The best CD deal that’s nationally available continues to be the 3-year and 4-year CDs and IRA CDs at PenFed. Both have a 2.02% APY as of 11/14/2013. I first reported on this news when these first came on November 1st. Thanks to readers who have shared their experiences opening these CDs in the comments in my November 1st PenFed CD post. For those not familiar with PenFed, I have details about how to join PenFed in that post.
PenFed’s CD rates typically last at least through the month. However, they don’t guarantee it. To review the details of these CDs, please refer to PenFed’s Money Market Certificates page. PenFed calls their CDs "Money Market Certificates", but they are essentially certificates of deposit (CD) with fixed rates for specific terms.
One thing I wanted to highlight about PenFed’s 3-year and 4-year CDs is the early withdrawal penalty. It’s only up to 180 days of interest. That’s less than half the EWP of both the 5-year and 7-year CD. You can see the impact of this if you close the CD early in our CD Early Withdrawal Penalty Calculator. I populated the calculator with the 3-, 4-, 5- and 7-year CDs.
There is currently one minor issue to note about our CD Early Withdrawal Penalty calculator and PenFed’s CDs. The effective APYs on PenFed’s CDs that are closed early can never be negative. A negative APY on a CD closed early implies that the penalty eats into the principal of the CD (the initial deposit amount). In summary, you come out with less money that you put in. However, you don’t have to worry about that with PenFed’s CDs. Below is an excerpt of PenFed’s disclosure as of 11/14/2013:
Certificates having a term greater than 6 months up to and including 4 years
If redeemed within 180 days of the issue date or any renewal date, all dividends will be forfeited
If redeemed thereafter, but before the maturity date, dividends for the most recent 180 days will be forfeited.
Certificates with a term of 5 years or greater;
(applies only to certificates issued or rolled over on 3/15/11 or later)
If redeemed within 365 days of the issue date or any renewal date, all dividends will be forfeited.
If redeemed thereafter, but before the maturity date, dividends for the most recent 365 days will be forfeited.
As you can see, the penalty can never exceed the interest that the CD earned. For example, if you close a 3-year CD after 2 months, you’ll lose all interest (2 months of interest). You won’t lose 6 months of interest (which would eat into the principal).
As we have discussed many times with CDs, there’s always the risk that financial institutions will not allow an early withdrawal or will increase an early withdrawal penalty on existing CDs. However, as you can see in the above excerpt, PenFed did the honorable thing when it raised the early withdrawal penalty on the 5-year CD. The larger penalty only applied to CDs issued or rolled over on 3/15/11 or later. This was after the larger penalty was announced. Thus, it didn’t affect existing CDs. I can’t say if this will always be repeated in the future, but it’s nice to see PenFed has a history of treating savers with respect.