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CD Investing: Do I Really Need Another Credit Union?


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:

YearInstitutionPromotion
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.

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.

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.

Maintaining my membership in a credit union makes it vastly easier for me to buy into future rate deals, if and when offered.

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.

Comments
ChasR
ChasR   |     |   Comment #1
I suggest readers look at Ken’s 4/26/17 Blog post (including the Comments) about the current 2.2% 36-month special CD being offered by USAlliance Financial FCU. As you can see from both the post updates and comments, the roll-out process has been a mess.
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.
A. JESUIT
A. JESUIT   |     |   Comment #2
i always thought that credit unions were modest affairs that catered to a narrow demographic of small collateral folks looking for an understanding firm by charter to get a loan on a car or a modest house. by design, cu's are not return havens for depositors of serious money looking for a better alternative and not needing a loan. in one corn belt state its' 2 largest credit unions are putting gorgeous brick and mortar everywhere and the returns for depositors are pathetic. CU'S ARE OUT OF CONTROL. if i have to agonize and strain my brain over catches, quirks and fine print.......i'll invest in VATICAN STAMPS.
jennifer
jennifer   |     |   Comment #3
I simply adore credit unions.

Joining them are challenging and time consuming but well worth it in the end :)
mark
mark   |     |   Comment #21
I can't get them on the phone. (on hold).
forget them...
deplorable 1
deplorable 1   |     |   Comment #4
I have a couple of credit unions that I only opened for CD rate specials. I find them much more strange to deal with then banks with very odd rules and requirements. Here is a example I opened a 2.5% 5 year CD at Vibe CU 2 years ago. They only post the interest quarterly yet I must login every 60 days or face a membership re-qualification fee. It's not like they don't know I have a CD with them. NFCU has some odd rules about ACH transactions on certain accounts so you have to open up another account just to get your CD money back out. It seems that every credit union has some strange quirky rule or fee. Many require some pretty large hoops for membership which I consider far from easy. I'm not going to join a bunch of organizations with annual membership fees just to get a CD deal as the hassle just isn't worth it.
Ann
Ann   |     |   Comment #43
I'm fine with scheduling transfers to maintain financial activity, but requiring login activity to avoid fees is terrible!
RichL40T
RichL40T   |     |   Comment #5
I generally agree, but with respect to Melrose, I was charged an inactivity fee of $5.00 for the savings account. Apparently a $25. account needs activity every 18 months. I have an existing longer term CD as well, which matures in a few months. Yes, it's no money to speak of, but it's annoying and life is too short to have to deal with stupidity. I'll be taxiing out of there upon the CD's maturity.
ChasR
ChasR   |     |   Comment #6
What I'm doing with each of my "orphan" savings accounts is make a small deposit every six months. I withdraw the deposit the month after I make the deposit. All done through ACH.
Ann
Ann   |     |   Comment #42
Yes, I agree. I have recurring $1 transfers set up indefinitely from my main bank account to all other accounts. It sends the dollars out every June, and pulls them back every December.
RJM
RJM   |     |   Comment #7
I'm a member of 4.
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
Bozo
Bozo   |     |   Comment #8
Charles, I have attempted (insofar as possible) to reduce my CD depository financial institutions in recent years. Within the next five years, I should be able to count them on the fingers of one hand: StateFarmBank, Alliant, Patelco, PenFed, and a draft pick to be named later (to replace KeyDirect).

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.
davidlee
davidlee   |     |   Comment #55
amen bozo, I now get 5 1099's and I do not want more. use to get 12. I'm older and like it simple
Knowitall
Knowitall   |     |   Comment #9
Better do a six month review of dormancy and inactivity for every account in every credit union!
planxy
planxy   |     |   Comment #10
ALEXANDRIA, Va. (Feb. 10, 2017) – The New York State Department of Financial Services today took possession of Melrose Credit Union, located in Briarwood, New York, and appointed the National Credit Union Administration as conservator.
bob
bob   |     |   Comment #11
I always enjoy reading articles by Charles. Well thought out, enlightening, and obviously someone who takes the time to dig into the small print of what these institutions are trying to accomplish. Good to hear from you again, Charles.
Bob McKenna
ChasR
ChasR   |     |   Comment #15
Thanks for the compliment. Ken and I originally came up with a list of 13 pieces for me to write. This is the 13th. Right now, my brain has been drained on the subject of CDs, but I hope it replenishes itself and I can in the future do some more pieces that are helpful to readers.
Bozo
Bozo   |     |   Comment #28
Charles, have you considered writing pieces aimed more at financial institutions? Your recent travails with USAlliance point out the need. My issues with custodian-to-custodian transfers as well. My goodness, for a prolific writer, you're just getting started. As we used to say in the Navy, it's a "target-rich" environment.
Nothing
Nothing   |     |   Comment #29
Ditto! Excellent ...Schedule C type of "work"...and you too, Bozo!
ChasR
ChasR   |     |   Comment #30
Thanks. I appreciate the thought.
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.
Bozo
Bozo   |     |   Comment #32
Charles, here's a suggestion. The CUNA (www.cuna.org) has a webpage. The webpage has a tab for suggestions for marketing and education. What the webpage and the tab lack is customer feedback articles. Article Number One (authored by you) might be entitled "Why is it so Complicated?". Article Number Two might be entitled "Why are CSRs so Clueless?". I think you get the drift.

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.
ChasR
ChasR   |     |   Comment #37
Thanks for the suggestion. I'll look into that, and other ideas as well.
LuvCD
LuvCD   |     |   Comment #47
ChasR...talking about some of the financial tools one (can) use to minimize financial loss or maximum gain. One thought is available where you are and in several other states from the Great Depression, i.e. Anti-Deficiency legislation for loans used to purchase homes, the risk in refinancing same, risks (are there any?) in walking on same, why lenders "fail" to adequately appraise home (and thus are at risk...with taxpayers when things go south), why income stated first loans are (or are not) similar to home loans in those states, etc. You get the theme. Good Luck. PS I bet Bozo would love to write some too!
ChasR
ChasR   |     |   Comment #49
Thanks, but that's really beyond my zone of comfort. I paid off my last mortgage in 1990 (in Montana, on a property I didn't live on), and haven't borrowed money since then. Also, I think you're probably correct about Bozo. Maybe he should give it a shot.
Ann
Ann   |     |   Comment #44
If you don't mind explaining, I'm sure I'm not the only one curious.
Ann
Ann   |     |   Comment #46
Didn't realize this reply would show up with no indication of what I was replying to... it was regarding ChasR's "There are multiple reasons for limiting what I write about, an explanation of which would put most readers to sleep".
ChasR
ChasR   |     |   Comment #48
Ann,
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.
Kaight
Kaight   |     |   Comment #12
I believe some Alliant members are meeting outside CU activity requirements using a completely automated, hands off, approach. Once set up and initiated, the movements of money via ACH go on forever, sort of like the sorcerer's apprentice. It's a good system until you die, at which point things could become just a bit messy.
walkingonsunshine
walkingonsunshine   |     |   Comment #13
I'm up to seven thanks to Ken's sight and had no problems, Have only one with no cd and I have
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
Ann
Ann   |     |   Comment #45
Speaking of shared branches, a surprising amount of my local credit unions no longer participate in that system! I'm down to only 1 (with several branches), last I looked. I don't know why more CUs don't participate in that system (anymore), as it makes them much more competitive against big banks.
matthewgast
matthewgast   |     |   Comment #56
I read someplace that CUs had to pay into a system to make the shared branch network run. One CU near me charges a fee for shared branch transactions, and says basically that you'll pay something like $2 to make a deposit to some other CU in the network. I think one of the reasons why Alliant doesn't participate in shared branching is that it saves them money.
msjp
msjp   |     |   Comment #14
Thanks for this article, Charles. I started to apply for the USAlliance offer of 2.2% APY for 36 months -- and abandoned the effort after seeing all of the non-relevant information they try to capture including my monthly income! I have zero need for any debt and only give income information to the IRS. So I went with Northern Bank Direct with an easy normal application process. and an offer of 2% APY for 36 months. Think I will stick with my CDs at banks -- even if I have to give up 20 basis points for my convenience.
ChasR
ChasR   |     |   Comment #16
Interesting. USAlliance doesn't require me to provide monthly income info when I apply for a CD. I think it's because I indicate that I am "Retired" and have no "Employer."
hank
hank   |     |   Comment #19
they don't require it. they just ask it. they asked me and I refused to tell them and they still opened the cd. I do agree that at some point the number of credit unions gets too large and maybe it's not worth it to always reach for the extra 0.25 or 0.5 of yield
LuvCD
LuvCD   |     |   Comment #20
"They" want the income so that they can determine your "suitability" for non-insured investments! Don't forget to opt out of everything!
Alcoholics_Anon
Alcoholics_Anon   |     |   Comment #22
For every million bucks you have, that 0.5% yield amounts to 5K a year.
BIPS CHASER
BIPS CHASER   |     |   Comment #23
and a 1 bip increase is a 100 dollar steak dinner at the end of the year!
Kaight
Kaight   |     |   Comment #24
Q: OK, so what possible excuse could I have for membership in twenty-five, plus or minus count having been lost a few years ago, credit unions?

