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2.99% fixed rate credit card loans at Pentagon Federal Credit Union: Take that Credit Crunch!

By Dave - Posted on 17 May 2008

From time to time, will review financial products and services that we think offer exceptional opportunities to our readers. The first in this series covers an offer announced in May 2008 by  Pentagon Federal Credit Union.
The offer in a nutshell. Until June 15 2008, any credit or loan balance transferred to any Pentagon Federal credit card will qualify for a 2.99% interest rate until the balance is paid off. Other than a one-time, 1% transfer fee with a $10 minimum and $100 maximum, there are no catches to this offer.

Why is this a good deal?

  • Very cheap fixed-rate debt. 2.99% is an amazingly low fixed rate. We're not aware of any lower rates anywhere, outside of introductory promotions or offers targeted to particular customers. Even the best secured loans—which all require real estate, vehicles, stocks, or other property for collateral—will charge significantly more than this.
  • Very reasonable fees. As long as the transfer is at least $1,000, Penfed charges only a one percent fee. Even better, due to its $100 cap, the fee is lower still if your situation allows for a transfer of over $10,000.1
  • It comes at a great time for credit customers. As the “credit crunch” continues to unfold, many lenders have been curbing credit of all kinds: home equity loans, small business lending, and general credit card limits as well as promotional offers like this one. We at suspect that this pullback in credit offerings will get worse—perhaps much worse—before it gets better. That makes now a great time to lock-in low-interest, no-obligation debt.
  • A membership and product worth having on other grounds. PenFed is arguably the best credit union in the United States offering membership to everyone. It's well worth joining, even if you or a family member has to pony up the $20 one-time fee to gain admittance. And their flagship card product, the Visa Platinum Cash Rewards Card, is among the very best credit cards available, with perhaps the simplest rewards structure in the industry. Especially noteworthy is how forgiving they are about late payments. According to their representatives, cardholders are granted ten days grace period before they incur any late fee, and they not in “default” (thereby losing a the 2.99% rate) until they are sixty days late. Even if they DO default, the rate increases to 14%. While much worse than 2.99%, this is far better than most any other credit card company's default rate.

How can deal this help me? Here are a few examples of how this offer might be used prudently:

  • Pay off higher rate credit card debt. This is no doubt what most PenFed members who take advantage of the offer use it for. Suppose you have $15,000 in credit card debt at a 15 per cent interest rate. Simply transferring that debt to this card will save $50 the first month (including the transfer fee), and over $100 each additional month for years going forward.
  • Pay off a vehicle loan. Car loans will always be set at higher than 3% interest. Moreover, they require the car as security, which among other issues means that the car's owner must carry “comprehensive” insurance sufficient to pay off the lender. By using this offer to pay off a car loan, you not only get title to your vehicle back and save on interest, but you also might save a bundle on insurance payments.
  • Generate a cost-free “cash cushion” or “emergency savings account”. Even if you don't need the money now, this rate is so low that a borrower likely won't lose money by simply taking the proceeds and saving them in a safe vehicle like a CD or a money market account. (Indeed, Penfed's own five-year CDs currently pay 4.41%, or almost 50% more than this debt costs!) And by doing so, you instantly create a “reserve account” that could be tapped in the event of an emergency, in lieu of borrowing at whatever rate you might find.
  • Top Off that Retirement account contribution. Ideally, all of us workers would be investing substantially in our retirement accounts regardless of this offer. But for some, a promotion like this will make the difference between enjoying the full 401(k) “matching dollars” that their employer provides, or making a full Roth IRA contribution for that year.

How do I set this up?

  • Becoming a member of Pentagon Federal. If you aren't one already, here's how to join. Virtually anyone can join Pentagon Federal. Membership qualification options include one that admits essentially anyone willing to to pay a one-time, $20 fee.
  • Getting the card. The first step is Once that's done, simply long in to their online banking system and fill out online application, or call them 24/7 to apply.
  • Performing the transfer. Once that's done, you have until June 15 to initiate a balance transfer online or by phone to any other lender. Note that this rate requires that PenFed send the money to the other loan account, not a deposit or checking account. If you happen to have a higher-rate balance you want to pay off, this won't be an issue. If not, you might transfer to a line from which cash can easily be drawn without a fee, such as an equity line of credit, or a credit card with no cash advance fees.
  • Making Payments. Payments can easily be made online, by phone, or by mail, and their online system is quite flexible. They also do have a useful “auto-payment” setting that can make sure that payments are never late, provided that you have funds in a payment account sufficient to cover that month's minimum.

 Any other details I need to know? There are a few worth noting:

  • This offer is good for ALL cardholders, new and existing. Frequently, offers like this are either reserved for new cardholders, or targeted only to certain customers. Not this one.
  • Credit lines run up to fifty thousand dollars per person. With good credit, many members are awarded $25-50,000 lines, often without having to provide financial documentation. And unlike at some credit unions, these limits are per person, not per household. So it's entirely possible—and not that uncommon—for a husband and wife to have $100,000 in credit card limits between them.
  • Minimum payments are 2% of the balance. If you haven't used a balance transfer offer before, this detail might not seem significant. But if you think of this offer as a super-low-interest “loan”, it's this payment statistic that dictates the loan's “term.” That is, the lower the monthly minimum payment required, the longer the offer will benefit you, and the greater the interest saved. Specifically, this loan's balance gets reduced by half roughly every 39 months.2
  • Don't plan on using the card for purchases while the balance transfer is active. As when carrying any balance, this offer negates the "grace period" on new purchases, and as a result any purchase will accrue interest at PenFed's standard "purchase rate" of 13.99%.  Moreover, subsequent payments will apply to higher rate  balances (e.g., the $13.99% purchases) before lower rates balances (the 2.99% for life offer in this case). Bottom line: while using this offer, use this Penfed card it only for this offer.
  • PenFed transfers electronically where possible, and by check where not, posting them immediately either way. Their electronic transfers are amazingly fast, often reaching the target account within one to two business days! However, mailed paper checks are much less reliable, and can take weeks. Either way, interest accrues effective the date you make the transfer, so it's to your advantage to have the delivery of the funds be as rapid as possible.

