doctor has to agree to accept its rates...see prior discussion on SPIA
???   |     |   Comment #43
lou,, if you don't mind. Age of friend? Parent at high risk
lou   |     |   Comment #44
55 years-old. He had bladder cancer, which had reoccurred. The surgery was successful, but it was done at a specialized cancer treatment center. Definitely not a Kaiser facility.
LuvCD   |     |   Comment #45
Nor your normal PPO...right?

I do a lot of items outside the HMO...reread post 40
LuvCD   |     |   Comment #46
PS...he was not on Medicare...either original or advantage and had an employer plan (very expensive if premiums paid out of pocket)...I bet. Thus "for the over 65" crowd that is not, in my opinion, a realistic plan for "most" over 65. Again, "I bet" it would not be covered by ANY PPO, HMO, or ...if over 65
???   |     |   Comment #47
thanks....same for parent at 87 probably not endure operation w/recovery? sad:(
jcgc50   |     |   Comment #23
To the folks that are getting a 5% 10 year rate I have a question. How are you getting this rate? I called them yesterday morning and they advised that they don't offer a 10 year CD. When did they offer this?
Anonymous   |     |   Comment #25
#23 post, jcgc50

It was a very short and limited promotional deal offered back in October 2010, effective in January 2011.
bonds for me
bonds for me   |     |   Comment #24
lou have had these bonds  fo at least 5 plus years when rates where good will probably be deleted  but check out  FMS COMPANY  FOR BONDS
brandon2   |     |   Comment #26
To #20 - there are plenty of investment grade bonds with less than 10 yr maturity trading over 6% right now. I just checked on Fidelity. There are also some California municipals trading over 7% (taxable equivalent of around 10%) for the daring.
b4m   |     |   Comment #27
my munis are with new york come due in 2020 and paying aa very hansom 6 percent o yea
Stephanie F.
Stephanie F.   |     |   Comment #28
Lou - (#20)-

There are lots of hi-qual bonds that fit that criteria, bond funds also.  And I'm talking investmnt-grade. Just takes a little research.
lou   |     |   Comment #29
Hi guys, I checked on Fidelity as well and I couldn't find any California general obligation bonds less than 10 years which were yielding higher than 4%. Where did you see 7% at less than 10 years. Also, most of them were callable way before 10 years. I also looked at corporates and there were a few higher than 5%, but they were rated around B or A. There were one or two rated A or greater and they were close to 6%. However, one was a bank in Scotland.

We had to reserve the Penfed certificates last August when rates were significantly lower than today. The reason why I like these certificates is that they are NCUA insured and, most importantly, I can redeem than at 95% of face value anytime I want. In fact, i could cash them today and I would only lose two months of interest. If I bought a 10 year corporate bond I might find one at somewhere between 5 to 6%, but I wouldn't necessarily understand the credit quality of the bond (Bank of Scotland bond) and if I wanted to sell the bond before it matures, I could take a hugh hit to principal if interest rates go up significantly in the future. I don't want to be stuck in a 5 to 6% bond if in 3 to 5 years the market rates are somewhere around 10%, which is possible. I would still purchase these Penfed certificates today even with some corporates yielding 50 to 100 basis points more.
lou   |     |   Comment #31
I would also like to add that I would not purchase a 5 to 10 year 3% certificate today. Like some of the other posters, I would look to the bond market for alternatives. It all comes down to yield: at 5% I would take a CD if the withdrawal penalties were reasonable; at 3% I would be looking for bonds.
brandon2   |     |   Comment #33
Lou you are not going to find State GO's yielding 7%, the ones are from school districts or cities/counties in CA.

Also, "A" is an investment grade rating, you specified investment grade, so there you go. You are not going to find AAA rated bonds yielding 7% right now.
lou   |     |   Comment #36
Brandon2, Muncipal bonds from ciities, counties or school districts are little too dicey for me. Many so-called experts expect defaults in the future, and cities or towns, unlike states, can declare bankruptcy. I guess if I had the ability to thoroughly analyze the finances of the muncipality, I might be more inclined.

Are there investment grade corporates at 7% less than 10 years that you particularly like. I might be willing to take a look if I could get comfortable with the company. Any names your willing to share?
brandon2   |     |   Comment #38
Lou, as they say, no pain no gain. You are not going to get max returns without taking some risk. Personally I am comfortable with individual school districts or cities as long as the bonds are insured and rated A or higher underlying. If we do see some defaults it is likely to be in the lowest rated issuers first (BBB or worse) and I personally believe the risk of default is overblown. How many municipal bankruptcies have we seen in the past?? Only one I can think of is OC and everyone got their money back a year later.

If you stay out of the riskiest cities that are well known to be on the brink of default - ie Chicago, Harrisburg PA, etc. then I think you are fine. Some might say that includes all of California.

As far as corporates there is nothing being traded now but when the market opens on Monday I will be happy to post some ideas. Again the theme is no pain no gain, though. You are not going to get the cream of the crop for 7% yield. Then again I don't care as long as they pay out.
lou   |     |   Comment #39
Brandon2  Thanks for your reply. i will look forward to seeing what you can find on Monday. Out of curiosity, do you own any 7% corporates maturing in less than 10 years.  I have looked at school districts in Ca. in the past, but have not done anything. I have heard that these issues can be relatively safe. Is it possible to find 7% school district bonds in Ca. that are insured and rated A or higher?