Buying a 5-Year CD at PenFed

PenFed is Pentagon Federal Credit Union. It’s the third largest credit union in the country with 1.2 million members. Effective December 1, PenFed is offering 5-year and 7-year CDs (“share certificates”) at 3.04% APY.

This is a very good rate. By comparison, other institutions that usually offer good rates still have their 5-year CD rates at 2% or below. Early withdrawal penalty is one year of interest but it doesn’t eat into principal. If you withdraw in six months because another bank is offering an even better rate, you only forfeit six months worth of interest.

I took the opportunity and bought some. Unlike the credit union where I have my reward checking account, PenFed offers good online service. I was able to do it completely online and have the money in the CDs in less than 48 hours. I didn’t have to call anyone. Nobody called me.

NCUA Insurance

Being a federal credit union, PenFed is of course insured by the NCUA, which offers identical insurance as the FDIC for banks, for up to $250k per registration type.

Everyone Can Join

Everyone can join PenFed. Just go to and click on the Join PenFed link at the top.

If you donated blood or money to American Red Cross, you can join under the third bullet “I belong to the following association or organization” and choose American Red Cross in the dropdown.

Or you can choose the last bullet “Help me join another way.” You can either pay a one-time $20 fee to join National Military Family Association (tax deductible) or pay a one-time $15 fee to join Voices for America’s Troops (not tax deductible).

Online Application

As with most credit unions, you must keep $5 in a savings account which they call a “share account.” The online application to open the savings account is very simple. It didn’t even ask those tricky ID verification questions based on credit reports. When I opened an account at another bank I was asked which of four counties I ever lived in. The correct answer was the county where I went to graduate school 20 years ago.

ACH Pull or Push

If you are buying a regular CD outside an IRA, you can open one online right away. PenFed can pull the money in by ACH but they limit you to $25k per day when you are a new member in the first six months. If you want to buy more, you can do $25k a day over several days or you can just use ACH push from your source.

PenFed publishes its routing number in the footer of its website. It’s 256078446. You get your savings account number right next to the account after you log in. With those two numbers (remove the dashes), you can link the PenFed savings account as an external account at your source bank. Then you just push the money into the PenFed savings account. When you buy CDs you choose the option to transfer from the existing savings account.

Do the reverse when you break a CD or when the CDs mature. Put the CD proceeds in the savings account before pulling it out to where you want the money to be.


You can also transfer a part of your IRA to PenFed and put the money in CDs. Find the IRA application PDF package in the forms section. It includes a transfer form. PenFed will send it to your current IRA custodian and get the money in.

Receive or Reinvest CD Interest

These CDs pay interest monthly. You can choose to reinvest or have the interest paid out. Reinvest, because 3% is a good rate. If and when you see better opportunities down the road, you can switch to having the interest paid out.

One CD or Multiple CDs

PenFed’s IRA CDs allow partial early withdrawals, without the early withdrawal penalty if you are 59-1/2 or over. Regular CDs don’t allow partial early withdrawals. If you are buying regular CDs, it’s better to buy multiple smaller CDs as opposed to one big CD, just in case you want to withdraw a part of the money early.

Rate Lock

PenFed doesn’t offer a rate lock. The rates theoretically can change any day. Given that their promotion banner says “Your gift for the holidays,” I doubt they will take away the gift before the holidays are over. That wouldn’t be very nice, would it? Chances are good that the rates will be offered until the end of the year, but don’t wait too long.

By my estimate these 3% 5-year CDs will beat a typical intermediate-term bond fund in the next five years. I will explain why next week. The rate is also higher than my mortgage rate. Remember it’s not all-or-nothing. You don’t have to be in all CDs or all bond funds. Invest in both CDs and bond funds.

[Image source: Screenshot taken from PenFed home page.]

Refinance Your Mortgage

Mortgage rates hit new lows. I saw rates as low as 3.25% for 30-year fixed, 2.625% for 15-year fixed, with no points and low closing cost. Check mortgage rates in your state.

FREE E-mail Newsletter

Join over 3,000 readers and get new articles by e-mail:

No spam. Unsubscribe any time.


  1. Axel says

    Thanks for the tip.

    Based on your other articles I am considering CDs for retirement accounts instead of being all in bonds.

    Vanguard offers brokered CDs. Currently yielding 2.15% for 5 yr. CD.

    You can also sell them without interest rate penalty, but face value could be less.

    Do you know how brokered CDs are different from regular CDs?


  2. Harry says

    The face-value loss on a brokered CD could be larger than the fixed early withdrawal penalty on a direct CD. You also can’t reinvest interest payments into the same brokered CD. If the yield is higher, they may be worth considering, but at a much lower yield, 2.15% vs 3%, brokered CDs aren’t as good as direct CDs, except they are convenient to hold in a brokerage account. To me that’s too much to pay for that convenience.

