Pentagon Federal Credit Union officially posted its new CD rates this morning, and as expected the long-term CD rates are 6.25% APY. This rate applies to terms of 3 years and over. Thanks to the readers who reported on this last week. It's interesting to note that Penfed mistakenly has 5.25% in their promotional ad. But if you look at the rate table, you'll see it actually states 6.25% APY with a dividend rate of 6.07%
Now the question is what is the best term. In a future post, I'll discuss some of the issues to consider. In this post, I'll describe Penfed and the CDs along with my experiences with joining Penfed and opening a CD last September.
Overview of Pentagon Federal Credit Union
- Safety - Pentagon Federal Credit Union (Penfed) is the third largest credit union in the nation in terms of total assets. It has $9.2 billion in assets and 714,855 members. It's federally insured by the NCUA (see its NCUA page which includes the web address). It currently has a 3 out of 5 stars (performing) safe-and-sound rating at Bankrate.com. This is down from 4 out of 5 stars when I posted on Penfed in September. Note, there are many ways to extend your insurance above $100K such as using payable on death accounts with qualifying beneficiaries. See this NCUA page for the official details.
- Eligibility - If you are not eligible to join through various military affiliations, you can become eligible by joining the NMFA association with a one-time fee of $20. Joining NMFA and Penfed can be done at the same time all online. You might want to first see if you are eligible without NMFA membership by starting here.
- How To Join - In September, I joined Penfed online. You can start the online application here. If you're not already eligible, you'll end up at a page where you can join both the NMFA and Penfed online at the same time. After agreeing to the terms, the application takes you to the funding page. Unfortunately, you can only fund the NMFA membership and a Penfed savings account with a credit card. They make it clear that the funding of the savings account will be considered a cash advance. However, you only have to fund it with $5, so it shouldn't be much of a cash advance fee (my Citi card didn't charge me.) You then select your PIN number. They give you the membership number. Once the application is complete, it informs you that they'll be mailing the account opening materials to your home address. It took 3 days for it to reach my home. It contains a signature card for you to sign and a postage-paid envelope. Even though the application states that your share account will not be valid until they receive your signed form, you can immediately access your account with the PIN you just selected and the membership number they provided. Note, Penfed has recently added extra login security so the initial login process may be a little different now.
Penfed CD Details
The official details of Penfed CDs (called Money Market Certificates) are available at the Penfed CD page and in the CD application (pdf). Some of the important points include:
- CD can be purchased online, by mail, or by phone
- Available as a regular CD, an IRA and a Coverdell Education Savings Certificate.
- The minimum deposit is $1,000 ($500 for Coverdell)
- The rates are effective through January 31, 2007 (as posted by Penfed). Readers report being told that these rates may last for 3 months
- The early withdrawal penalty is 180 days of interest for terms of 3 to 5 years. The penalty is 365 days for the 7 year CD. Note, if you redeem a 3, 4 or 5 year CD before 180 days, you'll only lose the interested earned up to that point. So the penalty won't eat into the principal (likewise for the 7 year CD.)
- Interest is compounded daily and credited monthly
- After the CD is opened, you may not add funds to the account until maturity date.
- Partial withdrawals are not permitted except for IRA accounts
- There are two choices for maturity. First is the automatic renewal option. This has no grace period. Second is the non-renewable option. You can request that they send you a check or transfer the money into your Penfed savings or checking account. This last option seems to be the best especially since you don't want to be locked into a Penfed CD during their low rate period. However, with the automatic renewal option, closing the CD that just renewed wouldn't result in much interest penalty. You would just lose interest for those days since it matured.
My Experiences with a Penfed CD
When I joined Penfed in September and opened a CD, the process went smoothly. I joined and purchased the CD online. Below is a description of the CD purchase process and some important points. Note, there may have been some changes between now and then.
Once you log in, you can select the option from the main menu to open an account. From here you can purchase a CD (what Penfed calls a Money Market Certificate).
Some of the options provided by the online CD application include:
- Beneficiaries for a POD account.
- One of three interest payment options. These options include adding it back to the principal, depositing into your Penfed account or sending you a check.
- One of three payment options at maturity. You can have it automatically renew, have it transfered to your Penfed account or request a check be sent to you.
- One of two ways to fund the CD online: ACH transfer from another financial institution or by credit card
The ACH transfer option allows you to choose your checking or savings account of another financial institution. You have to enter the bank's routing number and your account number of that bank. The other option is to use a credit card. Both funding options have a limit of $10K. I was told that this can be extended if you call. I'm not sure about these details.
I definitely didn't want to be hit with a cash advance fee on a large amount, so I chose the ACH transfer option and used a high yield savings account as the source. This way the money will continue to earn a high rate of interest until it's debited.
At the end of the application, it states that the certificate agreement will be mailed within 5-7 business days. I received mine and mailed it back without any problems.
This is a great opportunity for all those looking for a long-term CD. I wasn't expecting Penfed to be so generous with the rates especially since long-term CD rates have been falling so much in the last several months. The best 5-year CD rate currently listed at Bankrate.com is only 5.30% APY. I'm a little worried that this rate may be too good. Penfed is a large credit union that should be able to handle a large influx of deposits and new members. However, the rates are so much better than what's available elsewhere, even Penfed may have trouble and could end these 6.25% rates early.