Update 10/13/07: The 3, 4, 5 and 7 year CD rates are now 5% APY.
Pentagon Federal Credit Union (Penfed) officially posted their new Money Market Certificate (CD) rates this morning. The 3, 4, 5 and 7 year CD yields are all 6.00% APY (5.83% interest rate). The rate table states that these rates will be in effect through October 31, 2007. However, I was told by my contact that these rates will only be available for a limited time (and that wasn't just a typical marketing call to action). So I assume if there is strong demand, these rates may end before the 31st.
I did an extensive review of Penfed in my January Penfed post when they were offering 6.25% CDs. I'll summarize that post here.
Eligibility to Join Penfed
If you don't qualify based on military, employer or family, you can become eligible by joining the National Military Family Association (NMFA). Please refer to How to Join overview page for details. Joining NMFA and Penfed can be done at the same time all online. The yearly membership for NMFA is $20, but your membership in the association does not need to be maintained to continue as a Penfed member (although the NMFA is a good association to support).
Summary of My Experience Joining Penfed
I joined last year, so there may have been some changes. Here's a quick summary of my experience:
- Start at their Penfed's Joining Made Easy page
- 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.
- I was only able to fund the NMFA membership and a Penfed savings account with a credit card. The total was $25 ($5 for the initial savings account deposit and $20 for NMFA membership). Penfed warned that funding the savings account with a credit card would be considered a cash advance, but my Citi credit card didn't charge me.
- 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.
- Hard Credit Inquiry - A hard credit pull is done when you open your share savings account (when you join). I was told that no additional hard pulls are done for opening CDs. They will also do a hard pull for checking accounts, loans and credit cards. When I checked my credit report at Equifax, there was just one hard pull done by Penfed when I first joined. It did not show any hard pulls for the two CDs that I purchased so this seems to confirm what I was told by the CSR. One reader mentioned the following:
A CSR confirmed today, that Hard credit pull is done to almost everyone opening CD by calling CSR and or opening online with amounts > 10K. Also, they run hard credit pull on every 9th or 10th customer as required by law, for quality control purposes.
Another reader mentioned this:They do a hard pull for opening an account, but they use the same pull for 60 days. So if you bite the bullet and take the hard for opening a share account, they will use that same hard (ie not initiate a 2nd hard pull) for a credit card app. So anyone planning to apply for membership via a share account should seriously consider applying for the 1.25% credit card at the same time.
Note, the hard pull may lower your FICO score by about 5 points. The effect should be removed in about 6 months.
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 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.
- 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.
Safety of Penfed?
Bankrate.com rates them as 3 out of 5 stars (performing) based on 6/30/07 financial data. This is the same rating they had when I reported on Penfed in January. BauerFinancial rates them as 5 out of 5 stars (superior) based on 6/30/07 financial data. As you can see from their NCUA page, it's a major credit union with $10.4 billion in assets.
Is 3 or More Years Too Long?
If you think inflation will soon drive the Fed to go back to rate hikes, you may be hesitant on a long term CD. No one can predict future interest rates. History can give some idea of possible scenarios. From the Fed funds rate history, it appears once the Fed starts to lower rates, it's usually 2 or more years before they start hiking rates. Although there have been exceptions. Also, long term rates can be driven by other issues. Here's a link to historical rate data.
How Much Can Be Insured Under the NCUA?
In addition to the typical $100K per regular account and $250K per IRA, you can extend your non-retirement coverage over $100K with joint accounts and with payable-on-death (POD) accounts. With POD accounts you must make sure the beneficiaries are qualified. I have more details along with examples in my extending FDIC and NCUA coverage post. Insurance coverage can be determined using the NCUA Share Insurance Estimator.
I have more info on funding a Penfed CD in this January Penfed post. Some more miscellaneous info is available in this December Penfed post. Note, the special IRA provisions that I mentioned have changed. Please refer to this post for more details.
Edit 9:30am - Added hard inquiry info from previous post along with more links to previous posts.
