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Change in Policy on Pentagon FCU's IRA Certificates


Pentagon FCU (Penfed) has just sent out notices that it is changing its policy regarding early withdrawal penalties on IRA certificates. Penfed had a very nice IRA feature which allowed members over 59 1/2 to withdraw IRA certificate funds prior to maturity without any early withdrawal penalty. These penalty free withdrawals will no longer be allowed as of 9/01/2007. Penfed is tentatively planning to allow members to redeem each of their IRA certificates established before 9/01/2007 one time with no penalty.

I'm sure this feature came in handy in January when Penfed offered 6.25% APY on its certificates. Qualifying members were able to just call and have Penfed transfer the funds of an older lower-rate IRA certificate into this new high rate IRA certificate.

Perhaps Penfed received many more deposits into these 6.25% APY certificates in January than they had anticipated. With the easy membership and easy online account opening along with the worry of falling rates in January, these 6.25% certificates were likely very popular. In the past they had continued the high rate certificates for a few months into the new year, and in 2006, Penfed had brought back a 6% certificate for one month in late spring. After the 6.25% APY in January, only the 7-year certificate had a 6% APY, and this didn't last long. Now all of these long-term certificate yields are only at 5%.

Based on the financial data at NCUA, Penfed increased its total deposits in the first quarter of 2007 from $8.26 billion to $9.21 billion (a 11.5% increase). As a comparison, the increase in Q1 of 2006 was 8.33%.

For more information on Penfed and how to join, please see my Penfed post.

Thanks to the readers who mentioned this update by email and in the comments.
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Anonymous   |     |   Comment #1
It seems illegal to sell a certificate and then change the agreement under which it was sold.

If you also want to complain, PenFed's Contact Us includes what sounds like an ombudsman, the Supervisory Committee Message Center at https://www.penfed.org/loanapps/supcomm/index.asp and also Board of Directors Chairman, Jim Quinn at PFCUBDChairman@penfed.org.

The “old” rule is still mentioned prominently (as of 6/15/07) in the IRA section of the website, in the IRA application dated June 2007 and in the Certificate account application at http://www.penfed.org/pdf/accountsforms/688.pdf. I will wait to complain until I receive the notice in the mail or email.
Anonymous   |     |   Comment #2
I wondered how long that clause would stay. If CD rates go up, that would kill them.

All Truth in Savings statements have a "can be changed at any time" clause.

If they let people back out of the CDs without penalty before some specific date, that is fair.
Anonymous   |     |   Comment #3
The matter is not as bleak as described so far, thank goodness. The June 2007 Newsletter (accessible online at the Statement Center after logon) says:
"Pentagon Federal will grandfather existing IRA certificates until maturity. Members may redeem each grandfathered IRA certificate one time without penalty."
"Current IRA certificate holders will receive additional information with their July 2007 statement."