PenFed CD Interest Reporting

[freedomatlast]

I bought a $100,000 PenFed CD on one of the last few days of 2013 at 3% interest. For 2014, the form I got from them for tax reporting purposes showed an amount a few dollars less than $3000 in interest. I called and asked why the interest earned was less than $3000 since 0.03 X 100,000 = $3000. They agreed with my math but couldn't explain the amount reported. They turned this over to their resolution department and in a few weeks got a form letter from them stating that they reviewed my account and the interest shown was correct with no other explanation. At that point, I just dropped the whole thing since I was extremely busy at the time. Since I can't gen an answer from PenFed, can anyone here explain the discrepancy?

 

[Newventurer]

Due to end of the year Holidays do you suppose they didn't actually establish it prior to some date in 2014 which might explain the difference? I haven't looked to make sure but I seem to recall that there were multiple dates to my transactions with them. I'll check now though.

 

[REWahoo]

Since I can't gen an answer from PenFed, can anyone here explain the discrepancy?

No, but my CD interest at the end of 12 months reflected the same "few dollars short of 3%" like yours. I didn't pursue it since it was such a small amount, but it isn't clear to me why it was less than the advertised interest amount.

 

[powerplay]

Take a look at your latest statement from Pen Fed and check out the dates. I think that may be your answer.

I also opened several smaller CD's during the 3% five year offering. When I look at my last statement it is from 10/19/2014 to 1/19/2015 so I don't expect my interest to be 3% for a given calendar year since it's paid on the 19th of the month. All my CD's pay interest on the 19th of the month yet they were not opened on the same day.

 

[freedomatlast]

Due to end of the year Holidays do you suppose they didn't actually establish it prior to some date in 2014 which might explain the difference? I haven't looked to make sure but I seem to recall that there were multiple dates to my transactions with them. I'll check now though.

I just checked the specifics.

The CD was issued on 12/26/13 with a "dividend rate" of 3% and an "annual percentage yield" of 3.04%

 

[thefinancebuff]

Since I can't gen an answer from PenFed, can anyone here explain the discrepancy?

I'm surprised they couldn't explain this simple matter. They just pick a random day for interest payment. Say you bought on the 25th. They may pick the 19th as the date for paying interest. The first month you will get interest from the 25th to the 19th. The second month you will get interest from the 20th of last month to the 19th. Over a year, you will get 12 payments but because the first payment was for a short month you will get less than just a straight 100k x 3% calcuation.

 

[freedomatlast]

Ok, that makes sense. That's basically what powerplay explained also. Thank you. As long as the IRS is ok with the reporting of the interest when it was paid rather than when it was accrued, all is good.

 

[pb4uski]

How does the amount reported on 1099 compare to the amount of interest that you were credited during 2014 according to your statements? I would think it should be the same and the answer may lie there.

 

[kaneohe]

My 1099s agree w/ the interest credited on the statements. Also the year end valuations for IRA CDs seem to be the valuation on the statement date in December.......rather than the last day in December.......so interest ,accrued but not yet declared , is ignored for those purposes.

The discrepancy for the 1099 should only occur for the first year. The close but not quite right result is a result of the close to year end initial date. If you start the CD in mid year (or any other time), things wouldn't even be close for the first year.

 

[audreyh1]

I just assumed it was due to the date they picked to pay the interest (which wasn't in the CD month anniversary) and that it would resolve when the CD matured.

My 1099 matched exactly what was paid last year.