  3. Elise says

    I have not found the sign up process to be easy AT ALL! I was able to join and create my $5 share account online with no trouble, but when I went to open the CD, the website said it couldn’t verify my account. Okay, now I have to make a phone call. The phone rep was very polite, but indicated whatever “verifying service” they use ( he insisted it was not generated by the credit agencies but could not otherwise say what it was or how it worked) needed me to answer randomly generated questions but that there was “not enough information on me” to generate questions. Huh?! I am in my 40s with sterling credit, and a long history of mortgages, credit cards, home and car ownership etc. What on earth? PenFed’s solution was that I needed to a) make a copy of my social security card b) a copy of my drivers license and c) a copy of a utility bill. Which I then need to have notarized and faxed to them. Oh, and the rep wondered if could possibly get this done tonight? Considering it was Sunday night at 7pm I thought it unlikely. I am extremely disappointed about this colossal waste of my time, especially given that the rep could not/would not tell me what the issue was.

    • Harry says

      IT folks often do system maintenance on weekends. Maybe the verification system is down? Try again on Monday and see if it gets better.

  4. Elise says

    Tried again this morning, to no avail. This time the rep insisted that ALL new members were required to send in notarized documentation of identity. I really despise when organizations do this. I’m done with PenFed.

    • Harry says

      Sorry to hear. For some reason they spared me the ID verification step. Maybe I got lucky or you got unlucky (like getting the dreaded ‘SSSS’ at an airport). It’s definitely not true that ALL new members are required to send in notarized documentation of identity. They sent me a signature card/form for the savings account and for each of the CDs. I must sign and return by mail, but that was it — no notarized documents.

  5. Elise says

    I just read on bogledheads that someone else is having the same “can’t verify account” problem I did. Perhaps they randomly select people for this? Who knows.

  6. Rick Van Ness says

    Great article Harry. If I’m understanding this correctly there is actually a free lunch here–for those who are over age 59.5 and set up a CD in an IRA account. The ability to do a partial withdrawal without penalty would enable refinancing to lock in higher rates if interest rates were to increase.

  7. Rick Van Ness says

    Sorry but I think I’m wrong. Just checked with a rep and she told me that the partial withdrawal would have to be a taxable distribution. Not the free lunch I was salivating about.

    • Harry says

      You can’t always trust the words from a CSR. The actual written disclosure document has the final say. See the document quoted and linked to in Ken’s article. Also see comment #29 under Ken’s article for the actual experience from a PenFed customer.

  8. Rick Van Ness says

    Thanks Harry. Signing up was easy, but it has been over four weeks and the IRAs are not set up yet. The problems include both the backlog of processing the applications and the need from one bank for original signatures. This morning I notice the rate dropped from 3.0 to 2.0 percent. I called and a CSR said that “the Board of Directors has made a guarantee that anybody that has initiated the transfer prior to January 31st is guaranteed the higher rate.” I hope she is right. 🙂

    • Rick Van Ness says

      Wow, what a surprise. It took over two months to fund these CDs but now everything is as I expected. What I learned was that IRA money gets mailed—for some reason they don’t transfer it electronically to PenFed. Money from the fastest institution took about one month start to finish. But getting the money from the other bank took three attempts—each requiring restart from scratch. The initial application sent by fax was rejected because they required original signatures. I tried again sending in the original signed applications and now these were rejected requiring a notary public. The third set worked. Thanks again Harry!

  9. aua says

    At hindsight, what a blunder that I moved my funds from “Vanguard Total Bond Market Index Fund” to 5 year CD as recommended by the author of this article. Vanguard Total Bond Market Index Fund performed amazingly with more that 5% return (value + dividends) compared to the relatively lower Penfed performance. Yet another proof that no one is an expert in predicting the future and also a hit on the head to remind us that we need to take a finance blog author’s words with a bucket of salt!


    • Harry Sit says

      First of all, you are correct. I don’t give advice. I only state my own opinion. You still have to make the decision for yourself. Don’t do something just because I said so. Five years ain’t over yet. Let’s come back in January 2019 and see whether it was a good move or not.

  10. Gle says

    The early withdrawal penalty on existing PenFed IRA/ESA certificates will become more costly as follows:

    “As of 9-1-15, IRA/ESA certificates with terms greater than 6 months, the penalty for early withdrawal in the first year will be all dividends earned. After that, the early withdrawal penalty will equal 30% of what would’ve been earned if the certificate had been held to maturity, not to exceed total dividends earned.”

    • Harry Sit says

      Are you sure the change applies to *existing* certificates, not just new certificates? I see it in the new certificate application but I don’t see it mentioned anywhere that it would affect existing certificates.

  11. Gle says

    The statement in quotes appears at the end of my latest PenFed monthly statements which include January 2013 certificates issued at the 3.0 % rate. I emailed PenFed in mid July complaining about the “retroactive” change to existing IRAs/ESAs and received a response that “supported” the change. I called PenFed today and have been told that the change applies only to IRAs/ESAs issued 9/1/15 or later (and that interest rate does not change on existing certificates). I asked for written confirmation and was asked to initiate that through the email process at PenFed.

  12. Gle says

    The next to last sentence in my last post should read as follows:

    I called PenFed today and have been told that the change applies to IRAs/ESAs issued 9/1/15 or later (and that THE EARLY WITHDRAWAL PENALTY does not change on existing certificates).

Leave a Reply

Your email address will not be published. Required fields are marked *