Keesler Federal Credit Union 30-Month Step CDs Available Nationwide
This blog post was prompted by a comment posted by DA reader, alan1, on this week’s CD Rates Summary.
I believe Keesler membership is nationally available
via a donation to the American Cancer Society
Thank you, alan1, you are correct: Keesler Federal Credit Union (KFCU) has again expanded its field of membership (FOM) to include virtually all US citizens/resident aliens. I discuss this recent change in more detail in the "Availability" section below.
At the end of May, KFCU introduced its 30-month Step and Jumbo Step Certificates, featuring blended APYs of 3.20% ($100k) and 3.10% APY ($1k), respectively. While many CD rates have fallen in the past six months, these Certificates have maintained their rates.
The Step and Jumbo Step Certificates are also offered as IRAs (Traditional and Roth), earning the same blended APYs with the same funding requirements.
The “step” refers to specific scheduled rate increases over the life of the Certificate, resulting in a blended APY.
30-Month Jumbo, $100k minimum, blended 3.20% APY
- First 10 months, 2.10% APR
- Second 10 months, 3.10% APR
- Final 10 months, 4.10% APR
30-Month, $1k minimum, blended 3.10% APY
- First 10 months, 2.00% APR
- Second 10 months, 3.00% APR
- Final 10 months, 4.00% APR
As stated in the Truth-in-Savings Disclosure, the Early Withdrawal Penalty reads as follows:
If the withdrawal does not reduce the certificate funds below the required minimum balance for this type of certificate, the member shall forfeit at the certificate rate an amount equal to the lesser of:
1. All dividends for 90 days from the amount withdrawn for certificates with a term of 1 year or less; or all dividends for 180 days on the amount withdrawn for certificates greater than 1 year; or
2. All dividends on the amount withdrawn since date of issuance or renewal.
Funding and Accessing Maturing Funds
Funds must be available in your KFCU account when the Step Certificate is opened. Depositing funds into the account can be completed through ACH transfer, wire transfer, or by mailing a check. KFCU also participates in the CO-OP Shared Branch network.
In a Live Chat yesterday, CSR stated,
Once the account is approved and open and we provide you with your account and routing number, you will have the option of transferring from another bank, mailing a check or going to one of our shared branches, which are credit unions that can service our Keesler members and accept deposits.
When the Step Certificate matures, there is a 10-day grace period before it automatically renews. Maturing funds can be distributed by ACH, wire, cashier’s check, or deposited into your KFCU savings account.
Unlimited beneficiaries, receiving equal shares, can be named. While Social Security numbers are not required, KFCU would “like to have as much information as you can provide” about the beneficiary.
Availability
Headquartered in Biloxi, Mississippi, Keesler Federal Credit Union’s field of membership (FOM) provides a way for almost any US citizen or resident alien to join.
Easy Membership – The fourth option on the Eligibility page of KFCU’s online membership application is “I am a member of the following association.” The first association listed is the American Cancer Society Cancer Action Network (ACS CAN), a “nonprofit, nonpartisan advocacy affiliate of the American Cancer Society” that anyone can join.
I asked in a Live Chat if it was necessary to join ASC CAN first and then apply to KFCU, or was it possible to join both simultaneously. CSR replied,
You can go ahead and select the ACSCAN and submit your application. Once we
receive it, we will send you the [ACSCAN] form that will need to be filled out for that.
This is the second time KFCU changed its FOM to offer its product line on a nationwide basis. In August 2018, KFCU added a 7-month Share Certificate Special earning 5.00% APY. That outstanding rate resulted in so many out-of-area inquiries, KFCU expanded its FOM, making almost all U.S. citizens and resident aliens eligible for membership.
When KFCU began offering the Step Certificates this past July, there was some confusion concerning on who could use the ACS CAN membership to join. KFCU started placing geographic limitations on the ACS CAN option sometime prior to July 2019, effectively wiping out the nationwide availability.