A: I blame my ineluctable affinity for money.
ChasR
ChasR   |     |   Comment #25
An honest answer. I guess I'd have to say the same thing. Also, joining credit unions and managing a portfolio of CDs has given me something to do in retirement. Now, as I begin to feel more and more the impact of age, I'm beginning to see a real downside in having a multiplicity of accounts at a multiplicity of institutions. Self-direct investing, which I've done my entire adult life, doesn't seem as attractive as it once did.
ChasR
ChasR   |     |   Comment #26
"Self-direct" should read "self-directed."
Kaight
Kaight   |     |   Comment #27
You bear personal responsibility for having lured me into joining CFCU. And let me tell you, the hoop I had to jump through was among my tougher tests where CU joining is concerned.  It took me many weeks to figure out precisely how to turn the trick.  The trip up to Ithaca was pleasant enough, though, and fortunately for you I'm in a forgiving mood.

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.
ChasR
ChasR   |     |   Comment #31
1. With respect to CFCU, all I'll say is that, because Ken reported on the original "Celebration CD" promotion last July, CFCU has become the largest single investment I have. I love promotions that go on for nine months!
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.
Bozo
Bozo   |     |   Comment #33
Kaight, chacun a son gout. Some folks like to spread it around (as did I). Others choose to do the opposite.
Kaight
Kaight   |     |   Comment #34
Agreed, Bozo. But ChasR does not appear to have caught my drift. Again, it is not the safety of my funds which motivates me to spread, though of course I DO care about the safety of my funds. Instead I am motivated in large measure by my personal safety. This is likely TMI:

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.  
Dr. Ocar
Dr. Ocar   |     |   Comment #35
SO what is your point?,,,,
Rico
Rico   |     |   Comment #40
There is absolutely nothing wrong with the POD,etc approach. In fact, if you wish your funds accessible to a qualifying heir after a joint tenant, that is definitely the
way to go. The POD can minimize the complexity of your will.
Bogey
Bogey   |     |   Comment #41
Rico, you are absolutely RIGHT!

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.
Bozo
Bozo   |     |   Comment #54
Rico, with respect to credit unions and PODs: When considering same, make sure the credit union will allow. I seem to recall one DA poster noting that a CU required the person identified in the POD to be a member of the CU. For immediate family, it should be a non-issue. However, some folks with no immediate family like to name charities as the POD beneficiary, and the CU might not permit.
the lof
the lof   |     |   Comment #50
Ken, I have a long list of cd's, seems like everyone has letters FCU or CU. Only Synchrony has the word Bank. Years back, the word Bank was common. What happened? Been on your site since day one. Thank you, the lof Oh have you noticed the change??????
RJM
RJM   |     |   Comment #51
banks are for profit. credit unions, at least hypothetically, give back to their members via better rates on deposit profits, lower rates on loans & so forth. In the real world, the lines blur when you have credit unions spending excessively on advertising and giving way too excessively to certain college sports teams. Not to mention the executives are probably over-compensated everywhere.

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.
Rico
Rico   |     |   Comment #52
What we need, is an online only credit union. Apparently that was tried once but didn't go far.
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.
RJM
RJM   |     |   Comment #53
Word of Mouth, Good Credit, Limited Waste, Credit Union.

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.