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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 Rates of Long-Term CDs After Early Withdrawal Penalties


Several banks and credit unions have been cutting their CD rates since the Fed's mid-2013 pledge. This has been especially true for Ally Bank. Its 5-year CD APY has fallen from 2.32% to 2.14% since that mid-2013 pledge. Discover Bank's 5-year and 7-year CD rates have also fallen. However, its 10-year CD APY is still 3.00%. It has remained this way for almost a year, and don't forget AAA members can receive an extra 5 basis points. This is one of the very few CDs where you can still get a 3% APY.

Ten years is very long, but Discover Bank's early withdrawal penalty for this CD is 9 months of interest. So you can close the CD early with this penalty. How much does this penalty affect the yield when you close the CD early? One easy example is if you close the CD at 18 months. The 9-month penalty would erase half of your accrued interest. That would cut your effective yield in half from 3% to 1.50%. As you can see in our 18-month CD rates table, this compares very favorably with the best 18-month CD rates.

Ally Bank has the most favorable early withdrawal penalty of 2 months of interest. However, its 5-year CD yield is quite a bit lower than Discover's 10-year CD yield. So if you're going to close these CDs early, it's not obvious which CD would be the best.

Ally Bank's 5-year CD rate has fallen so much that there are a few credit unions which currently offer much higher 5-year CD rates. As of 9/8/2011, the best nationally available 5-year CD APY is 2.68% at Melrose Credit Union. The second best is 2.62% APY at Velocity Credit Union. Both of these credit unions can be considered "all-access" credit unions since they make it easy for anyone in the nation to join.

Below is a comparison of the Discover Bank's 10-year CD, Ally Bank's 5-year CD and Velocity Credit Union's 5-year CD. The table shows the yields for each year after the CD is opened. These yields take into account the loss from the early withdrawal penalty. As you can see, Ally has the best rates when the CD is closed before 2 years. However, at 2 years, Velocity's CD takes the lead. Then at 3 years, Discover Bank takes the lead except at 5 years when Velocity's CD would be free of a penalty.

I decided to choose Velocity's CD instead of Melrose's CD since Melrose has a harsh and confusing early withdrawal penalty. Velocity's EWP is the standard 6 months of interest. I have more details about this credit union in my last Velocity Credit Union CD review.

As we have discussed many times in the last year, there are two risks if you plan to make use of an early withdrawal:

  1. The bank refuses to allow an early withdrawal
  2. The bank increases the early withdrawal penalty on your existing CD
I have more discussion of these risks in my last long-term CD strategy review.

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 9/8/2011:

Approximate Yields After Early Withdrawal Penalties

Year of Early Withdrawal Discover's 3% 10-yr CD latest rates Velocity CU's 2.62% 5-yr CD latest rates Ally's 2.14% 5-yr CD latest rates
Early Withdrawal Penalty 9 months 6 months 2 months
year 1 0.74% 1.30% 1.78%
year 2 1.86% 1.96% 1.96%
year 3 2.24% 2.18% 2.02%
year 4 2.43% 2.29% 2.05%
year 5 2.54% 2.62% (no penalty) 2.14% (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

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

Related Pages: Ally Bank, Salt Lake City, Velocity Credit Union, Austin, Discover Bank, Salisbury, CD rates, IRA rates

Related Posts

Anonymous   |     |   Comment #1
Counting our dimes and nickels, what this world has come to.
Lets face it, the savers are the punching bag of the FEDs, no matter how you slice it or dice it.
Doing small tricks like the CD early withdrawal is the bottom line fishing to gain few pennies and lose the shirt of your back at the same time.
Not worth playing the FED’s game, admit defeat and lick your wounds and wait for better days (if they ever come).
CraigPD   |     |   Comment #2
"Not worth playing the FED’s game, admit defeat and lick your wounds and wait for better days (if they ever come)."

