I've been reporting on Ally Bank's very mild early withdrawal penalty since January. Even though Ally Bank's 5-year CD rates haven't been the best this year, the mild early withdrawal penalty helped to make the CD a much better deal (see my Ally Bank CD review).
Last week I compared Alliant Credit Union's CDs with Ally Bank's 5-year CD. For example, I compared the yield of Alliant's 2-year CD with the yield from Ally Bank's 5-year CD after closure of the CD at year 2 which included the early withdrawal penalty of 60 days of interest. Even though Alliant's 2-year CD yield is the best in the nation, Ally Bank's 5-year CD when closed after 2 years comes out on top. This is true for all of Alliant's CDs except for its 4-year CD.
I thought it would be interesting to do this same comparison with Sallie Mae Bank which currently has one of the best nationwide bank CD rates. Sallie Mae Bank's 5-year CD has a 3.00% APY as of 9/13/2010 which is currently 26 basis points over Ally Bank's 5-year CD yield. As specified in Sallie Mae Bank's FAQs, the early withdrawal penalty is 6 months of interest for terms of over 12 months. The 1-year CD has a 3-month interest penalty for early withdrawal. For more details on Sallie Mae Bank and its CDs, please refer to my Sallie Mae Bank CD and savings account review.
Instead of using the quick estimation formula that I used last week, I used the spreadsheet as referenced in this Bogleheads wiki on comparing CDs. It uses a more accurate calculation of the yields after the early withdrawal penalty. However, the yields are very close to the yields estimated by my quick method.
As you can see below, Ally Bank's 5-year CD is still the best deal for terms of 1, 2 and 3 years. At year 4, it's a tie between Ally Bank and Sallie Mae. For any closure after year 4, Sallie Mae's 5-year CD has the best rates.
The second column of the table lists Sallie Mae Bank's CDs without any early withdrawals. The third column lists the effective returns on Sallie Mae's 5-year CD after paying the early withdrawal penalty, and the fourth column lists the effective returns on Ally Bank's 5-year CD after paying the early withdrawal penalty. These APYs are accurate as of the morning of 9/13/2010.
Sallie Mae Bank CDs vs Ally Bank's 5-Year CD
|Maturity or EW||Sallie Mae's 1-5yr CDs||Sallie Mae's 5-yr 3.00% CD||Ally's 5-year 2.74% CD|
|year 1||1.55% (no penalty)||1.49%||2.28%|
|year 3||2.30% (no penalty)||2.49%||2.59%|
|year 5||3.00% (no penalty)||3.00% (no penalty)||2.74% (no penalty)|
Searching for the Best CD Rates
To search for the best nationwide CD rates and the best CD rates in your state, please refer to the CD rates section of DepositAccounts.com.