(Update: As of 5/11/2014 the rate is back down to 3% APY. This is still much higher than most saving accounts and it should still be worthy of consideration.)
To celebrate their 60th anniversary, Hanscom Federal Credit Union (HFCU) has increased the interest rate on their CU Thrive account to 6.0% APY (5.84% rate). The CU Thrive account is an interesting “starter CD” that rewards consistent saving. The rate is set for 12 months, and during those 12 months you can transfer up to $500 every month from a HFCU checking account. No monthly fees. However, you cannot make any withdrawals during those 12 months, or you will be subject to an early withdrawal penalty of 90 days interest.
This product is not meant for those looking to stash larger $10,000+ balances in a certificate of deposit.
More account details. If you maxed out this account and set aside $500 a month for 12 months, at the end you’d have put in $6,000 and earned about $180 in interest (~$193 if you made every transfer on the 1st of the each month by my quick calculations). The low deposit limits make this account best for people who can benefit from a little extra carrot to start saving, as you can tell yourself that you are getting 5% more or six times the interest rate on other “high yield” savings accounts. NCUA-insured! $6,000 also happens to be just about the same amount as a full Roth IRA contribution. Hint, hint.
At the end of the 12 months, all accrued savings plus earned dividends will be transferred into your primary savings account. Each member can only have one CU Thrive account open at one time, but after one 12-month period ends you can open up another one (assuming it is still offered). Full disclosure (PDF).
Eligibility details. To open a CU Thrive account, you must first open an HFCU checking account. HFCU offers a free checking account with no direct deposit and no minimum balance requirement. To open a checking account, just must be a member. Like most credit unions, membership is open by family, employer, or by membership in a partner organization (which makes it open to nearly everyone). You must also keep $25 in a share account as long as you are a member.
(Update: Right now if you are referred by an existing member, you can get a $30 bonus after being an active member for 90 days, and the referring member gets $30 as well. If you’d like, here is my referral link. The $30 should help offset any membership fees you might pay to be eligible to join.)
Account opening process. This is just the type of thing that I would like to set up for my kids – something with a high enough interest rate that they can “feel” the compounding effect. (Their minimum age is just 7 years old with an adult joint account.) I do wonder if it would actually create a habit of saving.
I started the online application and said I would join the Nashua River Watershed Association for a one-time $35 fee. I had to provide the usual personal information and then answer questions based on my credit report to verify my identity. I don’t know if they actually did a “hard” pull on my credit report (I hope not). You can fund with an online bank transfer but they also gave me the option to fund with credit card up to $2,000. They didn’t mention if this would be considered a cash advance or not. (Update: So far it is showing as a purchase on my American Express card.) Finally, you must print out, sign, and mail in a signature card. You can also open an account in-person. All of their physical branches appear to be located in Massachusetts.
When it comes to paying a one-time fee to join a credit union, I like to see that the credit union has a history of offering member-friendly products. In addition to the free checking, HFCU also has a competitive Home Equity Line of Credit (HELoC) with no application fee, no annual fee, and no closing costs if you keep it open for 24 months.