bank rates

Take Advantage Of PenFed’s CD Rates

We want to weigh in on the discussion over Pentagon Federal Credit Union’s CD rates that broke out last week on one of our posts.

PenFed, as it’s usually called, is paying 2.75% APY on a 5-year certificate of deposit with a minimum deposit of $1,000.
Pentagon Federal Credit Union has a way for everyone to join and buy certificates of deposit.
The only nationally available rate that tops it is the 3.03% APY being offered by Melrose Credit Union.

So that’s a very good deal.

It’s also possible for virtually anyone to join PenFed and Melrose, regardless of where they work or live.

But there’s a bigger potential difference in what you can actually make from these CDs, at least for some savers.

To join Melrose, you must pay a $1 membership fee and place at least $25 in a savings account called a share account.

If you ever served in the military, are a government employee, or work for a defense contractor, you probably qualify to join PenFed for free by placing just $5 in a share account.

For them (or any of the credit union’s nearly 1 million existing members) a PenFed CD remains as competitive as it looks.

If you don’t qualify for PenFed through military service or your job, you can still become a member by joining the National Military Family Association.

The non-profit group provides assistance to military families, and the tax-deductible dues are $20 per year, or $50 for three years.

The problem, putting all charitable notions aside, is that the donation lowers the earnings and the effective return on your CD.

You only need to be a member of the National Military Family Association when you join PenFed. Once you’re a member of the credit union, you can choose to continue your membership in the association – or not.

So let’s say you subtract the minimum $20 cost of joining the association from your return on PenFed’s 60-month CD. The effective rate falls to 2.42% APY.

That’s still a very good return — but not quite as good as 2.75%.

The smaller the deposit, and the shorter the term, the more that initial cost reduces the effective rate.

We think PenFed offers some of the best CD rates in the country, making it well worth the expense of joining the National Military Family Association. If you buy one PenFed CD, you’ll want to buy more.

But the uncertainty that creates over the effective rate of return is why we don’t include PenFed in our rankings of the best nationally available CD rates.

It’s similar to the decision we made with Fort Knox Federal Credit Union.

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