A classic defeatist's attitude.  Good for you.  Fold.  Play right into Benny's slanted (tortured) hand... 
saverlessgal   |     |   Comment #3
Anoy #1:  Admitting defeat IS giving in to the Feds!  There ARE ways to protect one's savings for the future and I don't think we are talking about "pennies" here unless "you" have not done your job over the years and prepared for this to come.  Frankly I think the posters and readers of this forum are here to learn from each other and they have more than "pennies" they are playing the game with.   The main concern here is knowing what "you" need to survive now so that you won't  have to use up too much of your principal and if good times "ever" return, you will have the bulk of your savings to earn more interest.  I can't believe you actually are condoning a "defeatist" attitude.  That's not what "I" think this forum is about but you have a right to your opinion.
glass house
glass house   |     |   Comment #4
i vote for operation twist
Shorebreak   |     |   Comment #5
"Admit defeat"? Those words are not uttered in my castle. I will continue with my laddered certificate program that has served me well for many years. I'm getting too old to let those hooligans on Wall Street control my financial well-being. In fact, just locked-in a 7-year share certificate at Randolph Brooks CU today yielding 3.30% in advance of Bernanke's cabal taking action to dampen long-term rates at their next meeting.
what is all the fuss  about
what is all the fuss about   |     |   Comment #7
texas credit unio is the only way to go have committed 90%  of my cash to them  just ask trebob
CDS   |     |   Comment #10
Should now mean certifyably duped
cheers?   |     |   Comment #11
playing games with ones dinero ? like monopoly ? i will stick with my plan of a percentage in cash bonds and mutual funds cherrio mates
shinoby   |     |   Comment #12
I am respectful of Ken's efforts here.  But that respect is tempered with concern.

Ken has gone out of his way, on behalf of his readers, to elicit from Ally a statement that the EWP (early withdrawal penalty) will remain unchanged for existing CDs.  However, we do not enjoy that same high level of assurance from other institutions, including those mentioned in this piece.

I'm not an alarmist.  I do not believe any institution would alter an EWP for existing CDs under ordinary circumstances.  However, this entire strategy relies on ability to do an EW under foreseen conditions.  If that falls apart the entire construct falls apart.  After listening to (only just small portions of) the speech last evening, and being once again reminded of this country's leadership vacuum, I see ever more likelihood of the kind of financial calamity that could force EWPs for existing CDs to become altered.

Thus, I believe nobody doing such deals as these should wander too far from the exit door.  Owning long term CDs requires, IMHO, daily review and reevaluation, along with constant, finger-on-the-trigger management.  And speaking for myself only, realizing you folks might be smarter and wiser, I'm not certain that even with that level of effort I will be quick or adept enough to pull the trigger before the trapdoor inevitably opens.  
jim   |     |   Comment #13
hang in there, 2012 is just around the corner , and hopefully there will be MAJOR CHANGES.. (just hoping)
Anonymous   |     |   Comment #16
To saverlessgal - #15,

Being fanatic will not get you anywhere in life. You already admitted the sky has fallen, but refusing to admit defeat, makes you hypocrite. Ben never listens to the people, you are wasting your time. and living in false hope of better future on the bases of changes at the helm. 
By the time you realize what has happen, your money will be eaten in half.

Keep thinking like that and be proud of your decision and stay till the end with 1-2% CDs, if that is what makes you happy, however, you can not tell people who have thrown in the towers, that they are cowards and you are victorious because you have never admitted defeat.
saverlessgal   |     |   Comment #18
Anony #16:  So now "I" am the "fanatic" and a "hypocrite" for having my own beliefs?  I am not the one who started this by calling others "defeatists".  This is still "my" country and if I want to believe there is hope to make things better, I have a right to that belief.  You are getting close to breaking the rules here by calling me names or haven't you read the comments policy.  Have a great day.  I have more constructive things to do than to waste time arguing about my personal beliefs. 
Shorebreak   |     |   Comment #22
Re: saverlessgal - #21, Friday, September 9, 2011 - 11:38 AM

"I was hoping someone would pop in with a nearby bank offering 3% CDs."

