When comparing CD rates, it's important to consider the early withdrawal penalty. This is especially true these days with record low interest rates. At some point rates will rise, and they could rise fast if inflation surges. If the CD has a harsh early withdrawal penalty, you could be stuck in the low-rate CD until it matures. In this post I review two internet banks and compare their CD rates and early withdrawal penalties.
Unlike its savings account rates which plummeted last month, Bank of Internet USA continues to have competitive CD rates. For some CD terms they rank at the top at places like Bankrate.com. At first glance, these may look like a good deal especially since Bank of Internet USA is a financially healthy bank. However, one thing that's not mentioned is the early withdrawal penalties. Bank of Internet has especially harsh penalties for its longer maturities.
I do give BofI credit for posting its Truth in Savings Disclosure online. You can find it here, and it does disclose the early withdrawal penalties:
- CD term of 3 thru 5 months, one and a half month
- CD term of 6 thru 11 months, three months
- CD term of 12 thru 23 months, six months
- CD term of 24 thru 35 months, twelve months
- CD term of 36 thru 47 months, eighteen months
- CD term of 48 months or greater, twenty four months
For all cases the loss of interest is accrued or not so it may eat into the principal. For example, if you need to close the 48-month CD 12 months into the term, the 24-month penalty would not only eliminate the 12-months of interest that you had earned but also reduce the principal by the amount of that 12-months of interest.
On top of this page I included some of the CD rates for both Bank of the Internet and Ally Bank. BofI rates may be a little higher as of 6/03/2010, but with Ally, the early withdrawal penalty is only 60 days of interest for all terms.
Please refer to the following DepositAccounts.com resources for more info on Bank of Internet and Ally Bank: