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Penfed Surprise: 6.00% 3 to 5 Year CDs


With so many banks and credit unions dropping their long term CD rates, it was a nice surprise this morning to see Pentagon Federal Credit Union come out with new 6.00% APY CDs on terms of 3, 4 and 5 years. Penfed has a history of offering very high yield long-term certificates, but usually these are offered around the start of the year. Penfed had been offering long-term CDs for much of the first half of this year ending in May.

The new yields for all CD terms are listed below including the old ones. The new rates are effective from today through September 27, 2006.

CD Term Old APY New APY
6-month 4.02% 4.02%
1-year 4.32% 4.32%
2-year 4.77% 4.77%
3-year 5.31% 6.00%
4-year 5.32% 6.00%
5-year 5.32% 6.00%
7-year 5.32% 5.32%

These Penfed CDs are officially called Money Market Certificates. IRA certificates and Coverdell Education Savings Certificates at these same rates are also available. The regular and IRA CDs have a $1K minimum deposit requirement. The Coverdell ESA certificates require only $500.

The early withdrawal penalty for terms over 6 months equals 180 days of interest. If closed before 180 days of issue date, all interest is forfeited. However, the penalty doesn't reduce the principal.

One little quirk of these CDs is that there is no grace period. Most banks or credit unions automatically renew your CD at maturity. You then have a 6 to 20 day grace period in which you can decide to close the CD and request a check or transfer the money to another account. If you don't make this request, the CD will automatically renew for the same term as the previous CD at the current rate.

With Penfed, you decide at the time that you apply for the CD whether you want it to automatically renew. If you decide for the automatic renewal option, you don't have a choice. If you decide for the non-renewable option, you can request that they send you a check or transfer the money into your Penfed savings or checking account. This last option seems to be the best especially since you don't want to be locked into a Penfed CD during their low rate period. However, with the automatic renewal option, closing the CD that just renewed wouldn't result in much interest penalty. You would just lose interest for those days since it matured.

The CD application can be done by mail, by phone or online. I've read that there is a $10K maximum for electronic funding of your CD in the online application. However, the CSR whom I spoke with said they can extend this if you call.

Applying for Penfed Membership

Penfed is one of the few credit unions that anyone in the nation can join. All that is required to be eligible is joining the National Military Family Association which has a one-time membership fee of $20.

In addition to the $20 to join the NMFA, a minimum $5 deposit is required to the regular share savings account. The membership application can all be done online. The only downside of the Penfed membership application is that they do a hard credit pull.

Another nice thing about Penfed is that you know it's a credit union that you can trust. Not only is it NCUA insured, but it's also the third largest credit union in the nation. It currently has over $8.7 billion in assets and over 686,000 members. Bankrate.com gives Penfed 4 out of 5 stars (sound) for financial strength.

Thanks to the reader who mentioned these new Penfed CDs in the finding deals post.
Banking Guy
Banking Guy   |     |   Comment #1
For information an Penfed's online application process and purchasing Penfed CDs online, refer to this post.
Anonymous   |     |   Comment #2
all 3-5 year CD rate drop on 9/28
Anonymous   |     |   Comment #3
YOU almost gave me a heart attack. I looked at my long term cds at Pentagon and most of them say roll over at maturity. I phoned them and asked if I am bound to that and they said no. In fact they changed the option to deposit into checking account at maturity right away while I was still on the phone.