In a Live Chat yesterday, CSR confirmed that all U.S. citizens or resident aliens are eligible to join KFCU through an ACS CAN membership, regardless of where they live. CSR also stated that this FOM change was recent, having taken place in the last few months.
This isn’t the first time we’ve seen credit unions expanding their FOM based on nationwide interest and inquiries on specific products. The most recent example is PSECU, which went from a state-wide easy membership requirement to a nationally available easy membership requirement.
Residency – Individuals who live, work, worship, or attend school in the Mississippi counties of Forrest, Hancock, Harrison, or Pearl River, or select census tracts in the counties of Hinds or Jackson are eligible to join. Also qualifying for membership are those who live, work, worship, or attend school in select census tracts in St. Tammany or Orleans Parishes, Louisiana, or Mobile County, Alabama.
Employment – Employee and/or members of more than 300 SEGs (listed on the online application) are eligible for membership.
Military Relationship – Active or retired military who can use the services at Keesler Air Force Base or at Royal Air Force Bases in the UK qualify for membership.
Family Relationship – Immediate family members (spouse, parent, grandparent, sibling, child, grandchild, significant other) of a current KFCU member are welcome to apply.
Joining Keesler Federal Credit Union can be done online, or at any of 25 full-service Mississippi branches, located in Biloxi, Diamondhead, D’Iberville (2), Flowood, Gautier, Gulfport (3), Hattiesburg (2), Jackson, Keesler AFB, Long Beach, Madison, Ocean Springs (2), Pascagoula, Petal, Picayune, Ridgeland, Stennis Space Center, Vancleave, Waveland, and Wiggins. KCFU also has five Louisiana branches in Covington, Mandeville, New Orleans, Slidell (2), and two Alabama branches, both located in Mobile.
Primary share minimum deposit of $5.00 required to open.
Opening a Step Certificate can be done at any of the above-mentioned branch locations or by phone (888-533-7537). In a Live Chat, CSR stated,
To open a certificate online, we would need to receive a request through
your online message board once logged in to your Keesler Online account.
In addition to participating in the CO-OP Shared Branch network, KFCU also offers its members access to the CO-OP ATM network.
UPDATE: A DA reader reported that opening a CD requires a hard pull. To receive membership approval, KFCU requires that the credit union application be notarized and sent with a copy of your photo ID. The reader also reported that he was told by a CSR that money has to be received by 1/28/2020, unless the promotion is extended for another month.
Credit Union Overview
Keesler Federal Credit Union has an overall health grade of "A" at DepositAccounts.com, with a Texas Ratio of 1.85% (excellent) based on September 30, 2019 data. KFCU has an excellent capitalization level (14.74%), the result of holding $2.96 billion in assets with $435.23 million in equity. Please refer to our financial overview of Keesler Federal Credit Union (NCUA Charter # 5561) for more details.
Chartered in 1947, Keesler Federal Credit Union was established by ten civil services employees at Keesler Field, the predecessor of Keesler AFB. At the end of the first year of operations, KFCU had approximately 270 members and $7k in assets. In its 73rd year of operation, KFCU is the largest credit union in Mississippi, with nearly 244,000 members and assets in excess of $2.9 billion.
How the Step Certificate Compares
When compared to 202 similar length-of-term CDs tracked by DepositAccounts.com that are available nationwide, Keesler Federal Credit Union’s 30-Month Step Certificate and Jumbo Certificate blended APYs currently rank first and second, respectively, and regardless of minimum deposit requirements.
The above rates are accurate as of 1/16/2020.
To look for the best CD rates, both nationwide and state specific, please refer to our CD Rates Table page.
