PenFed Cuts CD Rates - Another Sign of Falling Rates
As feared, PenFed Credit Union (PenFed) started February by lowering the rates on most of its Money Market Certificates (MMC). Most of the MMC rates fell by 20 bps, except for the 36-month and 24-month which fell by 15 bps. There was no change in the 6-month rate. The new MMC APYs are shown below in bold and are effective as of 2/1/2019. The previous APYs are noted inside parentheses.
- 84 mo - 3.15% (3.35%)
- 60 mo - 3.15% (3.35%)
- 48 mo - 2.95% (3.15%)
- 36 mo - 2.90% (3.05%)
- 24 mo - 2.80% (2.95%)
- 18 mo - 2.75% (2.95%)
- 15 mo - 2.70% (2.90%)
- 12 mo - 2.60% (2.80%)
- 6 mo - 2.40% (no change)
Wednesday’s Fed meeting made it apparent that the rate peak for this cycle may have already passed. Actually, CD rates had already been falling before the meeting. In fact, PenFed made the unusual move to cut its MMC rates in the middle of the month. On January 18th, PenFed reduced the rate of its 5-year and 7-year MMCs by 15 bps.
The new 3.15% APY is disappointing after seeing 3.50% APY in December and early January. Many had been hoping for 4% in December which would have been a nice replacement for the 3.04% APY 5-year MMCs that were offered in late 2013 and early 2014. If you waited too long, you’ll have to settle for only a slight upgrade to the 3.04% if you want to stay with PenFed.
Any MMC can be opened with a minimum $1k deposit, and there are no stated balance caps. All of the above terms, with the exception of the 6-, 15- and 18-months, are available as IRAs (Traditional, Roth, and CESA) but with APYs 10 bps lower.
PenFed’s Early Withdrawal Penalty (EWP) changed in 2016 and any MMCs that are renewed from now on are subject to the following:
Certificates Having a Term Greater Than Six Months.
a) If redeemed within the first year, all dividends will be forfeited.
b) If redeemed thereafter, but prior to the maturity date, the early withdrawal penalty will equal 30% of what would have been earned if the certificate had been held to maturity, not to exceed total dividends earned.
As you can see, the EWP is harsh. For the 12-month term, no matter when a withdrawal occurs, it is loss of all earned interest.
On the other hand, PenFed continues to allow penalty-free partial withdrawals of IRA CDs for members over the age of 59 1/2. The following is an excerpt from the IRA CD disclosure:
Partial withdrawals for members over the age 59 1/2 (including Required Minimum Distributions) and qualified distributions regardless of age (including Disability) may be processed from IRA certificates without incurring an early redemption penalty.
This may be one reason PenFed now keeps its IRA CD rates 10 bps lower than its standard CDs.
Thanks to DA reader, HighYield, for his Forum post about PenFed’s February rate cuts.
Availability
Headquartered just outside the Beltway in McLean, Virginia, PenFed Credit Union offers membership to almost every U.S. resident. PenFed’s online application lists the various ways in which individuals can qualify for membership.
If you meet any of the following requirements, you are eligible to join PenFed:
1. I am active/retired United States Military & Uniformed Services.
2. I am an employee of a qualifying organization.
3. I belong to the following association or organization.
4. I am an employee of the United State government.
5. I am a relative or housemate of someone who is eligible.
6. I live or work at an eligible location.
7. Other
Selecting Option #7, "Other," provides information about joining PenFed through membership in either Voices for America’s Troops ($17, one-time only dues) or the National Military Family Association ($17, one-time only dues). Joining either of these associations and PenFed can be done simultaneously using PenFed’s online application.
Need another way to join? No problem!
Members of the National Military Family Association and Voices for America's
Troops are among those eligible for PenFed membership. We've made it easy for
you to join one of these associations, which makes you eligible to join PenFed.
Joining PenFed and/or opening a Money Market Certificate can also be done in person at any of the 47 full-service branches located in California, the District of Columbia (5), Florida, Georgia (6), Hawaii (3), Kentucky, Maryland (3), North Carolina, Nebraska, New Mexico (2), New York (1), Pennsylvania (4), Tennessee, Texas (8), and Virginia (9).
Credit Union Overview
PenFed Credit Union has an overall health grade of "A" at DepositAccounts.com, with a Texas Ratio of 5.35% (excellent), based on September 30, 2018 data. In the past year, PenFed has increased its total deposits by $703 million, an excellent annual growth rate of 3.98%. Please refer to our financial overview of PenFed Credit Union (NCUA Charter # 227) for more details.
