Question About Penfed CD's

[Gearhead Jim]

Back in March, this Board alerted me to the 6% APY 7 year IRA certificates available at Penfed. The best part was that members over age 59 1/2 could take early withdrawals with no penalty, so it was a no-lose situation: if rates go down or stay level, fine. If rates go up, just flip into a new IRA CD at the new rates. One of the members here posted about previously having done just that.

In late summer, Penfed dropped the rates for new CD's down to 5% and announced that the no-penalty early withdrawals would not be available on the new IRA certificates. They also said that previously existing CD'd, like mine from March, would be grandfathered for only one early withdrawal flip. I guess that is legal, because you would technically be flipping into a new CD, and the new CD could have new terms.

Now, their 7 year IRA CD rates are back up to 6% APY and early withdrawals might be done with no penalty. But there is a subtle change in the wording on page 15 of the application, para g (3) (iv), no penalty "if the owner has reached age 59 1/2 and takes a PARTIAL withdrawal. (My capitalization)

Today I phoned and asked how much can be withdrawn and still be considered as a "partial" withdrawal. For example, can you take out $100k from a $101k certificate? The fellow on the phone didn't know, and didn't think he could get a firm answer while I was on the line.

So, I can send them an email and hope that the reply comes back before the rates go back down. I'm not sure that an email would be legally binding, but it's a good starting point. Penfed has a good reputation for treating their members fairly but I've never heard of this conundrum.

Your comments?

 

[OAG]

I am looking at the actual certificate I got with our last CD from Penfed. The quote is from the back page of a form they put the "Money Market Share Certificate Agreement" on which is the CD. The paragraph, Money Market and IRA Share Certificate Disclosure, subparagraph h. Early Withdrawals, further subparagraph 4. Exceptions, further subparagraph c) "For IRA Certificates Only: If the owner has reached 59 1/2 or".

I read this as the only governing factor since this is the actual form the CD is issued on and should be governing. So as I read this if you are over 59 1/2 you can redeem a IRA CD early and do whatever with the money, including, rolling it into a ROTH or another CD at the then current rate. Having said this they did recently have a message up on the web site that you could close a IRA CD and roll it to a higher rate ONLY ONCE. So as I mentioned in another thread on this subject, it seems the form is not currently in accordance with the policy. The CD forms have been revised, from time to time, the one I was quoting from is dated 11/06 and was a revision of the 4/06 version and the next earlier one was dated 8/05, so it appears they are revised about every 6 months or so.

Personally, if I was really interested, I would ask for a "supervisor" if the individual you got on the phone was uncertain or unclear. They really should transfer you eventually to someone in their IRA department as that is where the policy should be clearest. Additionally, you may want to ask for the specific department to mail a written inquiry to. That will take considerable more time but should result in a written reply with a clear definition of the policy.

I may have been the person you refer to as I did mention it on this forum and did exactly that back in December 2006 and January of 2007 -- redeemed several IRA (both traditional and ROTH) which were at considerably lower rates to new CD's for new 7 year terms at the 6.25% APY -- Result was more than $2,000 gain in annual return.

 

[Gearhead Jim]

I used the Penfed online inquiry form to send them the question, the automated response says they should get back to me within one business day. That would be amazing, I'll post the results here.

The paperwork seems to have changed, my March 2007 IRA CD does not have the "Money Market Share Certificate Agreement". The only thing I got back after opening the account was a one paragraph note with the acct number, names, amount, etc. No details. And an online statement each month.The online application information has a section called "Disclosure Statement" that consumes pages 12-15 of very fine print in the current version, my March 2007 info was similar; that's where all the details seem to be spelled out.

 

[jazz4cash]

page 15 of the application??

I'm looking at the actual "Money Market Share Certificate Agreement" which is all of 2 pgs and it reads like R Wood's post.

 

[Gearhead Jim]

I'm looking at the actual "Money Market Share Certificate Agreement" which is all of 2 pgs and it reads like R Wood's post.

Maybe I didn't get that because mine is an IRA CD, says nothing about "Money Market" in any of my paper work?

 

[jazz4cash]

Maybe I didn't get that because mine is an IRA CD, says nothing about "Money Market" in any of my paper work?

ok, my bad. Come to think of it, my 1st Penfed CD back in Jan was an IRA and I do recall a ton of pages that I downloaded (and probably never read the fine print). This current one is not an IRA CD.

 

[Gearhead Jim]

Today I received an email from Penfed:

"Thank you for contacting Pentagon Federal Credit Union.

If you are over 59 and a half and you take a partial withdrawal from your IRA Certificate and the funds are also withdrawn from your IRA account, you are not assessed a penalty on the partial withdrawal. This applies regardless of the dollar amount. If you make a partial withdrawal from your IRA Certificate but keep the funds in the IRA account, the early withdrawal penalty will apply.

If you need further assistance, please contact us."

That seems to say that taking money completely out of the Penfed IRA area will eliminate any penalty. So, one could take all but one dollar from the IRA Certificate and move it to an IRA of any type at another institution, with no penalty and no income tax. The penalty WOULD apply if one flipped the money from the old certificate into a new IRA Certificate at Penfed, to take advantage of rising rates.

Did I understand this correctly?