Month Balance Interest Balance Interest
0 $100.00 2.10% $100.00 3.10%
1 $102.10 2.10% $103.10 3.10%
2 $104.24 2.10% $106.30 3.10%
3 $106.43 2.10% $109.59 3.10%
4 $108.67 2.10% $112.99 3.10%
5 $110.95 2.10% $116.49 3.10%
6 $113.28 2.10% $120.10 3.10%
7 $115.66 2.10% $123.83 3.10%
8 $118.09 2.10% $127.66 3.10%
9 $120.57 2.10% $131.62 3.10%
10 $123.10 3.10% $135.70 3.10%
11 $126.92 3.10% $139.91 3.10%
12 $130.85 3.10% $144.25 3.10%
13 $134.91 3.10% $148.72 3.10%
14 $139.09 3.10% $153.33 3.10%
15 $143.40 3.10% $158.08 3.10%
16 $147.85 3.10% $162.98 3.10%
17 $152.43 3.10% $168.03 3.10%
18 $157.15 3.10% $173.24 3.10%
19 $162.03 3.10% $178.61 3.10%
20 $167.05 4.10% $184.15 3.10%
21 $173.90 4.10% $189.86 3.10%
22 $181.03 4.10% $195.74 3.10%
23 $188.45 4.10% $201.81 3.10%
24 $196.18 4.10% $208.07 3.10%
25 $204.22 4.10% $214.52 3.10%
26 $212.59 4.10% $221.17 3.10%
27 $221.31 4.10% $228.03 3.10%
28 $230.38 4.10% $235.09 3.10%
29 $239.83 4.10% $242.38 3.10%
30 $249.66 $249.90
Of course, 3.1% is still very good.
I am not going to spend the time to determine whether that error vitiates your point. But your numbers are bonkers. Whether you're earning 2.10% or 3.10% or 3.20% or 4.10%, you're not going to turn $100 into nearly $250 in such a short time frame.
It appears you have a number of errors in your model. However, there also appears to be some information needed to correctly reconcile the given numbers that isn't in the post so I think the best you can do is guess. The rate given for each of the 10 month periods is given as an APR. But the compounding period is not stated. I will deal with that later.
With regard to your model.
You are applying the APR to each month without breaking it into a monthly rate. You are using the annual rate each month. For example, in your model after one month your $100 initial deposit grows to $102.10. But that isn’t correct. At 2.10% APR on $100, $2.10 would represent the interest for an entire year, not a single month
I think there are other flaws (or call them probable unintentional assumptions), but I won't go into them since the first flaw will not lead to the correct result even ignoring the others.
Of course a $100 deposit would not qualify for the 3.20% APY as that takes a minimum $100k deposit. But that isn't relevant in calculating the APY so that isn't a problem if that's all we want to do.
Since the yield for each 10 month period is quoted as an APR, in order to calculate the APY, you must know the compounding period. But it is not given (at least I didn't see it, I just skimmed the post).
I tried a number of compounding scenarios to come up with the 3.20% APY.
The first one I tried was assuming that the compounding period was every 10 months. This yielded an APY of 3.18% (which is not equal to the stated 3.20%).
The only compounding period that yielded an APY of 3.20% was semi-annual compounding. If you assume semi-annual compounding you come up with an APY of 3.196% = 3.20% rounded. This may or may not be how they calculate it. There could be other ways. I was forced to make an inference since there is information I don't have.
If you paste the calculation lines with the trailing '=' sign into Google search you will get the calculated numeric results shown.
The total percentage yield over a period of 30 months can be computed as follows:
Using daily compounded interest, the number of days in each 10 month period are needed beginning with February 1, 2020, which surprisingly are the same:
29+31+30+31+30+31+31+30+31+30=
304
31+31+28+31+30+31+30+31+31+30=
304
31+30+31+31+28+31+30+31+30+31=
304
Number of days for the entire 30 month period is:
304*3=
912
The total percentage for 2.1%, 3.1%, and 4.1% APR steps for three 10 month (304 day) periods each is:
(((1+2.1/36500)*(1+3.1/36500)*(1+4.1/36500))^304-1)*100=
8.05325451813
The equivalent fixed rate APR percentage is therefore given by:
((1+8.05325451813/100)^(1/912)-1)*36500=
3.09999086836
The equivalent fixed rate APR percentage is also given more directly by:
(((1+2.1/36500)*(1+3.1/36500)*(1+4.1/36500))^(1/3)-1)*36500=
3.09999086836
You can check this using:
((1+3.09999086836/36500)^912-1)*100=
8.05325451813
To get equivalent fixed rate APY:
((1+3.09999086836/36500)^365-1)*100=
3.14840518938
My feeling after trying several different possible generous interpretations was that the 3.20% APY seems high. But nonetheless all of these calculations still use assumptions about how they arrived at the 3.20% APY that are speculative. I'd really like to see their calculations although it's likely even their back office can't provide them. Yes It is possible it is an error but I don't want to conclude that until I see what they have to say. Curiosity is getting the best of me!
