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:

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.