Pentagon Federal Credit Union officially announced some competitive new rates for their money market certificates (basically CDs, or certificates of deposit) starting December 1st, 2013. The minimum opening deposit is $1,000.
|Term||APY||Early Withdrawal Penalty*
(days of interest)
|2-Year CD||1.41%||Last 180 days|
|3-Year CD||2.02%||Last 180 days|
|4-Year CD||2.22%||Last 180 days|
|5-Year CD||3.04%||Last 365 days|
|7-Year CD||3.04%||Last 365 days|
Here is an interesting chart comparing the effective APY depending on holding period (taking into account the early withdrawal penalty) for the 4-year and 5-year CDs. We see that the 5-year CD (and 7-year CD) actually matches the 3-year CD held to maturity at the 3-year mark (both 2.02%) and is slightly better than the 4-year CD held to maturity at the 4-year mark (2.28% vs 2.22%). However, for some interim time periods (7 to 28 months) the shorter penalty will make the effective yield of the 4-year CD higher.
The 7-year CD looks essentially like the 5-year curve except the spike moves farther out and it keeps going up for the 6th and 7th years. If you held the 5-year until the very end and withdrew a month early, you’d end up with only 2.42% APY. With the 7-year, it would be 2.60%.
Although future interest rates are unknown, I would say that the 4-year and 5-year CD are the best deals. The 4-year is good because even if you held only for one year, you’d get an effective 1.11% APY better than most 1-year CDs. The 5-year is better for those with longer time horizons, as shown by the curve. The 7-year is for those who don’t think rates will get any better and want to lock in that 3%+ as long as possible. These rates are not guaranteed for any length of time, so I’d open a CD immediately if I was interested.
If you opened a 3-year CD recently when they announced the 2.02% APY rate, keep in mind you can close it and only lose any accumulated interest; the original deposit amount is unaffected. Hat tip to DepositAccounts for breaking the news of rumored rates ahead of time.
Details on early withdrawal penalties:
- For terms from 6 months to 4 years, you will lose the last 180 days of interest. If you haven’t earned 180 days of interest yet, you lose all the interest and get back only your opening amount.
- For terms of 5 years or longer, you will lose the last 365 days of interest. If you haven’t earned 365 days of interest yet, you lose all the interest and get back only your opening amount.
As a credit union, you must meet their eligibility requirements to join. Basically all members of the military and their immediate families are welcome, as well as many other military-related groups. Otherwise, anyone can become a member of the organization Voices for America’s Troops. Membership costs $15/yr, and you don’t need to renew to remain a PenFed member. “Voices for America’s Troops advocates for a strong national defense, including sustaining and improving quality of life programs for America’s troops, their families and survivors.”