Dedicated to Deposits: Deals, Data, and Discussion

6.25% CDs Coming to Penfed?

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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Please refer to this post for info on Penfed CDs (please note that the rates in the old post are out-of-date but the CD info is still valid).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.

Comments
23 comments.
Comment #1 by Anonymous posted on
Anonymous
About a week ago I heard that a branch manager said that it was going to be 6.5%. Maybe they've changed their minds with long term rates declining.

1
Comment #2 by Anonymous posted on
Anonymous
Is it true that one can take an early withdrawal from CD's without any interest penalty if 59 1/2?

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Comment #3 by Anonymous posted on
Anonymous
You may take an early withdrawal only on IRA CD's.

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Comment #4 by Anonymous posted on
Anonymous
59 1/2 is in regards to the IRS rule and regulation only. You don't have to pay the 10% penalty.

You're still bound to the terms and agreement you signed with the bank in regards to breaking the CD term prematurely.

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Comment #5 by Anonymous posted on
Anonymous
Banking Guy thank you for posting this huge heads up. Even if Penfed does not come through, I will not regret having waited a short week or ten days - there is too much money on the line to ignore this. On scant chance anyone might not know, Penfed membership, for practical purposes, is open to all.

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Comment #6 by Anonymous posted on
Anonymous
The new rates are out. 6.07% (6.25%) APR for 3 to 7 yr CDs. Also, if you take out an IRA CD you are not bound to the terms and agreement once you turn 59 1/2. You can break the CD once you are 59 1/2 with no interest penalty per CSR at penfed.

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Comment #7 by Anonymous posted on
Anonymous
On 12/21/06 PenFed CS confirmed to me: 6.00% w/ 6.25%APY for 3,4,5&7 Yr CD's beginning 12/28/06 thru 1/31/07. This offer can be seen on Penfed website.

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Comment #8 by Anonymous posted on
Anonymous
To clarify:
The IRS does not impose the 10% penalty if you withdraw from an IRA after age 59 1/2. But that has absolutely nothing to do with the early withdrawal penalty from a CD. Your bank may still impose an early withdrawal penalty. Most banks waive this penalty for the required withdrawals from a traditional IRA beginning at age 70 1/2.

You are still bound by the terms and agreement at PenFed once you reach age 59 1/2. But PenFed's CD terms and agreement say that once you reach age 59 1/2, there is no penalty for withdrawing from an IRA CD.

PenFed has voluntarily written its terms to allow no-penalty withdrawals from IRA CDs at age 59 1/2. They were not required to do this. Most other banks are not as generous.

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Comment #9 by Anonymous posted on
Anonymous
The PenFed terms and conditions for CDs are on page 2 of the following PDF document:
https://www.penfed.org/pdf/accountsforms/mmcert.pdf

Note the exceptions to the early withdrawal penalty that are listed towards the bottom of the middle column (on page 2).

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Comment #10 by Anonymous posted on
Anonymous
I must be blind - I don't see the new rates at penfed.org

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Comment #11 by Anonymous posted on
Anonymous
I'm blind also..Can't see the 6.25% APY rates.

Also, I justed called and talked to Rebecca in CS and she would not confirm the the 6.25% APY Promo. Said I have to wait till the 28th.

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Comment #12 by Anonymous posted on
Anonymous
Is it possible to get a monthly check with these cd's at pennfed. My parents are retired and need a monthly check

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Comment #13 by Anonymous posted on
Anonymous
"Is it possible to get a monthly check with these cd's at pennfed. My parents are retired and need a monthly check"

Go to
https://www.penfed.org/productsAndRates/checkingAndSavings/moneyMarketCertificates.asp
-or-
http://tinyurl.com/jkmtg

And read the section called "Dividend Options for Your Money Market Certificate"

Your parents might prefer to have the interest transfered to a checking account and write themselves a check when they need it. It removes the worry of waiting for a check to come in the mail.

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Comment #14 by Anonymous posted on
Anonymous
Does anyone know if we need to open a checking account in order to have a CD at PenFed? How long does it take to join PenFed?

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Comment #15 by Anonymous posted on
Anonymous
Does anyone know if we need to open a checking account in order to have a CD at PenFed? How long does it take to join PenFed?

No checking account necessary to open a CD account, but you need to open a $25 savings account. Very easy to open on-line.

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Comment #16 by Anonymous posted on
Anonymous
oops...it's actually $5 to open a regular savings account and $25 for a IRA savings account.

Also, you open an account online...very seamless.

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Comment #17 by ctgottapee (anonymous) posted on
ctgottapee
i'm glad you guys found my comments on mm rates useful, as i've been able to garner great info from this site too.

i should qualify that they are just my skeptical opinions, i am not a financial expert.

it does seem rather obvious though if you look at the model of how banks operate, looking for consistent predictable profits and not gambling on rates. if they wanted to get more risky, they would open up investment arms to play the markets like many do.

if they can draw your money out of some other instituions checking account with a high promo rate, but less than they pay for borrowing money from other banks, they can use those funds to generate more earnings through loans and mortgages which are locked in rates. if they offer lower MM rates, they make more, as that is the trend. if they keep MM rates as current, they still make money so it is a win-win.

i think the main ploy of high money market rates is to get people to join and sort of forget about their account. i suggested an ING account to a friend back when the whole net MM craze started and her money is still in there as she is not going to rate chase like the rest of us. you may even see some institutions play dirty and drop to typical bank savings rates over time, especially if they don't see adequate follow through rates on MM accounts generating other revenue.

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Comment #18 by Anonymous posted on
Anonymous
What's the most efficieny way to handle the money when it matures? Is it safe to have the check mailed?

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Comment #19 by Banking Guy (anonymous) posted on
Banking Guy
ctgottapee, I see the same thing with many people who open an online savings account. They're unlikely to switch to another one even if rates become very uncompetitive. I think ING Direct has been very successful like this.

anonymous, about how to handle the Penfed CD when it matures, I specified in the CD application to transfer the money to my Penfed savings when the CD matures. I plan to link the savings to my GMAC money market account. Then when the money gets transfered into my Penfed savings account, I can immediately transfer it to GMAC which earns a high yield. I can use GMAC to fund another CD either by an ACH transfer or by check. There are other high yield money market accounts that can be used like this in addition to GMAC. Refer to my weekly summary for others.

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Comment #20 by Anonymous posted on
Anonymous
I don't understand the ach option. I was looking at penfed, and it says it's limit is $2000 per day on ach. For the majority of people that limit is too low, and you would be better off with the check option, or if you have enough money being transfered, pay the wire transfer fee. Am I missing something??

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Comment #21 by Anonymous posted on
Anonymous
Re: anonymous querry about ach option on maturity vs Penfed limit of $2000 a day. I ran into this same problem at USAA Savings Bank. I asked for, and received, an increase in the daily ach limit to $150,000.

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Comment #22 by Anonymous posted on
Anonymous
Banking guy, Do you know if there is a limit of $2000/per day if you use GMAC to pull money from Penfed using ACH transfer?

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Comment #23 by Anonymous posted on
Anonymous
It's official.
6.25% for 3, 4, 5, and 7 years. Now posted on their web site.

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