Using your presentation:
The 8.05325451813 would have to be 8.19301994280556
And the 3.09999086836 would have to be 3.15172967268373
To get what you call the "equivalent fixed rate APY" to be ~3.20% instead of 3.14840518938%
With the 3.15172967268373% "equivalent fixed rate APR" I gave above the actual "fixed rate APY" would be 3.20178217681437%
The reason it isn't PRECISELY 3.200000000000% is that I used a generic calculation that takes into account that some 30 month periods will have more days than others because I was too lazy to do my calcs from last night over again to conform to your fixed 912 day example. :)
Suffice it to say, I think your calcs are good although they still use some assumptions that may or may not be right. I would want to see their calcs before investing because it isn't clear how they arrive at their numbers even using a generous interpretation (such as yours which uses daily compounding). So I am skeptical of their numbers but not ready to draw a conclusion that they are wrong.
Per my calculation the APY is 3.2096%. While the APR changes every 10 months, the interest is credited every 3rd month. See Ken's posting on the same product in 2019. He also pegged the yield at 3.21%
If you paste the calculation lines with the trailing '=' sign into Google search you will get the calculated numeric results shown.
To roughly calculate the total interest paid as a percentage for this "30 Month Step Jumbo Certificate" with 2.1%, 3.1%, and 4.1% APR steps for three 10 months and interest compounded quarterly this calculation pretends that all the months of the year are of equal length:
100*((1+0.021*3/12)^3*(1+(0.021*1+0.031*2)/12)*(1+0.031*3/12)^2*(1+(0.031*2+0.041*1)/12)*(1+0.041*3/12)^3-1)=
8.02387522159
Which rounds up to 8.024%
To get the "Blended APY":
8.02387522159*12/30=
3.209550088636
Which rounds up to the 3.2096% given by @Ustaad in comment #13. This is simply an allotment of the total interest equally to each year without using compound interest.
This "Blended APY" cannot be used in comparison with the APY of a certificate which pays compound interest. Such an APY which returns the same total interest over a 30 month period is given by:
100*((1+8.02387522159/100)^(12/30)-1)=
3.13543417512
You can check this using:
100*((1+3.13543417512/100)^(30/12)-1)=
8.02387522158
According to FDIC regulations, the formula for calculating the APY for this "Blended Rate" account (which the FDIC refers to as a "Stepped-Rate Account") for both payment and advertising purposes is as follows:
APY = 100*((1+interest/principle)^(365/days in term)-1)
Where principle is the initial deposit and interest is the total interest paid during the term.
Let’s make the following assumptions:
NCUA regulations require the use of the same formula for an account of this type.
The number of days in the term is 912.5 (which is 30/12*365). The 30 month period could vary by a day or two, but it doesn’t change the result enough to change the conclusion. 912.5 is a good average to assume since the FDIC uses a 365 day year in their calcs.)
If the interest paid for a $100k deposit for the "30 months" (assuming a 912.5 day term) is $8,023.88 then according to FDIC regulation, the APY advertised should be:
APY=100*((1+8023.88/100000.00)^(365/912.5)-1)=3.135436 or 3.14% rounded
So I agree with your your calculations, ASaver's calculations and your APY number and conclusion. If the calculation of total interest paid is correct – and it appears to me that it is unless there is some other interpretation of the facts I am not familiar with – it does appear that the APY that should be advertised for the $100k and over certificate is 3.14% not 3.20%.