Established in 1935, PenFed Credit Union is the third largest credit union in the nation, with more than 1,685,000 members and assets in excess of $24 billion.
How the Money Market Certificate Compares
When compared to 193 similar length-of-term CDs tracked by DepositAccounts.com that are nationally available and require a similar minimum deposit, PenFed Credit Union's 5-year Money Market Certificate APY currently ranks far below the top.
| Interest Rate | CD Length of Term | Credit Union/Bank |
|---|---|---|
| 3.53% APY | 60 Month Smart Share Certificate ($60k min) | United States Senate FCU |
| 3.50% APY | 60 Month Share Certificate ($5k min) | Connexus Credit Union |
| 3.15% APY | 5-Year Money Market Certificate ($1k min) | PenFed Credit Union |
The above rates are accurate as of 2/1/2019.
To searching for the best CD rates, both nationwide and in your state? Please refer to CD Rates Table page.
$100K
They do raise and lower their rates regardless of economy depending how much money they do need...
Why do you refer to PenFed as "they" and "their"? It's we the members that own it, and whose needs it exists to serve, not the "bottom line". The previous (long serving) CEO James Flynn understood that, and when the CU thrived he passed along the bounty in the form of industry leading deposit rates, unconcerned that they often substantially exceeded what other FI's were offering. Are you aware CU's aren't profit-oriented entities? Of course they need to maintain financial viability, - cover expenses, fund capital needs, build reserves, - but their mission is not maximal returns for outside investors, but maximal returns for its owners, us, - and the way you accomplish that after operational efficiencies, is through deposit and loan rates, as high or low as the CU's performance allows. The new CEO has a different mindset from Flynn (it was Flynn who was behind both the 10 year 5% CD of eight or so years ago, and the 3% 5&7 year offer in 2013), a "corporate" one rather than member-oriented. PenFed's not the same entity it once was, and a return to the former CEO's philosophy very unlikely.
They can always change their IRA withdrawal policys.
I have 2 IRAs with Vanguard. Most of my retirement savings in 401ks that we contribute too and ate matched. One of my wife's employers matched $1.25 for each dollar she put alway with a percent limitation but that was nice.
anon
anon
We earned it, why not spend it. I have no desire to die rich nor leave a nursing home get it all.
anon
Just what do you think this site"Depositaccounts.com" is all about?
Naturally it's rightfully focused on CDs.
I've had excellent customer service at NASA. No problems whatsoever.
All FIs must do what is in their best interest and I have a feeling penfed has regretted some of their past CDs with high rates so they don't want to make the same mistake.
PenFed's 5-yr rate is determined by their need for money and economic forces. They're just following the crowd as long-term rates decline.
You're going to have to be more specific or there's no point in posting.
The WSJ article is behind a paywall, but articles about an August 1st article titled “No Speed Limit” reveal PenFed CEO’s goal to increase assets to $75 billion by 2025. As part of the plan PenFed acquired 13 smaller CU’s in a 20-month span between 2015-2017 before receiving a regulatory warning about new deals.
Also, PF acquired troubled taxi medallion lender Progressive CU in an emergency merger on January 1st this year. At the end of 2018 Progressive had $325.6 million in assets and $270.5 million in commercial loans not secured by real estate. The merger permits PF to serve anyone in the country because Progressive had an open charter granted by the state of New York.
Pen Fed is opening a Financial Center in San Antonio.
As a PenFed member I'm fully aware of these developments. As you correctly reported PenFed's expansion triggered "warnings" from regulators. Why? Because credit unions are supposed to be non-profit and limited in nature.
Every person on this board clamoring for "easier" credit union enrollment requirements is simply encouraging a basic violation of credit union principles. PenFed is simply taking advantage of the current lax climate and on their way to becoming the perfect example why credit unions should be regulated back to their original mandate or converted to for profit banks.
I expect this post to be removed...:)
It's not and that's exactly why the head honchos warned. Banks don't like CU's and when CU's start acting like banks it's just a matter of time before they're forced to become banks. The head honchos don't want that and that means they don't want the publicity.
Money is money so I don't care one way or another. A low income friend is retired and earning a fairly good rate on CD's from the local CU so I'm a supporter of CU's.
Penfed cutting is the least surprising thing that could have happened,