Two days ago, Citizens Union Bank of Shelbyville (Kentucky) began offering a 60-month Stepped Rate CD (2.26% Composite APY). The minimum opening deposit for this CD is $2.5K.
While the composite rate of 2.26% is very attractive, it is important to understand that unless you are prepared to not disturb the CD for the full five years, you will not benefit from the 2.26% rate, and in fact, will earn a substantially lower amount.
Please refer to the "Advantage and Disadvantage" discussion at the bottom of this page for more detail.
Citizens Union Bank of Shelbyville's 60-month Stepped Rate CD is available only to residents of Kentucky. If you are currently a customer, you can open the CD online, but if you are new to the bank, a visit to one of 14 branch locations is required.
Citizens Union Bank of Shelbyville has branches in Shelbyville (4), Simpsonville, Taylorsville, Mt. Washington, Louisville (3), LaGrange, Hodgenville, Elizabethtown, and Fort Knox.
Citizens Union Bank of Shelbyville, has an overall health rating of C+ at DepositAccounts.com, with a Texas Ratio of 41.24% (average) as of March 31, 2014. CUB holds $533.52 Million in assets, with $66.37 Million in equity, resulting in an excellent capitalization rate of 12.44%. Please refer to our financial overview of Citizens Union Bank of Shelbyville for more details.
The original Citizens Bank of Shelbyville first opened its doors in 1888 and continued for the next 80 years as a local, community bank. Citizens Union Bank of Shelbyville (FDIC Certificate # 5840) was established following a merger in 1970 with the Bank of Simpsonville. Citizens Union Bank of Shelbyville is one of the only remaining privately owned community banks in northern Kentucky.
Advantage and Disadvantage of this Stepped Rate CD
Citizens Union Bank of Shelbyville's Stepped Rate CD is structured as follows:
Year 1 (First 12 months)
Year 2 (Next 12 months)
Year 3 (Next 12 months)
Year 4 (Next 12 months)
Year 5 (Last 12 months)
The advantage of this type of Stepped Rate CD is the deferment of taxes owed on the interest earned. Since the interest rates are low (1%-2%) for the first 4 years of this CD's life, the tax obligation will also be correspondingly low. It's not until the last year, when the rate reaches 5%, that the tax obligation will be the greatest.
The disadvantages are penalties and lower interest rates in the early years of the CD's life. According to CSR, the EWP is a full year's interest, based on the date of the withdrawal. For example, if a withdrawal were to occur in 4th month of Year 3, the penalty would be 4 months interest at 1.75% (Year 3) and 8 months interest at 1.50% (Year 2). As you can see from the above table, the most earning power is in the 5th year of the CD, with a rate of 5.00%. Any withdrawals in the first four years negates the earning potential greatly.
The above rates are accurate as of 8/15/2014.
To search for nationwide CD rates and CD rates in your state, please refer to the CD rates section of DepositAccounts.com.