I am not planning on making an investment in this, but if I were, I would be asking Keesler for their response to this conclusion to see if anything is missing.
Based on the same assumptions I gave above, In order to return an APY of 3.20% the total interest would have to be $8,193.02 instead of $8,023.88.
Always confirm that your actual return matches the stated APY.
In reality, the standard formula for compound interest, in this case 3.1 APR compounded quarterly, = (1+.030992/4)^4-1 = 0.03135405312
I talked with my contact in Keesler's CD department about this. She asked that I send her this posting so that she can forward it to her higher-ups for review. I requested that she get back to me with the conclusion that they reach. I'll post as soon as I get more information.
I don't think anyone here knows how the APY Keesler publishes for this account were determined, and what calculation they used. After trying a number of possible standard methods to come up with the same APY, I couldn't find any reasonable interpretation of the given information to match it. So I'm stumped. I am hopeful to see how they arrived at their published APY and the prospect of learning something about it that I did not know. As it stands now, I don't understand their number. Maybe someone else here does and can explain it.
Yes, I think that using a different number of days is one possible explanation for their numbers. But I assume that would only be valid if it is permitted by regulation. As I noted above in the formula I used, the FDIC calculation of APY specifies using 365 days.
I'll add though that assuming the Keesler figure uses the same formula as the FDIC regulation requires, and assuming the total amount of interest paid on a $100k certificate is $8,023.88, they would have to assume a 372 or 373 day year to come up with the 3.20% APY. If those assumptions are correct, I think you will agree that is unlikely.
If there is a mistake made here, I think it would have to be in the total amount of interest paid. It would have to be more than the $8,023.88.
Whatever the case, I would love to know why there is a discrepancy and hope we eventually find out. For me it is purely a curiosity.
Coincidentally, 2020 is a leap year, but I don't think that has any bearing on the calculation or the conclusion. Although it has some other interesting aspects that I won't get into here because I don't want to sidetrack this fascinating inquiry.
I will assert, as a fact, that there are financial institutions that utilize a 360 day year.
I can't say the discrepancy is not related to that, but I would be surprised if it is.
The unique feature of this product is the stepped rate. So I think the most likely explanation lies in how the “blended” rate is calculated and tied in with the compounding period which will determine the total amount of interest paid. My guess is we may be underestimating the interest. But I can't see how.
Once you figure how much interest will actually be paid, I think it’s highly likely they use the standard APY formula given in my post above (and others’ posts as well). After all, the whole purpose of APY is to allow consumers to make an apples to apples comparison between deposit accounts at banks and credit unions. So I doubt that standard required formula is different from bank to credit union.
It’s not impossible that there is a mistake on the part of Keesler (which may or may not calculate the APY themselves, in some cases FIs probably use a third party to do this). But I think the probability they are wrong is fairly low. Most FIs are pretty competent with stuff like this.
I think it more likely though that there is something in the calculation of the blended rate versus compounding that we are not capturing. I would love to see how that works if it is different from what has been calculated so far. It's entirely possible that it is.
Whatever method the CU is using, the real rate of return based on this new information is 3.132%. I am stumped. @ASaver, any thoughts?
The total amount of interest will depend on the number of days in the term. Since CDs/certificates almost always mature on the same day of the month X months later, the number of days in the term may differ depending on what month and day of the month you open the CD/certificate. The $9.12 difference between the two total interest amounts MIGHT be related to a shorter term for a certificate opened today then than the term used in the calculations. In fact $9.12 is approximately equal to one days interest on the $100k so without rigorously testing it this seems possible.
However, it still doesn’t explain the significant gap in the published APY and the calculated APY we have been discussing.
APY = 100*((1+(8014.76/$100,000)^(365/900)-1)
Solving this will yield 3.1761%
100*((1+8014.76/100000)^(360/900)-1)=3.13195%
That's why I commented earlier that using a 360 day year convention would make the discrepancy between the calculated APY and the stated APY worse not better.
