PenFed IRA change
 

The latest email from PenFed says, among other things, that starting September 1 members over 59 1/2 can not longer redeem IRA certificates without penalty, unless the distribution is a RMD.

That's too bad, their certificates have been a "win-win" deal for those of us over 59 1/2: if rates went down, you had a lock on the original high rate. If rates went up, you could turn in the certificate for one with the new higher rate, no penalty.

Existing IRA certificates will be grandfathered to maturity for one trade, after that you pay the penalty.

Does anyone know of another institution that still allows the "redemption without penalty" on their IRA certificates?

how much is the penalty?

I'm sure it's on the website somewhere, I haven't looked it up yet.

Hopefully, not too large.

Looking on the web IRA application, it looks like 0-5 yr certificates you lose six months interest, 7 yr certificates you lose twelve months interest. That's a pretty hefty penalty, one would need to carefully calculate any switching if the one "freebie" switch had already been used up.

Term of 6 months all interest unless older than 90 days in which case in is the latest 60 days of interest.

Term greater than 6 months up to 5 years the all interest unless older than 6 months in which case it is latest 180 days of interest.

Term of 7 years if within 365 days of issue it is all interest otherwise it will be latest 365 days of interest.

Penalties do not apply if the holder dies or the CU is liquidated. Also, as they mention, if the cause is an RMD.

I do not fully understand the statement regarding the IRA and will wait until tomorrow to call them as we are very close to RMD (within the current term of CD's). Since we recently moved ALL IRA (both Traditional and ROTH) to the 6.25% levels for 7 year terms the impact of this change is minimal on us but, I am wondering about the Grandfather Claus they mention.

I am unaware of any other institution that was as liberal with IRA CDs as PFCU.

It's true that frequent-switching CD IRA investors could take advantage of PenFed's policy, but I wonder how much PenFed really loses to that arbitrage.

Their policy could be its own best advertising and save a lot of marketing expenses, but I guess it's difficult to nail down the exact amount.