PFCU CD Alert

[Cut-Throat]

Mine(Bellco) does allow this. I haven't checked with PenFed, but are you saying that they do not allow partial withdrawals?

I posed this very question over the phone and that is what they told me. So I proceeded to purchase smaller denomination Certificates. Can't hurt, I guess.

 

[MJ]

I haven't checked with PenFed, but are you saying that they do not allow partial withdrawals?

PentFed as of last March 2004 did not.

MJ

 

[wzd]

Yup, it's right their on their application/disclosure. No partial withdrawals except for IRA certificates.

 

[Dante]

I went ahead and filled out the online application form today. I noticed though that to be a member you have to open and own a Regular Share account which requires a daily balance of $500. Otherwise you get hit with a $7.50 monthly fee.

Does this mean that I have to leave the $500 in the Share account for the term of the CD, i.e 4 years?

Dante

 

[naturegal]

Dante,

you must have misread the fine print. The regular share account is required to have a minimum deposit of $5.00 (perhaps it was hard to see the decimal in the fine print). There is no fee for maintaining this low balance (i checked). You are refunded the $5 if you close out all your accounts, plus interest.

 

[Dante]

Re: PFCU CD AlertNaturegal,

Naturegal,

Thanks for the reply.

The $5.00 initial deposit allows you to open a Share account and thereby be eligible for membership into the CU. But then do you close out the Share account immediately therefater? And get the $5 back?

If the account is not closed, it will require a minimum balance or the maintenance fee.

Maybe it is just as simple - open the account with the$5 and then don't have to do anything with it. Iam not sure though.

Dante

 

[MJ]

Re: PFCU CD AlertNaturegal,

Maybe it is just as simple - open the account with the$5 and then don't have to do anything with it. Iam not sure though.

I opened an account last March with them to get the 5.25% CD and yes it was that simple.

MJ

 

[naturegal]

Dante,

The account rep I talked with said the $5 just stays there and it is fully refunded (with interest) if you close out all your accounts with them. Not sure what the purpose of the $5 is- I guess it gives you an account for them to put your CD in when it matures, if you don't want to renew it right away.

 

[cute fuzzy bunny]

My CU (DCU) has the same requirement. For whatever reason (some inhouse rule or some government requirement) you are required to have a share/savings account to be a member, and the minimum balance on it is $5.

Its a cool lesson in compound interest though. I've had that five bucks in there since 1980, and twice the balance has gone over $10 and I've gotten to skim five bucks out

Maybe I should have left it and seen how my five bucks had grown at normal savings rates for 30 or 40 years.

Now my CU just has to get off their butts and raise their CD rates. They were pretty good until the last few months. Now they're lagging.

I'm still a little leery of committing to anything longer term than a year or two in this rising rate environment.

 

[retire@40]

I'm still a little leery of committing to anything longer term than a year or two in this rising rate environment.

I feel the same way, so I have not committed to any CD more than 1 year in duration.
For what it's worth, all banks forecast interest rates and base their rates on what they think the future will hold.  I think it was during the Clinton years that short-term rates were higher than long-term rates at some banks.

If the bank is willing to lock in their interest expense at 5.25% for 5 year CDs, they are probably forecasting interest rates to go to 7% or higher in the next 5 years for similar instruments.  They will have a ton of cash at a 5.25% expense while other banks may have to dish out a higher expense.

 

[Cut-Throat]

I'm still a little leery of committing to anything longer term than a year or two in this rising rate environment.

I would leery also, if it were not for the 6 month penalty on early withdrawal. If you own the CD for a year and then bail, you still get 2.675% interest. - Not too shabby.

So, I only look at as commiting for 1 year.

 

[fln]

I would leery also, if it were not for the 6 month penalty on early withdrawal. If you own the CD for a year and then bail, you still get 2.675% interest. - Not too shabby.

So, I only look at as commiting for 1 year.

I would agree except for other options that offer more than 2.675% and still remain liquid. ibankdesign.com provides a list of checking/saving/MM accounts with decent APYs.

 

[Cut-Throat]

I would agree except for other options that offer more than 2.675% and still remain liquid.  ibankdesign.com provides a list of checking/saving/MM accounts with decent APYs.

Maybe decent APYs, but not 5.25%! - If you hold the PenFed CD 2 years - You'll get the full 5.25% for the first year and 2.675% for the second. That is close to 4% APY.

If you have any liquid MM accounts that are paying close to 4% per year, please let us all know. We'll all be signing up

 

[fln]

So, I only look at as commiting for 1 year.

O.K. FWIW. My point was that if you're looking at committing to only 1 year with a 6 months penalty then you'll earn less than a 3% MMA/savings/3 months CD account currently available at various banking institutions.

OTOH, if you're looking to commit for 2 years with the 6 months penalty, you'll break even plus or minus $100 if you can earn 3.5% for the 1st year and 4.5% for the 2nd year gambling on the fact that you can not find these rates at some institutions that will offer them at some point during the next two years. I'm betting that I can find these rates and better but to each his own.

