The Best Time to Lock in a CD Rate

Dear Dr. Don,I am thinking about putting monies with PenFed Credit Union, considering it deals with government agencies. I can get a seven-year CD at 3.25%. Do you agree it is a safe way to go?-Lois Lockup

Dear Lois,That the Pentagon Federal Credit Union, or PenFed, deals with government agencies isn't really germane to the question of whether your money is safe. Shares held at a credit union insured by the National Credit Union Share Insurance Fund, or NCUSIF, have the same insurance limits ($250,000) and full faith and credit backing of the United States government as a deposit insured by the Federal Deposit Insurance Corp., or FDIC. This is a safe way to go.

PenFed is indeed offering a seven-year certificate at 3.25%, as of Dec. 21, 2010.Interest rates on intermediate to longer-term Treasury securities have been heading higher ever since the Federal Reserve announced its second round of quantitative easing in early November. That hasn't translated into higher CD rates -- yet. But I'd hesitate to recommend that you lock in to a seven-year certificate until we see if CD rates start trending higher. Bankrate's weekly Interest Rate Roundup will let you know where CD rates are each week.

One option is to keep some money invested short term and the balance invested in the seven-year certificate. This is called a barbell strategy because you have money invested in short-term and long-term maturities. Another alternative is to build a CD ladder with maturities out through seven years. As the shorter-term certificates mature, you reinvest in the longer-term maturity.Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

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