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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3.90%--Ally Bank5 Year High Yield CD
3.75%$2.5k-Discover™10 Year CD
Rates as of May 27, 2024.

The Best CD Rates and the Smallest Early Withdrawal Penalties


In this post I review four institutions with top long-term CD rates with relatively mild early withdrawal penalties. Many people assume we will see very high inflation and eventually very high interest rates that result from that inflation. That is a risk, but we shouldn't forget the Japan scenario in which interest rates stay low for many years. That is also a risk. A long-term CD with a mild early withdrawal penalty can be helpful to protect against both risks.

In February we had started to see some higher long-term CD rates. Unfortunately, that didn't last. The banks that were offering special 5-year CDs with a 3.00% APY have cut their rates. Long-term CD rates at credit unions have also been falling. Pentagon Federal Credit Union cut their CD rates in March and are no longer rate leaders. Fort Knox FCU just recently cut their long-term CD rates.

So if you're looking for the best CD rates, you will likely be disappointed. If you want a yield of at least 3.00%, it's not easy to find. For nationally available CDs, Connexus Credit Union is offering 3.00% APY on a 5-year CD, but this requires an active checking account. There are more 3.00% CDs for terms over 5 years. Navy Federal Credit Union is offering 3.05% APY on a 7-year CD with a $20K minimum deposit, but you must have a military connection to be eligible to join.

Some of the banks that have the highest CD rates may not be the best deals due to their harsh early withdrawal penalties. Some examples of these banks and credit unions include Melrose Credit Union, Sovereign Bank, Capital One and Apple Federal Credit Union.

So here's a list of four institutions with top long-term CD rates and relatively mild early withdrawal penalties. Below this list, I've included a table which shows the effective yields from these CDs if you make early withdrawals.

The first institution is a bank that I've mentioned many times before. It's Ally Bank, and its CDs only have a 60-day early withdrawal penalty. Its 5-year CD rate isn't the best (2.40% APY as of 3/21/2011), but with only a 60-day early withdrawal penalty, this becomes a good deal especially if you need to close the CD before the first 3 years. One thing to note with Ally CDs is that you can't do partial withdrawals. So it makes sense to open multiple small CDs rather than one large CD. Refer to Ally Bank's account disclosure for the full details.

The second one is Discover Bank which is offering a 3.00% APY 10-year CD. Ten years is definitely a very long term, but Discover Bank's early withdrawal penalty for terms over 5 years is 9 months of simple interest on the amount withdrawn (see Discover Bank's FAQs). This is smaller than the penalty for 7-year CDs at both PenFed and Navy Fed (both have a 12-month penalty).

The third and fourth ones are tied. Digital Credit Union and Kaiser Federal Bank are offering a 5-year CD with a yield close to 2.75% APY. DCU's 5-year CD yield is actually 2.76% APY for a $25K minimum deposit. Members can get 3.01% APY if they have a Loyalty Checking Plus relationship. The Kaiser Federal Bank's 5-year CD is a special with a $10K minimum deposit requirement. Both of these CDs have an early withdrawal penalty of 180 days of interest. I have more details in my DCU CD review and my Kaiser Federal CD review.

Below is an 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 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 3/21/2011.

Approximate Yields After Early Withdrawal Penalties

Year of Early Withdrawal Discover's 10-year 3.00% CD Ally's 5-year 2.40% CD DCU's 5-year 2.76% CD
year 1 0.74% 2.00% 1.37%
year 2 1.86% 2.20% 2.06%
year 3 2.24% 2.27% 2.29%
year 4 2.43% 2.30% 2.41%
year 5 2.54% 2.40% (no penalty) 2.76% (no penalty)
year 6 2.62% n/a n/a
year 7 2.67% n/a n/a
year 8 2.71% n/a n/a
year 9 2.75% n/a n/a
year 10 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 2010 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.

Related Pages: CD rates, Ally Bank
Previous Comments
  |     |   Comment #1
The rates that you show here for CD's at DCU assume that you have a Relationship Checking Account which has a number of requirements, including a minimum balance, direct deposit, electronic payments, etc. or that you pay a $15 per month fee.  Otherwise the rates are .25% less than you show.  Please start adding this footnate regarding DCU when you post about their rates.  For many people whoa re just looking for CD's this is not such a great deal.
Anonymous to Nutgraf
  |     |   Comment #2
Dude, can't you read?

The third and fourth ones are tied. Digital Credit Union and Kaiser Federal Bank are offering a 5-year CD with a yield close to 2.75% APY. DCU's 5-year CD yield is actually 2.76% APY for a $25K minimum deposit. Members can get 3.01% APY if they have a Loyalty Checking Plus relationship.
  |     |   Comment #3
About Digital FCU. I posted this yesterday on the Weekend Summary. The 5 yr 3.01% CD(min $25k) with relationship(2.76% without) requires 3 things. 1. Direct Deposit of paycheck or retirement funds/SS. 2. Electronic Statements. 3. Loan Item ie. Free Visa or Free Rewards Visa. You get Free checking/free checks. If you do not have or want to do the requirements you can pay $10/month. $15/month is for their dividend checking.

The only problem is having something to direct deposit. Everything else is free. With a Super Jumbo CD you can make extra $ even if you pay the $10/month. Do the math. They have great CS and as noted above only a 180 day early withdrawl penalty.
Digital FCU
  |     |   Comment #4
To get the extra .25% at Digital FCU, you just need relationship checking at the time of opening the CD.

So if you open a 5-yr CD, you don't need to have relationship checking for the entire duration of the CD (i.e., 5 years).

However, if you buy relationship checking for $10/month, there is a minimum commitment of 12 months or $120.

  |     |   Comment #5
I'm just saying that since DCU puts the requirement for Relationship Checking in the small print, people should be aware that the real 5 year rate is 2.21 APY (and all of the early withdrawal figures are correspondingly lower) if you have less than $25K and no relationship account.  Ally does not have those requirements.  It's fruistrating to go through the membership process at DCU only to find you didn't see the .25 penalty detail for not having a Relationship Account.
  |     |   Comment #6
Do these banks and credit unions allow withdrawls at the customers request or only if the bank agrees ?
  |     |   Comment #7
I've wondered sometimes why this site seems to overlook Garden Savings Federal Credit Union in its oomparisons, since I have a longer-term Certificate there and have been very satisfied with everything about this credit union.  I do not reside in New Jersey and became eligibile for membership in the credit union by becoming a member of the Newark Museum. Although I became a CD holder at Garden Savings last year when rates were higher, the current rate in their website today for a 5-year certificate is listed at 2.53%, with a 2.56% yield. The early withdrawal penalty is only 90 days of interest. I believe if Garden Savings were included in the chart it would compare very favorably with the other institutions.  
  |     |   Comment #8
Let's be a bit careful here about just looking at the penalty. Because I do believe in most bank's terms and conditions it states that the bank does not have to close the CD at your request. They could refuse to even give you your money until the end of the term.....and what if you needed it??? So don't just look at the penalty. Sure.....most banks would probably let you close it with the penalty.....but I would be very careful.
  |     |   Comment #9
I agree with Anonymous #8.  Plus, they can change what the penalty is.
  |     |   Comment #13
Fort Knox credit union has raised their 5 year cd early withdrawal penalty from 90 days to 180 days for all cdnew or old. Isn't that nice?
  |     |   Comment #17
Can someone tell me what kind of a CD Digital gives them after opening one?  I am used to a form which shows the amount you invested, interest rate, maturity date and a disclosure of any early withdrawal penalty.  What I got from Digital for a very large amount I purchased for was basically only a receipt with nothing to show it was a CD etc.  I called them and was told they are trying to go "paperless" and I could find all the info on my CD on-line and print it myself.  Well I did but "I" had to use quite a bit more paper doing so than if they had just put it all in a regular Certificate like the banks do.

Can anyone who buys CDs from Digital CU tell me if this is the way your so called CDs are?  I am not used to dealing with credit unions and having to print out my own CD info and frankly, I prefere the way the banks do it.  Just wondering if my experience is the norm for credit union CDs.  Thanks!

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