Dedicated to Deposits: Deals, Data, and Discussion

4.00% 7-Year CD Continues But Other CD Rates Have Fallen at Pentagon FCU

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Pentagon Federal Credit Union
I'm afraid credit unions are catching up to the rate cuts of the banks, and Pentagon Federal Credit Union is no exception. They lowered most of their certificate rates for September. Below is the full list of PenFed's new CD rates as of 9/01/09. I've also included the rates from the previous month so you can see how they've changed:
  • 1.00% APY 6-month (was 1.75%)
  • 1.25% APY 1-year (was 2.00%)
  • 1.75% APY 2-year (was 2.25%)
  • 2.50% APY 3-year (was 2.78%)
  • 3.00% APY 4-year (was 3.14%)
  • 3.00% APY 5-year (was 3.51%)
  • 4.00% APY 7-year (no change)
These rates are listed in PenFed's certificates page as of 9/01/09. The CD rates typically last for the entire month, but they're not guaranteed to last. Minimum deposit is $1,000. They're also available as Coverdell Education Savings Certificates and as Traditional and Roth IRA Certificates.

At least the 7-year CD remains at the very competitive rate of 4.00% APY. One important downside of the 7-year CD is a harsh early withdrawal penalty of 1-year of dividends. The 5-year CD only has a 6-month penalty. However, if you have the IRA CD and you're 59½ or over, you can make partial withdrawals without a penalty (see post). This could be a very nice feature if interest rates start to shoot up in the next few years.

For more details about PenFed's CDs and joining PenFed, please refer to this PenFed review post. Details of the CDs are available in the second page of PenFed's account application.

Membership

PenFed makes it easy for anyone to join and open accounts online. 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. You can also be eligible to become a member of PenFed if you are an employee or volunteer of the American Red Cross (refer to this PenFed page).

Credit Card and Loan Deals

Most of the current PenFed deals are loan related. I described their latest credit card deal last month which extends their 5% cash back rebates to selected retailers through September. They also have a good deal on auto loans with a 3.99% APR for both new and used autos for terms up to 60 months.

Branch Locations

Accounts can be opened online, but for those who prefer branches, PenFed has branches in several parts of the country including Washington DC, Maryland, Virginia, New Jersey, New York, Colorado, North Carolina, Hawaii, Puerto Rico, Missouri and Texas.

Financial/NCUA Info

PenFed's ratings for safety and soundness are no longer the best, but they're still respectable: 4 stars (excellent) at BauerFinancial and 3 stars (performing) at Bankrate.com. Both ratings are based on 3/31/09 financial data.

PenFed is one of the largest credit unions in the US with $13.4 billion in assets and 889,874 members. It's federally insured by the NCUA (Charter # 227).

Other High Certificate of Deposit Rates
  Tags: New York, North Carolina, Texas, Virginia, Pentagon Federal Credit Union, Colorado, CD rates, Maryland, New Jersey, IRA rates

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Comments
8 comments.
Comment #1 by Anonymous posted on
Anonymous
Question? Concerning the 59 and a half IRA interest penalty exception for early withdrawl. Can you transfer an allowable amount of funds to another IRA account to capture a higher rate and avoid an IRS taxable event? Thankyou

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Comment #2 by Bozo (anonymous) posted on
Bozo
To: Anonymous at 8:44 am
Fm: Bozo

I don't know about PenFed, but State Farm Bank has a similar option for "normal distributions" from IRA CDs without penalty after age 59 1/2. The State Farm Bank website is clear that transfers or rollovers to another IRA are not considered "normal distributions" and thus ordinary early withdrawal penalties would apply.

Stated another way, you can take partial withdrawals from your IRA CD and get a check, you just can't do custodian-to-custodian transfers with the money.

Hope this helps.

Bozo

PS: I just did another C-to-C into State Farm (5 years at 3.17%). I've done two partial "normal distributions" of my existing IRA CD, and it was painless and as advertised.

1
Comment #3 by Anonymous posted on
Anonymous
To: Bozo

Fm: Anonymous

What if you did an indirect transfer, where you do a normal distribution and then transfer the funds to another custodian within 60 days. Would you be able to avoid the early withdrawal penalty and paying taxes on those funds?

1
Comment #4 by Bozo (anonymous) posted on
Bozo
To: Anon
Fm: Bozo

I don't know, since I've never tried it (thought about it, but with rates falling, it was never realistic). On the State Farm normal distribution request form, you can elect to have "zero" withheld (both state and federal), so (theoretically at least) I suppose you could treat it as a rollover within the 60 day period, and seek a better return.

Before doing so, I'd consult with a (really good) tax specialist.

As another consideration, one of the reasons I "go long" and withdraw short is the convenience of the 59 1/2 exception. I haven't found any institutions other than State Farm and PenFed that offer normal distributions at 59 1/2, so you'd be back to the onus of laddering and trying to predict how much you'll need, and when you'll need it.

Bozo

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Comment #5 by Anonymous posted on
Anonymous
For those who are questioning the ability to open an IRA CD for long term rates.If the institutions policy is no penalty after 59 1/2 or 70 1/2 according to their by laws. You can take an early distribution of any amount in a check and roll it over within 60 days at another institution.You do have to notify the IRS in your tax forms in April that the funds went from A to B.
The exact funds can only be moved 1time per year.Some institutions charge if the plan is closed ie: all funds removed. According to the charges I would leave the minimum amount.

I closed my defined benefit plan, and opted to handle my funds myself. These were put into IRA accounts at banks and credit unions. This was in 1993. I have never been audited and advised by my accountant this is legally acceptable.

Institutions that honor this are
Kaiser Federal Bank
Wachovia Bank
Pentagon Credit Union
U.S.E Credit Union
Alliant CU
Pacific Transportation Credit Union

As policies can change verify and ask the policy for IRA funds.

There are probably many more banks and credit unions that honor this policy. Most of my funds are in CA.

The ability to get the long term interest rates and remove the funds is the benefit of being diligent. It's your money.......

1
Comment #6 by Anonymous posted on
Anonymous
Penfed's mortgages now all carry a 1% origination fee. It used to be only the fixed rate mortgages that carried the fee. Their 5/5 loan just got a lot less compelling...

1
Comment #7 by Anonymous posted on
Anonymous
You say the funds can be moved only 1 time a year. I assume you mean only one IRA rollover can be made in one year period. This does limit you to one account if you have multiple accounts to pull from.

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Comment #8 by Anonymous posted on
Anonymous
To Anonymous..5:43am September 02,2009:

Re: IRA rollover 1 time per year.

The key word is exact funds. I have rolled over many IRA'S in one year from different or the same institution. But once rolled over and re-invested those funds must remain there for 1 year.

You will receive form 1099 from the IRS for an early distribution. I have my accountant write in my April tax forms the institution and amount removed and the new institution and amount where it was rolled over.

I have had as many as 12 of these in one year. Never a problem. Just takes paperwork.

Bank to bank transfers are not reportable but you can loose interest during this period. Once the check wasn't sent or received for over 1 month.

I actually receive a check and hand carry it into the new institution. Therefore, I loose no interest.

If the bank or credit union is out of my area, then I get the check, mail it that day and loose at most 3 days interest. Make sure you have the new institution send you/ fax the paperwork in advance if you know where it is going.

If not this is the reason you have 60 days to decide where to put the funds.

It might not work for everyone but it does for me.....

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