Comparing CDs Based on Rates and Early Withdrawal Penalties

If you're looking for a short-term CD with maturities under 1 year, make sure you include Ally Bank CDs in your comparison. For very short-term CDs, it's hard to beat Ally Bank's 11-month no-penalty CD. This CD rate actually went up last week. The rate is 1.14% APY as of 6/7/2011 (up from 1.10% last week). In today's low rate environment, it's very hard to find any CD with terms under 6 months and yields over 1.00%. With this no-penalty CD, you can make it into any term that you want from one week to 11 months.

Ally Bank's 5-year CD

For longer terms, Ally Bank's 5-year CD becomes the best deal. This has a very mild early withdrawal penalty of 60 days of interest. The rate is 2.39% APY as of 6/7/2011. It doesn't take too many months before this 5-year CD becomes a better deal than the 11-month no-penalty CD. If you close this 5-year CD after 4 months, you'll lose 2 months of interest or half of the interest. That essentially cuts the 2.39% APY by half resulting in a rate of about 1.19%.

Consumers Credit Union's 59-month CD

Last week I wrote about another nationally available CD with both a competitive rate and a mild early withdrawal penalty. It's at Consumers Credit Union, and the CD has a 59-month term with a 2.75% APY for a $100K minimum deposit (2.50% APY for a $250 minimum) as of 6/7/2011. The early withdrawal penalty is 120 days of interest. This is twice the amount of Ally's penalty, but it's still mild compared to other banks and credit unions which have penalties of 6 to 12 months.

Long-Term CD Risks

There are some potential risks of long-term CDs that I discussed in this November blog post. One risk is that the bank increases the early withdrawal penalty on existing CDs. This recently happened at Fort Knox FCU. The NCUA Consumer Compliance Analyst has been investigating this issue at Fort Knox FCU, and the issue is currently in the final review process. For Ally Bank, I've received an assurance from Ally's public relations director that the penalty would not be increased on existing CDs.

Comparing These CDs

The table below shows how these 3 CDs compare. Ally Bank's 11-month CD is the best for a 3-month term. For the longer terms, Ally Bank 5-year CD and Consumer Credit Union's 59-month CDs are close. After two years, Consumers Credit Union's CD becomes a better deal.

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 6/7/2011:

Approximate Yields After Early Withdrawal Penalties

More details about these CDs and the early withdrawal penalties are listed in the account disclosures. Ally Bank's account disclosure is available here, and Consumers Credit Union account disclosure is available here (below the rate sheet).

Searching for Top CD Rates

To search for nationwide CD rates and CD rates in your state, please refer to the best CD rates section of DepositAccounts.com.