Pentagon Federal offers 3-year CDs at 5% APY rate

Pentagon Federal Credit Union is now offering a 5% APY (4.88% APR) rate on it’s 3, 4, and 5-year CDs (they call it a Money Market Certificate). They must really think the Fed is going to raise rates big time! This a great rate, the highest at Bankrate.com is only 4.41% with a $10,000 minimum. Penfed only has a $1,000 minimum on each certificate, and has a relatively short 6-month penalty on early withdrawals. But first, how do you join?

Since this is a credit union, you must meet their eligibility requirements. Basically all members of the military and their immediate families can join, well as many other military-related groups. Doesn’t sound like you qualify? The easiest way is then to join the National Military Family Associaton (NMFA). Anyone can join, and it costs only $20/yr to join, and you can end your membership after the first year. There are some good benefits to being part of NMFA, such as scholarships, GEICO discounts, and of course supporting military families.

I’ve been a member for about a year now, and locked in some 5-year CDs a while back at 5.25%, which was a really great rate back then. Note that your funds are insured by the NCUA instead of the FDIC as this is a credit union. I view it was equally safe, others may disagree. PenFed has great customer service, probably the best I’ve seen besides perhaps USAA Bank.

Now, to the rate! Should I go for it? My mid-term goal is to have $100,000 by mid-2007, which is less than 3 years. Of course, this is not an exact date and I may not need the money right at that time. Emigrant Direct is offering 3.25% now, and the government is mostly likely going to keep raising rates. I did a quick and dirty comparison in Excel of PenFed vs. Emigrant if Emigrant continues to raises it’s rates by 0.25% every quarter:

As you can see, even if Emigrant keeps on raising it’s rates gradually 1% a year ending up at 6.25% APY, PenFed still wins, barely. I think that I am going to put $10,000 of my cash holding in a 3-year CD, keep some liquid at Emigrant/VirtualBank/ING, and the rest in something with slightly more risk. Exactly what, I don’t know.

Find more in Deals & Offers | 4/7/05, 8:20am | Trackback