Features
- Term: six years.
- APY = 2.50% in taxable (2.40% with a one time rate "step up" option), 2.60% in IRA (2.50% with the step up option)
- EWP (Early Withdrawal Penalty): 180 days of interest.
- Partial withdrawals allowed (according to branch rep; did not see in terms and conditions).
- Federally insured by National Credit Union Share Insurance Fund (NCUSIF); standard limits, e.g., $250K for an IRA account.
I think this CD is better than the current PenFed 5- or 7-year CDs and the Allly Bank 5-year CD (unless you do an early withdrawal from the Ally CD in less than about 1.5 years).
I chose the step-up CD and gave up 10 basis points in yield. I think the price is right for this feature, which will let me do one rate increase without having to do an early withdrawal.
What I am Doing and Why
I am transferring funds currently held in IRA money market accounts (paying almost no interest) at Vanguard and Fidelity into INOVA IRA Step Up 6-year CDs. My reasons are:
- The interest rate on the CD is much higher than a comparable bond fund.
- There is no risk of decline in value of the CD if interest rates rise (unlike a bond fund).
- If rates rise enough, I can use the one-time step up option to increase my rate, and if rates rise more, I can do an early withdrawal, pay the EWP and reinvest at a higher rate.
- If an early withdrawal is disallowed, I still am likely to come out ahead of a comparable bond fund over the next six years.
- I still have plenty of my fixed-income allocation in bond funds and deposit accounts for rebalancing and spending (I'm retired).
- I already have CDs at Ally Bank and PenFed that will approach the federal insurance limits if held to term (but I probably would go for the INOVA CD anyway).
In summary, the process of becoming a member of INOVA credit union has been a bit more cumbersome and time consuming than my experiences with Ally Bank or PenFed Credit Union, but the process of transferring the money from Vanguard and Fidelity to INOVA has been easy and quick. There has been more application paperwork than usual, and some disconnects between the online application and the paperwork that followed. However, for me it has been worth it due to the great features of the CDs. Also, the service I have received from the branch representative, Rebecca, has been outstanding.
One hassle: you have to get the account application notarized.
Also, they do a credit check (not sure if hard or soft pull; I just got an alert that they had checked my credit).
As with some other CUs, like PenFed, you can become a member by paying a small fee to join a not-for-profit organization (if you don't meet any of the other criteria).
Tip: Do not bother with the 800 number listed on the INOVA website, other than to get the phone number of the branch closest to you. The rep I got at the 800 number was unable to answer any of my questions.
By contrast, the rep at the branch near me (about 40 miles away), Rebecca, was extremely knowledgeable, was able to answer all of my questions, and has been extremely diligent and helpful throughout the process. Everything has been handled by phone, email and mail (I did not drive 40 miles to the branch!).
One of my concerns was rates dropping before the transfers from Vanguard and Fidelity had been completed. This happened to my Mom in doing an IRA transfer to PenFed. I was pleasantly surprised when Rebecca told me that they would guarantee the rate before even starting the transfer (not indefinitely of course).
I give a blow-by-blow account of the entire process in the blog post.
Hope this is useful,
Kevin