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.

# Comparing the Best Long-Term Certificates of Deposit

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CD rates at both Pentagon Federal Credit Union and Ally Bank have again gone down lately. However, both continue to have the best long-term CD deals that are nationally available. PenFed has the best rate on a 7-year CD. Ally Bank's 5-year CD rate isn't the best, but it has the smallest early withdrawal penalty of any institution.

Below is an 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.

I've also included Nationwide Bank which currently offers one of the best 5-year CD rates from a bank. As of 1/21/2011, it has a 2.60% APY for a \$100K minimum deposit and a 2.55% APY for a \$500 minimum. As I described on Tuesday, it has an early withdrawal penalty of 6 months of interest. I didn't include the CDs from Melrose Credit Union and Salem Five due to their harsh early withdrawal penalties.

With only a 2-month interest penalty for early withdrawals, Ally Bank's 5-year CD continues to be the best deal if you think it's likely that the CD will be closed before 5 years. You might want to do an early closure due to interest rates shooting up or if you need the money.

The early withdrawal yields listed below 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 1/21/2011.

## Approximate Yields After Early Withdrawal Penalties

 Year of Early Withdrawal PenFed's 7-yr 3.00% CD Nationwide's 5-yr 2.60% CD Ally's 5-yr 2.39% CD year 1 0.00% 1.29% 1.99% year 2 1.49% 1.94% 2.19% year 3 1.99% 2.16% 2.26% year 4 2.24% 2.27% 2.29% year 5 2.39% 2.60% (no penalty) 2.39% (no penalty) year 6 2.49% n/a n/a year 7 3.00% (no penalty) n/a n/a

I don't have any updates to the potential risks of long-term CDs that I discussed in this November blog post. This includes the risk that the bank could increase the early withdrawal penalty on existing CDs. I've received an assurance from Ally's public relations director that the penalty would not be increased on existing CDs. Allan Roth at The Irrational Investor Blog received a similar assurance from PenFed. You can review Ally's disclosure, PenFed's CD terms and Nationwide Bank's terms and conditions to make your own decision regarding this risk.

For more details on PenFed CDs and membership, please refer to my recent PenFed CD review. For more information on Ally Bank CDs, please refer to my Ally Bank CD review. And for more details on Nationwide Bank CDs, please refer to my Nationwide Bank CD review.

You may be able to get higher CD rates at banks or credit unions in your state. To search for the best deals available both nationwide and in your area, please refer to the CD rates and CD IRA rate tables at DepositAccounts.com.

Related Pages: Ally Bank, CD rates, IRA rates

#### Related Posts

|     |   Comment #1
Thanks for Bernanke, we are all going to the poor house.
|     |   Comment #2
Oh ya, we are going to the poor house. I was at a CPA meeting last night and the speaker was saying don't get used to high returns in the market. The low savings rate has forced those who live on interest to enter the stock market. And in 2012 the correction will happen. Bernanke needs to go!
|     |   Comment #3
So, if you are so certain this speaker was right, put it all in the market and cash out on Dec 31, 2011.
|     |   Comment #4
As bad as these rates look, if you want a real shocker go and take a look at Fidelity's brokered CD's....makes the Ally 5 year deal  almost look like a gold mine. lol
|     |   Comment #5
**** straight.  I'd much rather have high interest rates than a functioning economy.

People don't need jobs, they need interest -- and lots of it!
|     |   Comment #6
Speaking of Penfed.

Got my statement today. Effective March 1,2011. penfed will no longer offer 2% cashback for supermarket purchases.   No reason given.   5% on gas and 1% on everything remains. (Including supermarkets)
|     |   Comment #7
Yes, many of us who rely on interest income do need (want) higher interest rates. At the same time we do realize many others need jobs.  But holding interest rates artificially low for so long a time has not helped create more jobs or stimulate the economy.  It doesn't appear to have helped anyone but the Wall Street Bankers.  Now if interest rates were back to at least normal, I and many others would spend more and by doing so would also stimulate the economy and put others back to work.
|     |   Comment #8
#7.  I have frequently written to the Federal Reserve that if they want to stimulate the economy and cause seniors to spend money, interest rates will have to be increased because that is our income stream and we do not like to touch the principal.   The policy of extreme low interest rates have only helped the banks and they are reaping rich rewards for their irresponsible conduct.  Low interest rates did nothing for those who were underwater on their mortgages and who lost their homes, anyway; it did nothing to create jobs; it did not help students whose federal loans are at 6.8%; it did not lower interest rates on our credit cards.  Banks continued charging fees and high interest on credit cards and in essence, have received a windfall because they can borrow at 0% from the Fed Reserve.  What incentive do they have to pay decent interest to the saver, who depends on interest income?  Now the prices of gas and food are beginning to rise, the value of the dollar is falling and we will have galloping inflation.  I think everyone reading this blog should write to the Federal Reserve on their feedback page protesting their policy and the extremely low interest rates over almost two years and demand that they be raised.

BTW, thank you very much Ken for discussing the early withdrawal penalties.  Please keep up your good work in this difficult environment.  Due to reading your blog over the last few years I still have some CDs tied up at 5% or 6%.  Alas, they will mature shortly.
|     |   Comment #9
Mr. Bernanke please stop the madness and let the free market dictate interest rates.  Because of your policies seniors are now forced to seek out riskier investments to earn a better return and eventually we all know where that will lead.  Disaster!
|     |   Comment #10
Uncle Ben did this for the main purpose to get people to put money into the market. that was the plan all along anyway, its why the market has been up somewhat, due to some falling for the BS on CNBC and the Kudlow goldie ****, or the clown with the noise machine, both 7 figure annual salary yappin heads.  And the insider buying by the same people that print out money from air.

I'll stick with the low rates as long as I can, not going to mess with the traders and pushers, or having to hire a CPA to do the paperwork required with gains and loss statements.

The CU and local banks here are so low its not even worth talking to them when a CD matures, just redo it and hold my nose for now. I stay local though cause I like to be able to walk in and at least look someone in the face. Besides rates aren't all that much better anywhere else now as it is.

I'm keeping a tab on this talk about rates raising sometime this year, maybe late summer or so, we'll see how that works out. It will be interesting to see how many are still left with their savings to re invest by than.

|     |   Comment #11
Strongly concur with "no stocks."  I believe the stock market is rigged by the powers that be, and the individual investor does not stand much of a chance.  We'll have to just hold on until interest rates start rising.
|     |   Comment #12
What is missing from the abive analysis is that the penalty for early withdrawal is tax-deductible (in effect, you are recovering tax already paid or due on past interest, which, by virtue of the penaly, you have returned to tbe bank). Of course, the interest rate itself needs to be adjusted to an effective interest rate, after tax.

If you are in a high tax bracket, this can soften the penalty appreciably. I was faced with the need to cash in a number of long-term CD's in 2009 to cover a large, unanticipated purchase. What was helpful was that my income was particularly high that year, compared with past years. So I was being taxed at a higher marginal rate than in prior years when most of the interest had accrued, and tax thereon was paid. YMMV!
|     |   Comment #13
Where's that post on the Fed, Ken?
|     |   Comment #14
two other things to possibly note:

banks history of honoring early withdrawl: i can atest to penfed being very helpful with an early CD withdrawl. just had to fax them a letter stating my request and it was processed the very same day.  while i have no history with ally, i would think a bit if they wouldn't move slow under a rush of requests, especially with a large rateseeker clientele.

will the bank offer a CD backed loan: if in a temporary jam, this could be an option for one needing liquidity immediately and not lose a high long term rate.  if you have a large long term CD at a high rate, borrowing on a portion of it for a temporary basis will allow you to keep it.
|     |   Comment #15
I think the savers of the world should get a collective Nobel Prize for sacrifice as we finance the deadbeats, bankers, and food stamp junkies of the world.
|     |   Comment #16
Always have...always will.

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