1. Simple arithmetic shows that as the size of the transfer increases above $10,000, the fee will drop below one percent, down to a theoretical minimum of 0.2% for a $50,000 transfer. Since fees are per transfer, you will want to make one larger transfer rather than several smaller ones. An exception: if you want to transfer between 2,000 and 10,000, your fees may not be greater if the transfers are divided. Example: if I can transfer $8,000, then sending $2,000 to card A, $2,500 to card B, and $3500 to loan C, I'll pay $20 + $25 + $35 = $80 in fees; the same $80 that a single $8,000 transaction would cost.

2. During the first 39 months, and initial balance of $50,000 would be cut to $25,000. Then 39 months later, that $25,000 becomes $12,500. Borrowing from physics, one might think of 39 months as the offer's “half-life”. Meanwhile, the payments start very large---$1,000 a month at the beginning—but they fall just as rapidly as the principal balance does.

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Thanks for the great explanation of this offer

this interest rate is so good. I am so glad too see it. I would love to see it more.

I think this the best offer

My purpose in joining PenFed Credit Union was to obtain the benefits of a PenFed credit card. They required a $20. account activation fee for non military members. After opening the account, I was informed that the credit card would be "in the mail".

After a month of waiting for the credit card which never arrived, I contacted PenFed. I was told that I now had to submit two years of tax returns in order to be considered for a credit card.

I was never informed that I would have to submit tax records as a condition for obtaining a credit card. I have never been asked for tax records to obtain a credit card, and I have never been denied a credit card. MY CREDIT RECORD IS OUTSTANDING. Requesting tax records from me - after ignoring my application - is highly irregular and suspicious.

I feel that the entire process of obtaining a credit card from PenFed has been misrepresented to me and I have requested the return of $20. which I feel they obtained from me under false pretenses. STAY AWAY FROM THEM.

No question that most banks, including PenFed, are getting tougher with their underwriting. Requiring tax returns used to be a rarity for credit card applications, but now it is commonplace.

I'm sorry to hear about your bad information from the PenFed CSR. Stricter underwriting is no excuse for that. Sadly, yours isn't the only instance where their communication has been inconsistent or otherwise lacking. They need to improve here.

Thanks for your comment.

Yes 2.99% rate of interest on credit card is amazingly good you usually won't find such offers and since you have given complete other details so it should be one offer that credit card users can believe.


When you compare credit cards, you’ll notice that some of them come with quite a lot of fees. There can be application fees, processing fees, annual fees, late fees, and fees for going over your credit limit. Fees can also apply when you close your account or make a balance transfer to another card. The credit card industry is competitive, so don’t waste your time on credit card offers that indicate exorbitant fees.

And fees have been growing in this more difficult credit environment.

I pay even less for my credit card monthly rate to be honest. I don't know why does this offer seems so good to you. Besides because I use Blair easy saver program. I don't have to pay at all for my credit card. Besides I managed to save a lot of money in the last 5 years.

You're right that other credit cards might offer low or no interest for new purchases, for promotional periods, et cetera. However, what makes this interesting is that as long as you tranfer the money to another debt, it's just like a loan. That is, you DON'T have to make new purchases to qualify for the rate.

can I transfer my credit card loans to student loans?

But it isn't a function of this offer, or others like it.

I feel overwhelmed with all the “big” banks out there. As a student, I find myself prey to some of the financial institutes available. After months and months of searching, I think I found a great solution to my loan frustrations. Even though they are a big corporation, then gave met he hands on approach that I have been looking for. In addition, they seemed to actually listen to my loan problems and they helped step by step to straightened out my loan issues. This is the link I found. I can only hope it helps you out as much as it has helped me out.
Best Regards.

I’m getting TONS of credit card offers from small banks and credit unions. I am already battling keeping my credit score high and don’t want to get burned. I heard Wells has a real knack for student banking. This is the link I found -
Can anyone comment on my findings?


Great explanation of this offer. I just applied for card and got approved. Will do transfer in a few days.

However I think you may be mistaken on how payments would be applied if you used this card for purchases. (am not going to). You say "subsequent payments will apply to higher rate balances (e.g., the $13.99% purchases) before lower rates balances (the 2.99..."
I believe the payments would be applied to the lower rate balance first as they would want to earn more interest from you which they would do if they kept as much of the remaining balance as possible to carry forward at the higher rate.

Great question, and I apologize for losing it in the burst of spam we received last year.

Penfed, unlike other lenders, applies payments in this order:

-FIRST to new interest on the balances you're carrying,
-THEN to HIGHEST interest balances,
-FINALLY to lowest interest balances.

I know, it's difficult to believe...but after I received this information, I verified it with 6 different accounts.

I hope you had a chance to take advantage of the offer!


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