Those 3% rumors turned out to be true. PenFed is now officially offering a 5-year and a 7-year CD with a 3.04% APY. The rates are listed at PenFed’s certificates overview page as of 12/01/2013. Thanks to the readers who reported on these early. There’s also good news for those who prefer shorter terms. PenFed’s 4-year CD rate increased to 2.22% APY, and the 2-year CD rate increased to 1.41% APY. PenFed’s 3-year CD still has a very competitive 2.02% APY. Below is a summary of the new December rates and how they changed from November. Also, I’ve included the early withdrawal penalty for each term:
- 3.04% APY 5-yr and 7-yr (was 2.02%) EWP: up to 365 days
- 2.22% APY 4-yr (was 2.02%) EWP: up to 180 days
- 2.02% APY 3-yr (no change) EWP: up to 180 days
- 1.41% APY 2-yr (was 1.26%) EWP: up to 180 days
- 0.75% APY 1-yr (no change) EWP: up to 180 days
PenFed calls their CDs "Money Market Certificates", but they are essentially certificates of deposit (CD) with fixed rates for specific terms.
Minimum deposit is $1,000. The rates are also available in an IRA and a Coverdell Education Savings Account. The early withdrawal penalty is up to 180 days of interest for terms from 1 year to 4 years. The penalty is up to 365 days of interest for terms of 5 and 7 years. The penalty doesn’t eat into the principal. For example, if you withdraw principal before 1 year on a 5-year CD, you’ll lose all interest but none of the principal. This feature should come in handy for those who had opened a 2.02% PenFed CD last month and would prefer a 3.04% CD. You should be able to close those CDs without losing any principal. You’ll just lose all interest.
Even though PenFed typically maintains CD rates through the month, they no longer guarantee it. Since this 5-year CD rate is so much higher than the competition, I wouldn’t assume this rate will last for the whole month.
For more details about PenFed CDs, please refer to my PenFed CD review.
PenFed makes it easy for anyone to join and open accounts online. If you don't qualify based on military, employer or family, you can become eligible by joining the National Military Family Association (one-time $20 fee) or by joining the Voices for America's Troops (one-time $15 fee). Joining one of these organizations and joining PenFed can be done at the same time all online. Our PenFed overview section has more details on PenFed’s membership qualifications.
To join PenFed, click on the "Join PenFed" link at the top of any PenFed page. This will take you to the start of the online application. That first page asks about eligibility. If you don't qualify via any of the listed options, click "None of the above". A popup informs users that "We can establish your membership eligibility through either National Military Family Association or Voices for America's Troops." When you close the popup, you are then asked to select one of these two organizations.
Accounts can be opened online, but for those who prefer opening accounts in an office, PenFed has branches in several parts of the country including Washington DC, Maryland, Virginia, New York, North Carolina, Hawaii, Puerto Rico and Texas.
Credit Union Overview
PenFed is the third largest credit union in the nation. It has $12.5 billion in deposits. PenFed has an overall health grade at DepositAccounts.com of A+ with a Texas Ratio of 3.17% (excellent) based on June 2013 data. Please refer to our financial overview of PenFed for more details. It's federally insured by the NCUA (Charter # 227).
Which CD Term Is Best?
I’m very happy with this new 5-year CD rate. I didn’t think we would see 3% 5-year CDs so soon. However, this does bring up several issues to consider for savers. Will we see higher CD rates in the next couple of years? Or will the U.S. be like Japan with low rates that never seem to end? If you think the U.S. is going to be like Japan, you may actually want to take advantage of the 7-year CDs. If you think it’s very likely we’ll see much higher rates in a couple of years, you may want to stick with PenFed’s 3-year CD.
What if you choose this PenFed 7-year CD and rates do shoot up in the next few years? You should be able to close the CD early with the early withdrawal penalty of 365 days of interest. As we discussed many times, there’s not a 100% guarantee of this option. However, PenFed has a history of being honorable with its early withdrawal penalty. When it increased the EWP on its 5-year CD, the larger EWP did not affect existing CDs. It only affected new CDs and CDs that had been renewed.
If you close the 7-year CD early after 2 or more years, you’ll actually earn more interest than if you had chosen shorter-term CDs from most other banks and credit unions. The 7-year or 5-year CD that’s closed at 3 years actually has a higher effective yield than PenFed’s 3-year CD that’s held to maturity. So if you trust PenFed’s early withdrawal policies and penalties, there’s no reason to choose the 3-year CD instead of the 5- or 7-year CD.
You can see the effective yields of PenFed’s 7-year CD when closed early in our CD early withdrawal penalty calculator. Please only consider the yields at one year or later. Our calculator currently does not calculate the proper effective yields for PenFed’s CDs closed before 1 year. The effective yields will actually be zero for these cases instead of negative.
The most difficult question may be whether to choose the 5-year CD or the 7-year CD. PenFed’s 5-year CD held to maturity has a much higher effective yield than the 7-year CD closed early at 5 years. One would think we will surely see much higher rates 5 years from now, but as we learned over the last 5 years, rates can stay low for a very long time. So you may not want to completely ignore the 7-year CDs. Instead of putting everything into 5-year CDs, you may want to consider putting some of your money into 7-year CDs.
Searching for the Best CD Rates
To search for the best nationwide rates and the best rates in your state, please refer to the following tables at DepositAccounts.com: