CD Investing: Do I Really Need Another Credit Union?
There have been some pretty attractive credit union deals of late, including some offered by “easy membership requirement” (aka/“all-access”) credit unions on a nationwide basis. I have a problem with many of these deals, however: it’s that I don’t already belong to the credit unions involved, and have placed a moratorium on joining any more.
Where I Am Today—and How I Got There
Currently, I’m a member of 17 NCUA-insured credit unions. Approximately 47% of the value of my non-IRA portfolio is represented by CD accounts at those institutions. All but three (RAFE FCU, CFCU Community CU and Firstmark CU) qualify as “easy membership requirement” credit unions on this site.
I began opening credit union accounts in 2011 when I joined Alliant CU and Melrose CU, attracted by the favorable CD rates each was posting at the time. Once I’d tested the waters, I plunged right in, joining any credit union that offered an attractive CD rate and that would have me as a member.
Most of the deals involved promotional rates, invariably advertised as being available for “a limited time only.” Here are some of the all-access credit unions I’ve joined in the last few years, and the rate promotion I was chasing at the time:
Year | Institution | Promotion |
---|---|---|
2013 | USAlliance Financial FCU | 2.00% APY 2-Year CD (“Two For Two Special”) |
2014 | XCEL FCU | 2.00% APY 2-Year CD (“Summer Special”) |
2014 | Capital Educators FCU | 2.12% APY 3-Year and 4-Year CDs (“Black Friday and Cyber Monday Specials”) |
2015 | Elements Financial FCU | 2.00% APY 32-Month CD (“Shamrock Special”) |
2016 | Transportation FCU | 2.50% APY 36-Month CD |
Why I’ve Placed a Moratorium on Joining New Credit Unions
Of course, “easy membership requirement” means you can join the credit union by associating yourself with an organization (such as the American Consumer Council) that pretty much accepts anyone and everyone. “Easy” does not necessarily describe the process of applying for membership in the credit union and opening a CD. As any reader who has ever tried to take advantage of a credit union CD promotion knows, that can be frustrating.
Unlike opening a bank CD, opening a CD at a credit union at which you aren’t already a member involves a two- or three-step process. (I’m ignoring IRA CDs here, which obviously add further complications.)
First, you have to apply and be accepted for membership in the credit union. This may require a prior step of joining or donating money to the organization that will qualify you for the credit union’s “field of membership.” After that, you have to apply for and fund your CD.
Although some all-access credit unions feature a relatively seamless process for completing these steps through a single online application (PenFed CU and Elements Financial FCU come to mind), not all offer a simple one-stop-shopping approach. Transportation FCU, for example, requires submission of a separate written membership application via US mail. Others can make you wait an agonizingly long time while they check out your bona fides and sometimes your credit profile (via a “hard” credit pull). And, even after you’re accepted for membership, the credit union may not provide an easy way to fund your new CD, such as an ACH transfer, initiated by the credit union, from an external funding account. This may require your arranging your own ACH or wire transfer to, or check deposit with, the credit union, and that the funds arrive (and sometimes be “good”) in your member savings or checking account for you to open the CD. Because of the potential hurdles and delays the process often entails, a lot of things can go wrong—and precious time can be squandered—simply getting up and running. Here are examples from my own experience:
- After doing a “soft” credit pull showing numerous customer-initiated inquiries, the credit union rejects you for membership because you are an undesirable rate-chaser rather than a true-blue consumer of credit union services (First Technology FCU did this to me).
- After performing a “hard” credit pull showing a slight variation in your street address among the credit reporting agencies, the credit union puts your online membership application on hold because you haven’t satisfactorily established your true identity, and requests additional documentation that you are who you say you are (my experience with San Diego County CU).
- You are accepted for membership, but your funding doesn’t become available until after the CD promotion is unexpectedly and abruptly terminated (it happened to me at Kinecta FCU).
Although I can’t prove it, I suspect that problems experienced with credit unions often reflect their traditional “brick-and-mortar” culture. Even though they offer accounts nationwide, their institutional approach to issues is more informed by branch banking than online ways of thinking. An example, which takes multiple forms, is inadequate Truth in Savings Act disclosures—sometimes difficult to find on the website, sometimes out-of-date, sometimes not reflective of promotional features like rate bumps, sometimes even non-existent.
Further, problems can be exacerbated if you are dealing with member services reps and supervisors not terribly familiar with CDs (which is too often the case), no matter how pleasant they are or how helpful they try to be.
One need only look at the comments posted by readers on CD promotions by Transportation FCU in 2016 and 2017 to see the hurdles that can be involved if you’re not already a credit union member and there’s a short, uncertain time fuse.
The potential for hassle is why I’ve called a moratorium, of unspecified duration, on joining any more credit unions. I need to pause—and take a deep breath.
But I’m Keeping the Credit Unions I Have
Having said all that, I’m quite happy with the credit unions I currently have, and have no intention of relinquishing my membership in any of them. In fact, I’ve become something of a hoarder of these institutions. I keep them even after my last CD has long since matured.
The reasons are simple. Maintaining my membership in a credit union makes it vastly easier for me to buy into future rate deals, if and when offered. By keeping an “active” $5 or $25 savings or checking account required for membership (being “active” may necessitate making small deposits and withdrawals from time to time), I avoid the problems of reapplying for membership and have in place a convenient vehicle I can use to quickly fund a new CD during a “limited time” promotion.
This proved enormously helpful when XCEL FCU came out with a 2.50% APY 5-year CD promotion late last year, which was open for only a short period. Once I learned of the deal, I simply sent the funds by ACH transfer from my Ally Bank checking account to my XCEL savings account, and opened the CD over the phone the next business day.
Another reason to stay with a credit union, even without an existing CD account, is that the credit union may cease to qualify for “all-access” status in the future. Having the membership and the required savings or checking account should “grandfather” you if the credit union limits membership eligibility going forward. For example, I have grandfathered status with Firstmark CU, which was an easy membership requirement credit union when I joined but no longer is. I still can open CDs even though I don’t currently qualify for membership.
Right now, I’m a member of four credit unions at which I have a basic savings account but no CD account. In early May, that number will increase to five, with the maturing of my last CD at Melrose CU.
Based on my past experience, I’m confident that all of my credit unions—even those at which I don’t presently have a CD account—will eventually offer me a competitive or promotional CD rate deal. That includes Melrose, which is now in conservatorship, or perhaps a successor credit union.
Anyway, Melrose only requires me to keep $25 on deposit to keep my membership. With little to lose, why not stick around and see how the conservatorship works out?
Editor's Note: This was a guest post contributed by Charles Rechlin, a long-time reader and friend of the site. His last guest post covered Revisiting Brokered CDs. I would like to thank Charles for sharing more of his valuable experience on personal CD investing.
This has happened before, and more than once, with this credit union. In 2015, for example, I opened a 2.01% APY 25-month special CD that I learned about from an email I received from the credit union that offered it to me as an existing member. That was before USAlliance got around to changing its website to make it for “new members only.” After an exchange of emails with me, they let my CD stand, though, because they had made me a prior written offer.
Despite it being the most frustrating credit union I’ve ever opened a CD at because of the regular promotion glitches, I still like USAlliance. It does attractive rate specials, and the member service reps do their best to be helpful (while not always internally updated on the shifting terms of CD deals!). I don’t mind the strange “call” feature or the hefty EWP when the CD has a term of 3 years or less. Probably reflecting the brick-and-mortar culture, however, USAlliance still hasn’t learned how to do an online CD promotion efficiently.
Joining them are challenging and time consuming but well worth it in the end :)
forget them...
2 far away and 2 local.
I don't want more banks or credit unions. I want to minimize the number of tax forms I have to deal with every year.
I could probably do without both local credit unions now that their deals aren't as good as they used to be.
The 2.2% 36 month sure sounds enticing but I will just stick with Penfeds 15 month at 1.46%.
Maybe if I close one or both of the local ones, I might try another far away one.
I will probably keep one of them just because I need a local one in case I need to get my hands on a large sum quickly. Like the Prince who emails me.
LOL
Having shuffled my IRA and after-tax CD accounts among numerous banks and credit unions over the past decade or so, I decided to give it a rest.
