Ever since I bought the 3-year 3% add-on CD from Northwest Federal Credit Union in October 2015, I was hoping a similar deal would pop up. But no, there hasn’t been any.
After the Fed raised the rate once from 0% to 0.25% in December 2015, they kept finding excuses to delay further increases. Longer term interest rates not only didn’t go up but they actually went down substantially so far in 2016. From the highest point in early November 2015 to the lowest point in early July 2016, the 10-year Treasury yield dropped almost one full percentage point.
Fortunately CD rates didn’t drop that much. The best rates for a 5-year CD stayed around 2.25% during this time. However, if Treasury yields stay this low for an extended period, CD rates are at risk of going lower.
Andrews Federal Credit Union, near Washington DC, offers a 7-year IRA CD at 3% APY. This rate hasn’t changed since early 2015. To hedge the risk of CD rates going lower and staying lower, I decided to lock in the 3% rate at this time. Although the 7-year term feels quite long, the early withdrawal penalty on this CD is only 180 days of interest. If rates elsewhere go above 3% substantially, I potentially can pay the early withdrawal penalty and reinvest at a higher rate. If they don’t allow me to withdraw early, no big deal, I will honor my commitment.
I must use an IRA for this CD because the 3% rate from Andrews is only offered in an IRA. I’m documenting here all the steps I took to move a part of my IRA from Vanguard to Andrews Federal Credit Union in order to buy this CD. Even if you are not transferring an IRA to buy this same CD now, you can see the general process. In case you contemplate making a similar move in the future, you can decide for yourself whether it’s worth the work.
American Consumer Council
I don’t live near Washington, DC but I can join Andrews Federal Credit Union by joining a non-profit organization American Consumer Council (ACC). I just went to ACC’s website and paid the $5 membership fee by a credit card. Besides Andrews, ACC membership also makes you eligible to join many other credit unions.
I got an email from ACC in a few hours with my membership number.
I then went to Andrews’ website and applied for joining the credit union. I entered my ACC membership number in the eligibility part. The IRA certificates weren’t in the list of other accounts I could open in the online application. I just applied for the base share savings account.
The minimum deposit was $5 by ACH debit. I gave the routing number and account number of a checking account.
After finishing the online application, I received an email asking me to upload a signed membership application and a copy of my driver’s license. I went back to the online application, downloaded the membership application in the documents section, signed it, scanned it, and uploaded it back. I also uploaded a copy of my driver’s license there.
IRA Application and Transfer Forms
You open the IRA at Andrews by paper forms. The IRA Application and the IRA Transfer forms are on Andrews’ website under Personal -> IRA/Retirement Center -> Forms. Forms 98 and 302 are for a Traditional IRA; Forms 6098 and 6302 are for a Roth IRA.
In the IRA Application form, I marked the contribution type as Transfer, and I put down “84-month IRA fixed rate certificate” under Investment Description. I put the amount I wanted to transfer under Quantity or Amount.
In the IRA Transfer form, I put my Vanguard fund account number (xxxx-xxxxxxxxxxx) in the Current Owner section. I marked One-Time Transfer, with a transfer amount, and I left empty the two boxes Entire IRA Balance and This Transfer Will Close the Current IRA. I only wanted to transfer part of my IRA at Vanguard, not the whole thing.
Andrews Federal Credit Union is federally insured by the NCUA. All IRAs of the same individual at the same institution are aggregated with an insurance limit of $250,000. When you want to leave room for reinvested interest, the maximum principal you can open and still stay under the insurance limit at all times is about $200,000.
I printed the two forms, signed them, and sent them to Andrews by First Class Mail. If you are not sure how to fill out any part of the forms, you can just call Andrews and ask.
The next day after I uploaded the scanned documents to the online application, Andrews sent me a welcome email with my credit union member number. With the member number, I was able to enroll in online banking. I saw my base share savings account there, with a $5 balance.
Three days after I mailed the IRA forms, I saw another account in Andrews online banking. It said 84 Month Nest Egg Fixed with a zero balance. Andrews received my IRA application and transfer forms but obviously they hadn’t received the money from Vanguard yet.
Mutual Fund Shares Sold
Six days later, I received an email from Vanguard notifying me that a transaction was submitted in my account. Another five days later the transferred amount showed up in Andrews online banking.
That was it. Starting from the day I applied online to join the credit union, it took a total of 15 days, including weekends, to get part of an IRA transferred from a mutual fund company to a credit union. Besides mailing two forms, I did everything online. I didn’t have to show up anywhere or call anyone. I could’ve had it done faster by sending the forms with overnight delivery, obtaining wire instructions from the credit union, and requesting Vanguard to send the money by wire. I didn’t bother; I’m OK with completing in 15 days.
Having done the paperwork just this once, I’m now set for 7 years. I set a calendar reminder at a week before the maturity date. Buying a CD at a credit union takes more time and effort than buying a bond fund but it’s not that bad.
After pocketing the price gains from the drop in bond yields, I find the ability to buy at last year’s rate very appealing. It’s like having a time machine. In the previous 7-year CD vs bond fund case study, the CD won. Let’s see if the CD will win again in this new round.
If you also bought the 3-year 3% add-on CD from Northwest Federal Credit Union in 2015 but you didn’t put in the maximum $100k, you can still add more money to it. The advantage of buying at last year’s rate is only reserved for retail investors. A bond fund can’t join a credit union.