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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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New Calculator To Compare CDs After Early Withdrawal Penalties

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We have developed a new calculator to help you shop for CDs. It’s called the CD Early Withdrawal Penalty Calculator. You can access it using this link or from our home page where it’s listed under the Calculator and Tools section.

The new calculator shows the effective APYs when closing a CD before maturity. These APYs are the penalty adjusted net yields which take into account the effects of the early withdrawal penalties. The larger the penalty, the smaller the penalty adjusted net yields. The smaller the penalty, the larger the penalty adjusted net yields. When long-term CDs have small penalties, these penalty adjusted net yields are often higher than short-term CD yields.

In our new calculator, up to seven CDs can be compared in one table. We provide a few CDs that you can select in the top right box. Just click on those links, and the table will be filled out automatically. For other CDs, you’ll have to fill in the APY, term and EWP manually. We provide two tables. One is a short table which lists APYs for each year until the longest-term CD matures. Under this is a second table that lists APYs for each month.

I’ve done several posts in the past in which I compare top nationally available long-term CD rates after early withdrawal penalties. In those posts I used a spreadsheet to calculate the penalty adjusted net yields, and then I copied these yields into a table. The problem is that rates constantly change, and even early withdrawal penalties have been changing. So each change would require a new table. With this new calculator, you can immediately see the effects of rate and EWP changes.

Comparing the Latest Top CDs

To show a useful example, I filled in the table for seven top long-term CDs. You can see this table using this link for the 7 CDs.

This is a new version of the CD comparison that I did last month. There have been a few changes since last month. In addition to some rate cuts, Barclays increased its early withdrawal penalty on its 5-year CD from 3 months of interest to 6 months.

Due to this larger EWP at Barclays, Ally Bank’s 5-year CD is back as the best deal if the CD is closed on or before 18 months after opening.

After 18 months, Mountain America Credit Union’s 5-year CD becomes the best deal. This is because it has the highest rate, and its EWP is 6 months of interest. Note, this credit union often makes rate changes at the start of the month. With April starting next Monday, you may want to hurry if you want this CD.

For CDs with terms over 5 years, Discover Bank’s 10-year CD is actually a better deal than PenFed’s 7-year CD. The only exception is at year 7 when the PenFed 7-year CD matures and there is no penalty. In that case, the no-penalty yield is slightly higher than Discover Bank’s penalty adjusted net yield.

Barclays 5-year CD had been the best nationally available 5-year CD for a bank. That recently changed with a rate increase at The National Republic Bank of Chicago (TNRBoC). Its 5-year CD rate is 1.87% APY as of 3/27/2013 which just tops Barclays’ CD rate. Both banks now have an early withdrawal penalty of 6 months of interest for their 5-year CDs. I did a review of TNRBoC earlier this month when its 5-year CD rate jumped above 2%.

Risks of Depending on CD Early Withdrawals

Comparing the yields if the CDs are redeemed early assumes that the customer will be able to close the CD early with the early withdrawal penalty specified at the time the CD is opened. As I've explained many times, there are two risks if you plan to make use of an early withdrawal:

  1. The bank refuses to allow an early withdrawal
  2. The bank increases the early withdrawal penalty on your existing CD

The risk of Ally Bank refusing an early closure went up last year when it updated its CD disclosure. Due to this disclosure change, Ally joined other banks that have language in their disclosures which gives the bank the right to refuse an early closure. I reviewed these banks and credit unions in this 2011 post.

About the risk of banks increasing the early withdrawal penalties on existing CDs, there have been two cases of this at credit unions. The last one was in January 2012. Even though the NCUA did allow one of these credit unions to increase the early withdrawal penalty on existing CDs, it did require that the credit union notify members at least 30 days before the change took effect. That will at least allow members to redeem their CDs before the new penalty takes effect.


  Tags: CD rates

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Comments
11 comments.
Comment #1 by Anonymous posted on
Anonymous
what a nice tool!  thank you.

5
Comment #2 by Anonymous posted on
Anonymous
Totally Awesome! Thanks

2
Comment #3 by pearlbrown posted on
pearlbrown
Ken, thanks to you and your team for developing this excellent calculator.  It is a great tool for someone whose strategy is to open a CD with the intention of closing it early if a more attractive opportunity presents itself.  

2
Comment #4 by Ally Sucks (anonymous) posted on
Ally Sucks
Why is the MYTH that Ally's supposed 60-day penalty is a valid assumption STILL being perpetuated here?

While You regularly include this boilerplate text these days:

"The risk of Ally Bank refusing an early closure went up last year when it updated its CD disclosure. Due to this disclosure change, Ally joined other banks that have language in their disclosures which gives the bank the right to refuse an early closure. I reviewed these banks and credit unions in this 2011 post."

... the REALITY OF THAT ENTIRELY UNDERMINES ALL THE FINDINGS/NUMBERS in all these subsequent articles. You should stand by what you SAY THAT YOU THINK ABOUT ALLY, not just seem to KEEP SHILLing for them anyway!