Bob McKenna
Simply stated, I don't want to write about institution other than banks, credit unions and brokers with which I have a relationship as a customer or member. I also don't want to write about anything other than CDs and other obligations backed by the US Government. There are multiple reasons for limiting what I write about, an explanation of which would put most readers to sleep,
Anyway, within those limitations, I'm open to suggestions.
You would not need to erect a "wall of shame" in the articles; just point out the various problems you (and others here at DA) have encountered, and how they might be remedied. You could (and probably should) leave the names of any particular financial institution anonymous. Just say "in one experience with XYZ credit union", and so forth.
Without going into details (which I don't want to do in a public forum), let's just say that (a) I want to be comfortable with what I'm writing about (because I have personal knowledge of the subject matter) and (b) I don't want to be seen as providing financial, legal or other professional advice to others (like some CNBC talking head), only relating my own experiences. I also want to encourage readers to share their own experiences by reacting to what I write, because I find that information to be helpful in my own investing. I think the sharing of information is one of the important functions of DA.com, giving it a unique value.
to keep 5.00 min in savings. Needed at least one transaction a year, forgot and was charged a 5.00 penalty but was reinstated when I deposited 1.00 at the share branch
A: I blame my ineluctable affinity for money.
Now as to your point, I am heading in the opposite direction based on sheer gut instinct. A majority of my own resources until these last months was FAR too concentrated in just a few financial institutions. I am in midst of effort to spread those same resources out far and wide. So far so good; the effort is going well.
As for the gut instinct, at least part of it stems from a desire to enhance personal safety given it is 2017. I have lowered my profile and feel a whole lot better having done so.
2. As for "concentration" of investments, I won't quarrel with you. But, at the end of the day, I view all my CD investments as being concentrated in a single obligor--the US Government. I know that over-simplifies matters, but it's the way I analyze credit.
As you would anticipate I use a PO Box address. But thanks to the insufferable Patriot Act the financial institutions also have my physical (home) address. The terrorists won.
Now TMI on steroids:
Up until about five years ago I enjoyed the safety and security of an official, legitimate, USPS-approved home address which could NOT be used by a criminal to locate my home in person or on the net. And even today I live in a location so remote Google street view has never visited, never snapped a photo of my home to publish on the net for the convenience of anyone wishing to do harm here.
Then about five years ago our local authorities decreed we would be "readdressed" using conventional, modern, number and street addresses. This was tantamount to painting a bullseye to assist anyone with criminal intent.
Last time I encountered trouble with bank employees, it was not an actual bank employee who targeted me. It was instead an employee of a trusted bank service provider, a vendor to the bank, who stole my information from the bank's records to which he had access. I received a telephone call, a warning call, from the police and a letter of explanation and apology from the bank president. Luckily that perp and his team were arrested quickly, before any harm came to me. But what had attracted his attention to my account was a high balance. In life you only receive so many cautions of that nature without actually being harmed. The takeaway for me is this:
Blend in. Do not stick out like a sore thumb.
Obviously one way to blend in is to spread resources out among a larger number of financial institutions, rather than concentrating everything in only a much smaller number. There is in addition this aside, a subordinate point:
Resource spreading also minimizes need for POD/TOD/ITF accounts to obtain extra FDIC/NCUA insurance. While I have used the POD thing many times over the years, I was never entirely comfortable with that approach and I'm happier being able to avoid it.
way to go. The POD can minimize the complexity of your will.
I know from personal experience as executor of two estates. Designating PODs on all of our saving, and CD accounts where we can is now an integral part of our estate planning.
Online banks seem to outcompete many credit unions who spend big on things that are not needed like expensive lots & buildings and donating to anything & everything sports related.
I wish they would appoint me chief tightwad at a local credit union and pay me for performance only.
I could live like a king on 2% of what I could save one local credit union. Even assuming a good chunk of their spending has value. I don't even want a salary. Pay me on savings only.
In defense of banks, their back office personnel is on the whole, more experienced and
proficient than credit union support personnel. That said, I still prefer credit unions, better
rates and less fees, and I'm a retired banker.
Only accept people with scores above 700. Unless you want to be a provisional member in which case you are a deposit only member. Until such time as your score improves.
That would at least keep away weaker credit risks. And, its less arbitrary than residency requirements.
No advertising, no donations, no expensive land or buildings.
An 800# to report wasteful spending and a board that gives a flying flip.