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About Ken Tumin

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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Comparing the Best Long-Term CD Rates and Early Withdrawal Penalties


As we have seen this year, the best CD deals are not short-term CDs. The best deals are the long-term CDs which have mild early withdrawal penalties. They return more than short-term CDs even if you close them early. In addition, if rates continue to stay low, you get the benefit of locking in rates for the long term.

I first noticed this deal with the long-term CDs early this year at Ally Bank which has an early withdrawal penalty of only 60 days. In my January Ally Bank CD review I showed how beneficial this can be. As I described in this post, others have been noticing this benefit with Ally and at other institutions like Discover Bank and Pentagon Federal Credit Union.

With the rate cut that Ally Bank made to its 5-year CD last week (2.55% APY as of 10/11/2010), I thought it would be useful to update the table that shows the effective returns after paying the early withdrawal penalty. In addition to Ally Bank, I've included three other institutions. First is Pentagon Federal Credit Union's 7-year CD which currently has the best yield for any CD available nationwide (3.49% APY as of 10/11/2010). The last time I compared these two was on September 1st when Ally Bank's 5-year CD yield was 2.74%. In addition to these two, I've added two other 5-year CDs.

One addition to the table is the CD from Fort Knox Federal Credit Union which is offering a 3.00% APY 5-year CD (as of 10/11/2010). My last review of Fort Knox FCU was in July. Since that time many of its short-term CD rates have fallen considerably. Also, it placed geographic restrictions on its special CDs. However, its regular CDs appear to be available to all members. In addition, the credit union continues to offer an easy way to qualify for membership via the American Consumer Council (see my review). One thing that I just noticed about Fort Knox FCU is its mild CD early withdrawal penalty. According to its membership agreement, the penalty is only 90 days of interest. However, it should be noted that the agreement states that the withdrawal of principal may be made only with the consent of the credit union.

The second addition to the table is the 5-year CD from Acacia Federal Savings Bank. It currently has the best nationally available 5-year CD rate of any bank (2.85% APY as of 10/11/2010). Acacia Federal used to have a harsh early withdrawal penalty, but this appears to have changed. According to the bank's truth in savings web page, it's only 6 months of interest for terms over 1 year.

For all four institutions, I've included links to the disclosures which describe the early withdrawal penalties. The disclosure excerpts and links are located below the table. Institutions don't always have their latest disclosures on their websites, so please check with the institutions to ensure you have the latest official details.

I did not include the 5-year CD from Melrose Credit Union even though its 5-year CD rate is 3.03% APY. As I described in this post from last year, its early withdrawal penalty is harsh and complicated.

Below is the updated early withdrawal yield table that shows approximate average yields you would receive if you close these CDs early. It allows you to determine if it makes more sense to buy a long-term CD rather than a short-term CD. The early withdrawal yields are based on the spreadsheet developed by Bogleheads forum members. It's available from the Bogleheads Wiki: Comparing CDs. It should be noted that the following simple formula comes very close to this spreadsheet:

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

These CD rates are based on the rates listed at the institutions' websites as of 10/11/2010.

Approximate Yields After Early Withdrawal Penalties

Year of Early Withdrawal PenFed's 7-year 3.49% CD Fort Knox FCU's 5-year 3.00% CD Acacia Federal's 5-year 2.85% CD Ally's 5-year 2.55% CD
  1-year EWP 3-month EWP 6-month EWP 60-day EWP
year 1 0.00% 2.24% 1.41% 2.12%
year 2 1.73% 2.62% 2.13% 2.34%
year 3 2.31% 2.75% 2.37% 2.41%
year 4 2.61% 2.81% 2.49% 2.44%
year 5 2.78% 3.00% (no penalty) 2.85% (no penalty) 2.55% (no penalty)
year 6 2.90% n/a n/a n/a
year 7 3.49% (no penalty) n/a n/a n/a
  • PenFed's early withdrawal penalty: Page 2 of PenFed's CD application (2/08), it states the following for certificates with a term of 7 years:
    a) If redeemed within 365 days of the issue date or any renewal date, all dividends will be forfeited; b) If redeemed thereafter, but prior to the maturity date, dividends for the most recent 365 days will be forfeited.
  • Fort Knox FCU's early withdrawal penalty: Page 33 of Fort Knox FCU's Membership Agreement (Sept 2010), it states the following:
    8. Early Withdrawal Penalties. You have agreed to leave the principal of this account on deposit for the full term stated in your account or renewal notice. If all or part of the principal is withdrawn before the maturity date, the Credit Union may charge you a penalty. Withdrawal of the principal amount of your Certificate may be made only with the consent of the Credit Union. Unless stated otherwise, the owner shall forfeit an amount equal to 90 days dividends whether earned or not. The penalty may be calculated at the rate paid on the deposit. The penalty will, if necessary, be taken from the principal amount of the deposit.
  • Acacia Federal Savings Bank's early withdrawal penalty: In Acacia's Truth in Savings web page, it states the following:
    Early Withdrawal Penalty: We will impose a penalty if you withdraw any of the deposited funds before maturity. [...] For an account with an original term of more than one year, the penalty will be 6 month's interest on the amount withdrawn.
  • Ally Bank's early withdrawal penalty: On page 4 of Ally Bank's Deposit Agreement (July 1, 2010), it states the following:
    Early Withdrawals - If you withdraw funds from your CD prior to the maturity date (except in the case of death or legal incapacity of any owner), you will be assessed a 60-day interest penalty except for the Ally No-Penalty CD, which does not have a withdrawal penalty after the first six (6) days of funding. The Ally No-Penalty CD does not allow withdrawals during the first six (6) days following the date you fund your account (except for the death or legal incapacity of any owner). If you have a Raise Your Rate CD, the 60 day interest penalty will be calculated using the interest rate that applies to your CD at the time of your early withdrawal.
Related Pages: Ally Bank, Salt Lake City, CD rates

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  |     |   Comment #1
I don't understand why Garden Savings FCUs 5-year, 2.82%,2.85%APY isn't on the chart--the early withdrawal penalty is a short 90-days, the interest rate comparatively high, and for $50 (the cost of an individual membership in The Newark Museum) you will qualify for Garden Savings membership. I don't know yet if Garden Savings' permission is required for early withdrawal.
  |     |   Comment #2
Hello Ken: in the present interest rate environment, I find your blogs Comparing the Best Long-Term CD Rates and Early Withdrawal Penalties to be the most useful information available to maximize my ROI. Please consider making this a permanent feature to be updated as any changes occur in the underlying rates/institutions. Thank you.
  |     |   Comment #3
To Willtlor,

A $50 membership fee is quite high. Most credit unions are free to maybe a high of $20. I have not seen or joined any with that high of a memberhsip fee. When fees are lower other places and interest higher I see no advantage of joining Garden Savings unless it would be for the convenience of being located in your town and for your comfort level.
  |     |   Comment #4
To Anonymous, The $50 is NOT a fee that Garden Savings charges anyone, it is the current cost to obtain individual membership in The Newark Museum, an organizaton which will qualify an applicant for membership at Garden Savings. Nearly every credit union recognizes many groups and organizations which have their own dues, fees, etc. (and those can easily amount to more than $50) as organizations which will qualifying for memberships in their credit union. As far as the interest rate is concerned, the chart listed only 1 institution--Fort Knox Federal Credit Union--as having a higher rate for a 5-year certificate and they imposes a 3-month early withdrawal penalty and also requires their consent to withdraw funds early.
  |     |   Comment #5
I agree with one of the other posters.   This post contains wonderful information!   Thank you so much for comparing the interest rates in conjunction with the early withdrawal penalties.   It would be great if this were permanent or if there was a tool on this site that had that info. programmed so it could be pulled up when searching for CD rates.
  |     |   Comment #6
I became a member of the American Consumer Council today so I could join the Fort Knox CU and it was incredibly easy.  However, filling out the Fort Knox application online was AWFUL, I had to call several times for help and I'm still not sure it got to them correctly.  The lady on the phone said I'd get an e-mail back from them within 2 days and we'll see from there.  Apparently the online app is only two weeks old and it's not clear at all, hopefully I'll be able to talk to the new accounts person and get them to look at it closer.  Anyway, good luck to all who attempt it.
  |     |   Comment #7
One suggestion for Ken's blog: One thing missing from this blog under "Useful Resources" is a section which might be styled "Tutorials".  Long-time followers of this blog (I count myself as one) remember (or have notes regarding) important twists and turns brought up by Ken and posters involving matters of importance to the reader. This thread is a good example of a topic in a tutorial. Another might be "IRA CDs and the Retiree", a topic dear to my heart. This tutorial could visit issues such as asset allocation (bonds, bond funds, and other fixed income versus CDs in IRAs as part of Bogle's classic "age in bonds"), how to avoid liquidity crunches and still get high yields (think PenFed's waiver of the early withdrawal penalty for partial withdrawals in IRA CDs for those > 59 1/2), fixed-income ladders, and so forth. Tutorials could bring together the historical knowledge of the blog owners, posters, and others, perhaps with links to outside sources as well. I'm not suggesting this blog try to supplant Bogleheads, it's just that CDs and other cash vehicles are a special niche this blog discusses ever so well, and in much more detail than Bogleheads every could (or would be able to). Tutorials could give the new reader (and even "old hands") a great resource without trying to search blog posts through keywords.

Just a thought.

  |     |   Comment #8
Thanks for the suggestions about integrating the early withdrawal penalties into our tables. Also, thanks Bozo for the suggestion about tutorials. This will be something we'll work on.

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