Put differently, you have created articles describing this retrospective one-sided change in terms and yet you continue to ignore your own findings in these type of regular CD rate early withdrawal articles! WHY?!

When a bank gets clean away with retrospectively permitting ITSELF to refuse your early withdrawal AT ALL then they should not be included in this type of thing, probably not even given space on the site itself (anywhere) - except perhaps as a cautionary tale for those who'd not research before investing. Alas those of us who Ally can now seem to get away with ****ing over by refusing to permit our early withdrawals didn't even benefit from doing our research beforehand! Avoid Ally! The precedent they set for banks will be followed by others and the FDIC continues to ignore their example. Try a Credit Union instead, as per your final paragraph.

 

3
Comment #8 by lou posted on
lou
#4 is actually making a good point about Ally, albeit incorrectly blaming Ken for their actions. There is really no good reason why Ally changed the language if they were intending to honor the early withdrawal penalties for the next five years. Until they explain why they felt compelled to insert the language giving them the right to refuse early payment, I would not purchase a CD from them if I thought I might want the money before the end of the term.

5
Comment #5 by Anonymous posted on
Anonymous
Dear SUCKS

You Do.  Read the links.

2
Comment #6 by Anonymous posted on
Anonymous
Oh COME ON  ,  a Shill ?  yeah right.

2
Comment #7 by klink posted on
klink
Thanks Ken.

2
Comment #9 by klink posted on
klink
Ditto what Lou said. Ally was my next choice for a 5 year, however Lou's remarks and a recent post from another person on the forum reference security issues have made me re-think my position.

1
Comment #10 by Anonymous posted on
Anonymous
Ally is basically owned by the gov't.  The FDIC or Treasury  could easily change the rules if early withdrawls would cause harm to the bank. 

1
Comment #11 by Wanderer (anonymous) posted on
Wanderer
Number 10, you are exactly right. However, not only of Ally, but of all the banks will have the backing of the government when they want to stop you from doing an early, or any withdrawals, in order to "save the banking system." Look at Cyprus, where people with even checking accounts are limited to 300 Euros per day!

Thankfully, monetary problems usually telegraph themselves a few months or years ahead of time. Smart Cypriots and Russians, for example, withdrew all their money from Cyprus over the last two years. Only the dumb ones are going to lose their shirts. The smart ones bought gold, or transferred funds to jurisdictions like Germany.

Remember, with money tied up in CDs, you are a sitting duck, because you cannot transfer funds into another form, when the handwriting is on the wall. If you think the confiscation that happened in Cyprus is bad, wait until the USA forces you, for example, to buy government bonds, denominated in ever-more-heavily printed and devaluing currency, for your IRAs and 401K. Or, maybe, they will allow a too-big-to-fail bank to fail, and do a big haircut against depositors. Unlike Cyprus, most USA depositors keep their deposits under $250,000, so a tax grab like that would necessitate violating the FDIC insurance.

Here are some pointers for survival:

1) Do not rely on early withdrawal as being an option when the going gets rough. Stay liquid! Keep money in the highest paying liquid accounts, such as MM or checking. Keep a portion of your cash OUTSIDE the USA. Canada is a likely option, and the easiest one for most Americans.

2) Buy platinum, silver or gold. Store some of it in secret places near at hand, but store a majority of it outside of the jurisdiction of the USA court system. Make sure, however, that it is stored in a jurisdiction with a strong tradition of the rule of law. Canada, again, is a good choice.

3) Buy a hobby farm and keep a good generator, as well as ample quantities of fuel on it. Be ready to grow your own food for a year or two, while the chaos reigns, and a new monetary system is put together.

 

5
Comment #12 by NeilStanley posted on
NeilStanley
I am looking for feedback from the DepositAccount.com readers on the following advertisement that is being developed now to help depositors trade-up their CDs...

Wish You Could Raise Your Rate on Your Certificate of Deposit?
Don’t be fooled by ads that you have to buy this feature from a particular bank.  We specialize in helping depositors with money in any bank or credit union consider their options. *You may be one of the smart depositors who are trading up their old CDs now* Last year some local 4-year CDs were sold at 0.80% with 6-month early withdrawal penalties.  As of June 6, 2014, someone who has $100,000 invested in that CD could trade-up their deposit with no risk and end up with $1,724 more at maturity! Learn how much your CD could be worth at maturity if you upgrade today. This is a free, no-risk, no-obligation offer.   It is our privilege to immediately provide relief to those who have suffered from low interest rates for so long. Come in to any of our offices or call us today.   CD Revolution® is protected by U.S. Patent Number 8,140,419 - 3/20/2012

Your comments and recommendations are welcomed.  Neil Stanley-Revitalizing Time Deposits

1
Comment #13 by Anonymous posted on
Anonymous
Read today's WSJ on where "to park CD money" given the current interest environment. 

1