Anyway, based on the new information you provided I don't see any way the APY can be 3.20%. And if there is some mechanism based on a 360 day year or some other variation on the standard formula that they are using that only means there is still a problem in using their stated APY for comparison purposes since that doesn't square with the other APYs out there or the standard definition of APY.
Assuming the information you got from the CSR is correct, I think it doesn't bode well for the 3.20% APY figure being correct. But who knows!
www.magnifymoney.com/blog/earning-interest/apy-vs-interest-rate-understanding-the-difference/
Also see the URL:
www.ecfr.gov/cgi-bin/text-idx?node=ap12.9.1030_111.a
which is "PART 1030—TRUTH IN SAVINGS (REGULATION DD)" of the "Electronic Code of Federal Regulations (eCFR)" and have a look at
"A. General Rules":
Also look at "D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance Levels)" in which the word blended does not appear.
The same information is also on the URL:
www.fdic.gov/regulations/laws/rules/6500-3270.html
Despite the author of that magnifymoney article conflating the two.
Those are the references I used when I set up the formulas in a spreadsheet I use for this purpose to make sure they comply with FDIC calculations.
In Part 1 B. of the second link, it gives the calculation of APY for Stepped-Rate Accounts. It is the same formula we have been using. So as I mentioned earlier, I think this part of the calculation is pretty solidly grounded in evidence.
But strangely, although it gives two examples, it does not show any formulas for calculating the total interest earned. However, it does give the resulting numbers for total interest earned in each example. And using those numbers it isn't difficult to derive the formula by inference.
Without getting into the details, I had already done that during the course of these discussions and applied the same methodology to this case as implied by those examples, and it confirmed the conclusion we reached: that the stated APY on this account appears to be incorrect.
So there are two parts to this calculation. First you need to determine the total interest paid and second you need to determine the APY (both parts according to FDIC regulations). Then we make the assumption that the NCUA has similar regulations.
I think the second part is pretty slam dunk. If there is an error in our calculations, I think it would have to be in the first part since there is no explicit method given for calculating the total interest paid for Stepped-Rate Accounts in the regulations.
However, based on the examples given in the FDIC regulation, and using the same methodology applied to this certificate, our calculations and conclusion appear to me to be correct. I can't see any other interpretation.
I would very much like to see how this CU arrived at the APY stated on this account to see if we missed anything. I don't want to burden Ken Tumin with this, but it might be a good idea for them to contact him with their reply (if they have one) as it may be a matter of general interest to his readers at this point. Not sure if he would have an interest in posting something about their response, but it's just a suggestion. I would very much like to learn why there is a discrepancy in our results.
Since listing CD APYs is Lending Tree's sole job on Deposit Accounts, it isn't too much to ask.
....so having lost my DL/requesting another copy --and then finding it and now this -- seems a bit shady.
Either the APR of 3.1% or the APY of 3.2% is incorrect. The standard APY formula works just fine. Sure there may be a rounding error, but even calculated as infinite compounding, 3.1% APR cannot be 3.2% APR for a 30 month CD.
APY Calculation of CD is explained here: consumerfinance.gov/policy-compliance/rulemaking/regulations/1030/A/
APY = 100 [(1 + Interest/Principal)^(365/Days in term)-1]
Stepped up is explained in depth in part B, but it is not unusual or complicated.
The correct APY for the Keesler 30 month non jumbo CD at a step up blended rate of 3% APR is 3.04% (rounded).
Full spreadsheet here: https://docs.google.com/spreadsheets/d/1y9XbIUdQEGHSxNjr8HFYgTbhX-bpYxyNJwwzse5I7CQ/edit?usp=sharing
My guess is Keesler should adjust upwards the amount it is paying, at least on existing CDs, to match its stated APYs.
I just completed the membership requirements for Cancer Society enrolling. I Live in Arizona, I sent the required $10 ACS and $5 to create my account. I am told by Keesler FCU, that I don't qualify, because I don"t live locally according to their membership rules, even thou they started
the membership process and approved the application, but now are in the process going to refund my initial account fees., because I don't qualify. Very dis-appointed, JL in Arizona