Dedicated to Deposits: Deals, Data, and Discussion
DETAILSINSTITUTIONAPYMINMAXPRODUCT
Pentagon Federal Credit Union1.31%$1k-7 Year IRA
Pentagon Federal Credit Union1.31%$25-7 Year Roth IRA
Accounts mentioned in this post. Rates as of July 27, 2014

PenFed's New 7-Year CD and IRA CD Rate - Available Nationwide

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Pentagon Federal Credit Union

Pentagon Federal Credit Union came out with its August CD and IRA CD rates. Rates for most terms stayed the same. However, the 7-year CD rate increased from 3.51% APY to 3.75% APY which makes this one of the best nationwide CD rates. The 2-year CD rate also increased, but the new rate of 1.75% APY is still not a top rate. Minimum deposit is $1,000. These rates are listed in the PenFed's Money Market Certificates page as of 8/02/2010. PenFed typically maintains its CD rates through the month, but note that there's no guarantee.

The main downside with this 7-year CD is a hefty early withdrawal penalty. According to the CD application (disclosure on 2nd page), the early withdrawal penalty for the 7-year certificate is:

a) If redeemed within 365 days of the issue date or any renewal date, all dividends will be forfeited;
b) If redeemed thereafter, but prior to the maturity date, dividends for the most recent 365 days will be forfeited.

In short, the penalty is 1-year of interest for an early withdrawal after the first year. You lose all interest for an early withdrawal before the first year. The penalty for the shorter terms is only 180 days of interest.

Special Early Withdrawal Feature for PenFed IRA CDs

PenFed has a nice feature for its IRA CDs. If you have reached the age of 59½, you can avoid an early withdrawal penalty if you only take a partial withdrawal. A partial withdrawal just requires that you leave at least the minimum balance of $1,000 in the IRA CD. So for large IRA CDs, this effectively eliminates the early withdrawal penalty. I described the details of this feature in this PenFed IRA CD review.

Do Long-Term CDs Make Sense?

It might seem unwise to lock into a long-term CD when rates are so low. If rates do go up in the next year or two, you may be able to get much higher rates. So it may seem better to stay in a savings account or short-term CDs until rates improve. The risk is that if rates don't go up, you'll earn much less interest than what you could have earned with the long-term CD. You also have to take into account the early withdrawal penalty. If rates go up substantially, you can break the CD with the early withdrawal penalty and reinvest the money into higher paying accounts. You could make more money in this approach than you could if you kept your money in a savings account or short-term CDs.

Below is a comparison of the approximate annualized yields that would result if you closed PenFed's 7-year CD at year 1, 2 and up to year 6. The yield is approximated by removing one year of interest and then computing the new effective average yield for that time period. The yield at year 2 is easy to compute since you essentially cut the amount of interest that you earn in half. So you just divide 3.75% by 2 which is approximately 1.88% APY. As you can see, this is a pretty competitive yield for 2-year CDs.

For comparison, I included PenFed's 5-year CD and Ally Bank's 5-year CD. PenFed's 5-year CD's early withdrawal penalty is 180 days of interest (only half of the 7-year CD penalty). Ally Bank's 5-year CD has only a 60-day interest penalty. The rates are as of 8/02/2010.

Average Yields After Early Withdrawal Penalties

Year of Early Withdrawal PenFed's 7-year 3.75% CD PenFed's 5-year 3.00% CD Ally's 5-year 2.94% CD
year 1 0.00% 1.50% 2.46%
year 2 1.88% 2.25% 2.70%
year 3 2.50% 2.50% 2.78%
year 4 2.81% 2.63% 2.82%
year 5 3.00% n/a n/a
year 6 3.13% n/a n/a

As you can see in the table above, you will earn more with the 5-year CDs if you take an early withdrawal before 3 years. After 3 years, the 7-year CD starts to outperform the PenFed 5-year CD, and after 4 years, the 7-year CD starts to outperform Ally's 5-year CD. Fore more details about Ally Bank's CDs and early withdrawal penalty, please refer to my Ally Bank CD review.

PenFed 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.

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 continue to be strong: 4 stars (excellent) at BauerFinancial, 4 stars (sound) at Bankrate.com and an overall health score of 4 out of 5 at DepositAccounts.com (see our financial overview of Pentagon FCU). PenFed is one of the largest credit unions in the US with $14.2 billion in assets and $11.51 billion in deposits. It's federally insured by the NCUA (Charter # 227).


  Tags: New York, North Carolina, Hawaii, Texas, Virginia, Pentagon Federal Credit Union, Colorado, CD rates, Maryland, Missouri, New Jersey, IRA rates

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Comments
11 Comments.
Comment #1 by Anonymous posted on
Anonymous
The issue for us over 59 1/2, succinctly stated, is whether a 5 year State Farm IRA CD at 2.3% APY is better than a 3.75% APY IRA CD (7 years). If you plan, as I do, to make two withdrawals of the principal over the next two years (effectively drawing down the principal to $1000), it's a no-brainer. I happen to be in KC visiting my Mom and plan to motor on down to the local PenFed office before I leave. My State Farm IRA CD matures in a little less than a month and it's going to be winging its way to PenFed.

Hey, $700 is more than beer money. Do the math,

 

Bozo

 

 

1
Comment #2 by Anonymous posted on
Anonymous
table is incorrect

year 5 .... 3.00% .... n/a .... n/a
should be
year 5 .... 3.00% .... 3.00%  2.94%

6
Comment #4 by KenBDG posted on
KenBDG
@Anonymous #2, at year 5, there is no early withdrawal penalty for those two 5-year CDs. Those CDs have matured. That's why n/a is used in those fields.

4
Comment #5 by Newbie1 (anonymous) posted on
Newbie1
I notice PenFed allows dividends to be posted to a PenFed account and not an external account. Does anyone have any experience with pulling funds from a PenFed share, money market or checking account into another bank; for instance into an Ally bank account? Thanks.

2
Comment #8 by Anonymous posted on
Anonymous
New cd Rollover, reserve an account for jan 2011. 5% apy for 10 years .

1
Comment #9 by Anonymous posted on
Anonymous
Penfed no longer allows you to withdraw funds from an IRA money market certificate. 

"*Note that any IRA Certificates opened prior to September 1, 2007, can be redeemed before maturity without a penalty, if the Member is at least 59 1/2 years old. A penalty will be imposed for early redemption of an IRA Certificate that was opened after September 1, 2007, regardless of the member's age. This fee could reduce your earnings." 

https://www.penfed.org/productsAndRates/checkingAndSavings/IRACertificates.asp

1
Comment #10 by Anonymous posted on
Anonymous
I'm anon #9:  Need to add that you can withdraw from an IRA CD, just not penalty free.  Banking guy, would you correct my post.  Thank you.

1
Comment #11 by Anonymous posted on
Anonymous
@Newbie1  It's easy to pull monthly interest from a PenFed checking account.  I've had mine set up that way for years and it works simply and reliably.

1
Comment #12 by Anonymous posted on
Anonymous
Thanks for this! Your trouble to tell us exactly what we might make  on each year. Of course iit is a great deal thanks to you for letting us know this Ken!!



 

1
Comment #13 by kcfield (anonymous) posted on
kcfield
Hi Ken: Thanks for the great news about Pen Fed - I am a Pen Fed member and may very well invest. I would appreciate (and think your loyal followers as well) if you would redo the Average Yields After Early Withdrawal Penalties table and base it on current interest rates. The 2010 table is not helpful as it is based on much higher interest rates. Thanks much for considering this request.

1
Comment #14 by kcfield posted on
kcfield
Hi Ken: Thanks as always for your excellent and diligent work on this site. It would be helpful to your followers if you would change the Average Yields After Early Withdrawal Penalties chart to reflect current interest rate examples. Otherwise the chart is not so helpful.

1