Dedicated to Deposits: Deals, Data, and Discussion

OneWest Bank's Competitive 5-Year CD - Benefits and Issues of Long-Term CDs

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OneWest Bank
Most of OneWest Bank CD rates are no longer that competitive, but it still has one of the best rates for a 5-year CD of 3.30% APY. This is listed in the bank's CD rates page as of 12/17/09.

One nice feature about OneWest Bank's CDs is that its early withdrawal penalty is only 6 months of interest. Many of the banks that offer top rates on 5-year CDs have penalties of one year interest or more. In addition, I can't find any small print in the terms and conditions that gives the bank the right to refuse an early withdrawal. Let me know in the comments if I missed this. As I described last year there have been rare cases when banks have refused early withdrawals based on this small print.

The early withdrawal allowance and low penalty are very important in today's environment when there's a risk that rates could shoot up in the next few years. If rates do shoot up, you can break the CD. The penalty will cost you, but you may come out ahead compared to what you would have earned if you kept the money in a money market account or shorter term CDs. Here are examples of the effective APY if you break this 3.30% 60-month CD early:

Year CD is Estimate APY
broken for those years
---------- ---------------
1 year 1.65%
2 year 2.48%
3 year 2.75%
4 year 2.89%

As you can see above, these rates are competitive to CD rates of terms from 1 to 4 years. The benefit of a long-term CD is that if rates don't rise, and the US experiences a condition like Japan experienced during the 90's, you are locked into a yield that's much better than shorter-term CD yields.

For more details about OneWest regular CDs, liquid CDs and IRAs, please see my July OneWest Bank review.

With OneWest Bank being a new bank it doesn't have the bad loan baggage of IndyMac. OneWest Bank now has an entry in the FDIC database. The established date is listed as 3/19/2009.

Other Competitive Certificate of Deposit Rates

I've recently posted on some long-term CDs from banks and credit unions with small early withdrawal penalties. These are local deals. One is in Massachusetts and the other is in South Florida.

I've also received another confirmation this week that PenFed will be coming out with a 3.75% APY 5-year CD in January (see post). Like OneWest, PenFed's early withdrawal penalty is only 6 months of interest for the 5-year CD.

For other CD rates, please refer to the following:
  Tags: OneWest Bank, CD rates, IRA rates

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Comments
Comment #1 by Mitch (anonymous) posted on
Mitch
The CSR told me that the Bank would hold the rate for only three business days following opening of the account by phone. Seems to be rather miserly of them as regards would-be depositors for whom mailing a check is the only or preferred option for funding the account.

1