Comparing Alliant Credit Union's CDs with Ally Bank's 5-Year CD

Even though Alliant Credit Union cut its CD rates recently, the rates remain near the top of my lists for the best nationwide CD rates with terms of 1 to 4 years. I thought it would be interesting to compare these rates with Ally Bank's 5-year CD rate after you take into consideration the early withdrawal penalty. For example, how does Ally Bank's 5-year CD closed 2 years into the term compare with Alliant's 2-year CD?

Below is a summary of Alliant Credit Union's Jumbo CD and IRA CD yields. Jumbo CD rates require a $25K minimum deposit. Rates are 10 basis points lower for smaller deposits. The early withdrawal penalties (EWP) are listed in the credit union's certificate FAQs. I've noted these penalties in the list below. These are the maximum penalties. The penalty won't eat into the principal. The yields are based on Alliant's rate sheet as of 9/9/2010.

• 1.60% APY 12 to 17 months, EWP 90 days
• 1.85% APY 18 to 23 months, EWP 120 days
• 2.10% APY 24 to 35 months, EWP 180 days
• 2.35% APY 36 to 47 months, EWP 180 days
• 2.75% APY 48 to 60 months, EWP 180 days

For more info about Alliant Credit Union and membership, please refer to my Alliant Credit Union CD review.

Ally Bank's 5-year CD rate has held for a while, and it continues to be 2.74% APY as of 9/9/2010. There was a period last month in which it was dropping a few basis points once or twice a week. Hopefully, we won't see a repeat of that time, and the current yield will continue to hold.

Ally Bank's early withdrawal penalty is only 60 days of interest on all terms including the 5-year term. For more details on Ally Bank and this early withdrawal penalty, please refer to my Ally Bank CD review.

The table below compares Alliant's 1-to-5 year CDs with Ally Bank's 5-year CD when closed early at years 1 to 4. I also included Alliant's 5-year CD when closed early at these years. 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

As you can see below, Ally Bank's 5-year CD is still the best deal for terms of 1, 2 and 3 years. However, Alliant's 4-year CD which has a 2.75% APY is the best deal for a 4-year period. Alliant's 5-year CD yield isn't as competitive as the shorter terms, and since the early withdrawal penalty is 180 days of interest, there's no interest rate advantage over the shorter term CDs when the 5-year CD is closed early. These APYs are as of 9/9/2010:

Alliant's CDs vs Alliant's 5-Yr CD vs Ally's 5-Yr CD

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