Update: The reservation end date is now 9/30/2010.
I received the details of PenFed's CD promotion called "Watch it Grow in 2011". Unfortunately, PenFed calls it a "special test offer to a select portion of our membership only." It appears those who have PenFed CDs that are maturing in October are receiving this offer. Those members should receive the offer in the mail with the notice about their maturing CDs. I just received the notice in the mail for my PenFed CD that's maturing on October 1st. I've scanned the inserts and placed them into this PDF.
One thing that's unusual about this offer is that you must select to have the CD closed with the funds transferred to your PenFed savings or checking account. For the start date of the new CD, you have to select a day in January 2011. I called PenFed this evening, and according to the CSR, you don't have to leave the funds in your PenFed savings or checking account during this time. You just have to ensure the funds are in your PenFed savings or checking account within 48 hours of the start date of the new CD.
The big news with this promo is a 5.00% APY CD. However, it's a new 10-year term which is a very long term. The other two CDs include a 3.50% APY 5-year CD and a 4.25% APY 7-year CD.
The 10-year CD is not yet available to members. According to the CSR, it will be available to all members starting this January. When it becomes available in January, it probably won't be 5.00%. However, if it's 75 basis points over the regular 7-year CD rate, it may still be a good deal. According to the CSR, the 10-year CD has the same early withdrawal penalty as the 7-year CD: one year of interest.
Another downside for this deal is that eligible members are limited to the amount they can contribute to these special CDs. According to the small print in the insert that I received in the mail, it states "The new certificate amount cannot exceed the balance of your maturing certificate - that is, no additional funds can be added."
The small print also states that the offer is subject to change without notice. As we learned last year, these promos can end early. Last November PenFed launched a Certificate Reservation program that ended only days after it was first published. Those who were late received rates 25 basis points lower than those who jump on the deal early.
In this case they CD reservation period will end either on 10/31/2010 or until the promotion amount is depleted. PenFed is listing the real time total funds available on the first page of the certificate reservations page when you are logged in. In this snapshot that I took, it was at $237,554,543.92. It started at $240 million.
Also mentioned in the snapshot is that you can cancel the reservation with no penalty. According to the website, "if you decide to cancel prior to purchasing your certificate, all it takes is one step and there is NO penalty."
So for those who are eligible, is this deal worth it? And which is the best term? The concern is that rates will shoot up in the next few years, and you'll be stuck in the long-term low-rate CD. However, you can always make an early withdrawal with a penalty. If you factor in the penalty, the 10-year CD becomes the best deal if you close the CD from year 3 to 7. Even if you close the 10-year CD at year 2, the resulting APY after taking into account the penalty is very competitive compared to 2-year CDs (2.47% APY). However, if you close the CD any time during the first year, you'll earn no interest. At least with PenFed CDs, they don't eat into the principal.
I've calculated the approximate APYs that would result if you made early withdrawals from these CDs. These are listed in the table below.
Approximate Yields After Early Withdrawal Penalties
|Year of Early Withdrawal||PenFed's 10-year 5.00% CD promo
||PenFed's 7-year 4.25% CD promo
||PenFed's 5-year 3.50% CD promo
|year 5||3.98%||3.39%||3.50% (no penalty)
|year 7||4.27%||4.25% (no penalty)
|year 10||5.00% (no penalty)
Other Long-Term CD Deals
This is similar to the table I did for PenFed's current 7-year and 5-year CDs in this post. I also included Ally's 5-year CD (the CD rate has recently dropped). Please refer to that post for more details about PenFed.
Discover Bank also has a 10-year CD with only a 9-month early withdrawal penalty. However, the yield is much lower than PenFed's 10-year CD. It's currently only 3.50% APY. I reviewed this deal in my Discover Bank CD review post.
For more long-term CD rates, please refer to our 6+ Year CD Rates table.