| Bank or Credit Union | Apy | Min | Max | Product | |
| Ally Bank | 1.74% | - | - | High Yield 5 Year CD | |
| Discover Bank | 1.75% | $2,500 | - | 5 Year CD | |
| Discover Bank | 2.45% | $2,500 | - | 10 Year CD | |
| Pentagon Federal Credit Union | 2.76% | $1k | - | 7 Year Money Market Cerificate |
Comparing Long-Term CD Rates at Discover, Ally and PenFed
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With last week's CD rate cuts at Discover Bank and Ally Bank, I thought it would be useful to review these banks' new long-term CD rates taking into consideration the early withdrawal penalties.
Ally Bank's 5-year CD yield is currently 2.74% APY. Hopefully, this will hold for a while. It seems like Ally has recently stepped up the rate cuts on this CD. Even with this lower rate, the CD is a better deal than most short-term CDs due to the mild early withdrawal penalty of 60 days of interest.
Discover Bank was the other major bank that cut CD rates last week. Unlike Ally, Discover Bank offers a 10-year CD with a higher rate than the 5-year CD. The downside is a larger early withdrawal penalty (9 months of interest vs. 6 months for the 5-year). However, this 9-month penalty is below average for CD terms over 5 years.
Pentagon Federal Credit Union hasn't lowered its CD rates, but they might when September begins. PenFed CD rate changes typically occur at the start of each month. Its 7-year CD rate has a big lead over Ally's and Discover's rates. The downside is PenFed's early withdrawal penalty of 12 months of interest.
Below is a table where I approximate what the equivalent yields would be if these CDs were closed early. Here is the formula I used to approximate the yields:
Post Penalty APY = (Full APY) x (D - P) / D
D = days into term when the CD was closed.
P = days of the early withdrawal penalty
By reviewing the table below, Ally Bank still has the best deal if you think there's a good chance you'll be making an early withdrawal in one to two years. This could be due to a sharp rise in interest rates or if you just think you might need the money. Please refer to my Ally Bank CD review for more details.
If you think interest rates won't rise in the next 3 years, PenFed's 7-year CD becomes the best deal. Please refer to my PenFed CD review for more details. Select PenFed members have even better CD options (see post).
If you're worried that interest rates will stay low for many years, a 10-year CD at Discover Bank might make sense. Don't forget AAA members can get an extra 5 basis points on Discover CDs. Please refer to my Discover Bank CD review for details.
Approximate Yields After Early Withdrawal Penalties (as of 8/29/10)
| Year of Early Withdrawal | Discover's 10-year 3.25% CD | Discover's 5-year 2.90% CD | Ally's 5-year 2.74% CD | PenFed's 7-year 3.75% CD |
| year 1 | 0.81% | 1.45% | 2.29% | 0.00% |
| year 2 | 2.03% | 2.18% | 2.51% | 1.88% |
| year 3 | 2.44% | 2.42% | 2.59% | 2.50% |
| year 4 | 2.64% | 2.54% | 2.63% | 2.81% |
| year 5 | 2.76% | 2.90% (no penalty) | 2.74% (no penalty) | 3.00% |
| year 6 | 2.84% | n/a | n/a | 3.13% |
| year 7 | 2.90% | n/a | n/a | 3.75% (no penalty) |
| year 8 | 2.95% | n/a | n/a | n/a |
| year 9 | 2.98% | n/a | n/a | n/a |
| year 10 | 3.25% (no penalty) | n/a | n/a | n/a |
Other Top Long-Term CD Rates
For more long-term CD rates that are available nationwide and by state, please refer to the following pages at DepositAccounts.com:
- Best 5-Year CD Rates
- Best 7-Year CD Rates (includes 6 to 10 year terms)
relwal mot (anonymous) - #1, Monday, August 30, 2010 - 11:31 AM
pen field gets my vote
roaminstone (anonymous) - #2, Monday, August 30, 2010 - 1:21 PM
Interesting comparison. Is there an FCIC regulation, or do the banks themselves decide what happens if the CD client dies before the end of the long term? In the case of a revocable living trust? Does the account close without penalty, or does the estate inherit it with no changes in the rules and regulations of the account? And what if the account is with a credit union? What are the best choices for an elderly person in poor health?
Anonymous - #3, Monday, August 30, 2010 - 2:01 PM
I thought that Ally figured their penalty on the first sixty days rather than the last. If so, then this formula doesn't work for them.
Anyone know how the others figure their penalties?
tami lawless (anonymous) - #4, Monday, August 30, 2010 - 2:31 PM
is a cd better than a bond ?
Anonymous - #5, Tuesday, August 31, 2010 - 6:42 AM
To tami, it depends. You have to understand bonds and cds and how they work. If one or the other was trully "better" in every situation, than only cds or only bonds would be on the market.
Anonymous - #7, Tuesday, August 31, 2010 - 9:27 AM
In these uncertain times having this kind of information is a necessity to make good investment decisions. Was a financial calculator used and what are the keystrokes. I would like to learn how to do this kind of calculation.
Anonymous - #8, Tuesday, August 31, 2010 - 3:34 PM
Tami is a troll, ignore "him"
Anonymous - #11, Tuesday, August 31, 2010 - 6:48 PM
what no awesome ladies and gentlemen the future has spoken god hepls us
AnnoyingtrolL (anonymous) - #12, Wednesday, September 1, 2010 - 12:05 AM
buy 5 percent war bonds but not from iran afghanistan or venezuela
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