 

[Bob_Smith]

I would leery also, if it were not for the 6 month penalty on early withdrawal. If you own the CD for a year and then bail, you still get 2.675% interest. - Not too shabby.

Yep, that's my thinking. Furthermore, how long has everyone been saying rate hikes are right around the corner? Two years? Three years? Money has been lost sitting on the sidelines. This is a way to avoid hits if rates do take off as expected, but it also provides a fairly decent return if they don't.

 

[John Galt]

At one time I had a ton of money borrowed on my credit cards at -0- % which was earning 3% FDIC insured.
As the teaser rates ran out, I paid off the cards.
Made a lot of money doing this, but eventually the -0-%
offers disappeared. Now, they are flowing in again and so
I am shopping extra hard for that extra .5 per cent.
Got to stay liquid though. No CDs.

JG

 

[brewer12345]

I feel the same way, so I have not committed to any CD more than 1 year in duration.
For what it's worth, all banks forecast interest rates and base their rates on what they think the future will hold.  I think it was during the Clinton years that short-term rates were higher than long-term rates at some banks.

If the bank is willing to lock in their interest expense at 5.25% for 5 year CDs, they are probably forecasting interest rates to go to 7% or higher in the next 5 years for similar instruments.  They will have a ton of cash at a 5.25% expense while other banks may have to dish out a higher expense.

Sometimes CD rates are motivated by something other than rate forecasts. Upon occasion, banks will jump on CD rates in order to get suffcient money locked in at fixed rates. They need to do some risk management so that they don't get killed if rates spike, and therefore they are willing to take some negative spread on some money if it helps them hedge against a potentially disastrous situation. If they go to the capital markets, they could probably buy a cap or other derivative to help them hedge, but it would cost them. So sometimes it is cheaper and easier (not to mention better for your retail franchise) to just boost CD rates for a specail like this one.

 

[johnblake]

This deal looks too good to pass up. Would I be making a mistake by investing more than $100K with them? Is the risk significant?

 

[wabmester]

Would I be making a mistake by investing more than $100K with them?  Is the risk significant?

Who can say? What's the probability of them going under in the next 5 years (or whatever your term is)? Given the high rates they pay out, and the low loan rates they take in, I'd say the risk is higher than with most CU's, but still small.

 

[MJ]

I already have almost 97k in 5.25% CDs from last March. As much as I would love to, I just don't feel comfortable enough to expose myself beyond the insured 100k.
I am now going to open 7 year 5.5% IRA CDs from transfered funds. I will be able to withdraw part or all of the IRA CD in about 2 1/2 years when I reach 59 1/2 with no PFCU early penalty withdrawal.

I'll have nearly 200k of insured money in PFCU earning 5.5% for at least 2 1/2 years & 5.25% for 4 years.

MJ

 

[JOhn Galt]

Hi MJ. I have gone over the 100K FDIC limit several
times. Not sure where my "chicken out" point is located.

I have only one CD right now (opened yesterday).
9 months @ 2.75%. All of my directly owned bonds
(which replaced my CDs)
are callable within 5 years, some have interest
escalators at some point. Current interest rates
range from 5% to 7.375%, with maturities out to 25
years. Ratings from AAA to BBB+.
I would not be so strong in this area if I was not close to SS and did not have some inflation protection elsewhere.

JG

 

[brewer12345]

This deal looks too good to pass up.  Would I be making a mistake by investing more than $100K with them?  Is the risk significant?

That is for you to determine. I took a close look at Pen Fed's financials and they look pretty solid to me. If they were public and reasonably valued, I would be very, very interested. However, you would really have to decide for yourself.

 

[R.H.]

I was attracted to the 5.25% rate from PFCU so I opened an account. But before I transferred money to fund the CD I checked with my own credit union (USA Federal Credit Union) and found that I could get a 5 year CD at 4.70% with a "step up" option. Per USA Federal Credit Union, "you can convert your certificate to a better rate should interest rates rise over the duration of the certificate. This step-up option is available to Regular, Jumbo, and IRA Share Certificates of 36 months or greater." I'm thinking that if interest rates are likely to climb, it might be better to accept the somewhat lower APR now if I can "bump" it up later at a higher rater. Any thoughts?

 

[Cut-Throat]

I'm thinking that if interest rates are likely to climb, it might be better to accept the somewhat lower APR now if I can "bump" it up later at a higher rater. Any thoughts?

Yeah, this seems like a better deal. Myself, I'm leaning more towards a short/intermediate bond Index fund. I won't have to deal with Banks (which I hate! - This was reinforced this week with my bad experience with U.S. Bank and Pen Fed) and I'll be more liquid.

 

[retire@40]

I just looked at the 2003 financial statements too and I'm impressed with their performance.  The next step would be to compare them to their peers to see how they compare.  It will be interesting to see how the 2004 financial look when they are done.