I don't know where you are located but it appears Security Service and Randolph-Brooks credit unions are the only institutions here in Texas offering 3% or greater APY on 7-year certificates. Both of those have restricted membership and/or locale rules. Also, if you want to rely on a low EWP they are probably not very advantageous.
Anonymous   |     |   Comment #24
i agree w 19
williamt   |     |   Comment #25
Garden Savings Federal Credit Union's 5-year certificate, 2.26% yield, with an early withdrawal penalty of only 90 days should compare very favorably on this comparison chart. Membership isn't difficult--you can become a member of The Newark Museum very easily and that qualifies you for Garden Savings' membership. This CU is very competitive but seem to be frequently overlooked in these comparisons.
saverlessgal   |     |   Comment #26
I agree with #18 and #21.   Very concise and to the point!  And she likes coffee!

Btw, thanks for the choices for CDs.  However, I think Garden City sounds like New York and that is too far from the radius I have given myself to travel for a CD rate.  Thanks anyway.
williamt   |     |   Comment #27
#26:  It isn't necessary to travel to join Garden Savings because the membership in that credit union isn't restricted to residents of any geographicalk area--if you don't live in the Northern New Jersey area (and I don't) you will become eligible to be a member of Garden Savings if you take out a membership in The Newark Museum, and the museum doesn't require you to travel to become a museum member..
Anonymous   |     |   Comment #33
saverlessgal - #32,

Why are you so resentful and edgy?

Nobody is attacking you, I read all of the postings and concluded that everything was proper
and in order, until you started to pour your feeling on some of us.

You said that you can manage to live with  low interest rates, yet, you are looking for at least 3% CDs.

We never kid around when the money are at question, yet, you admitted you just plaiyed jokes on us about your English and education.

You said that you don’t feel or like to feel defeated, yet, you have been calling and writing to the authorities about how low rates hurt you and like to see them higher.

I don’t blame some of the posters for calling you hypocrite, but your actions and postings point to it.

You are telling us not to read your statements, but you are posting in public forum, where everybody can read and post and react to your proud believe of being above us.

That is the feelings most of get, when reading your posts.

john   |     |   Comment #37
One wild card in buying longer term maturities is that the bank is not required to honor an early withdrawal request since you agreed to leave your money in for the full term when selecting that term.  While a withdrawal request is not generally denied, it could be problematic if you want your money back early especially if the bank is navigating its own crisis.  It appears that this is a common bank policy and is usually not clearly communicated in disclosure documents.
Anonymous   |     |   Comment #39
Early Withdrawal is not right, it is a privilege, you are on the mercy of the bank whether they allow it or not, you have no say into it.
Don’t be fooled by having it in writing and is set in stone deal.
Including Ally bank, according to FDIC and FTC and banking regulations, any bank can call a ban on Early Withdrawals if the Early Withdrawals will cause the bank to violate any sub regulations like asset to deposit ratios or if the sub accounts where the customer CDs are held are not liquid or customer notice to Early Withdrawal is to short in time or massive Early Withdrawals by more then 1% of the customers CDs and many other variations can put stop to Early Withdrawals.
If you don’t believe this, just ask any  banker, not CSR or a letter from the bank type by a CSR or the manager of the branch. Their word is not the banks or regulated policies governing the banking system.
Any bank has right to nullify or modify without prior notice any part of anything previously agreed upon. (the above sentence is on any bank agreement ever sent to you)
lou   |     |   Comment #41
To : #37 & 39

You guys are making bold claims without any evidence. Can you post this generic language or provide links which prove that all banks can unilaterally void EWP whenever they want.
Paoli2   |     |   Comment #42
I think one needs to read the fine print on their CDs under "Early Withdrawal Penalty" to figure out how they have given themselves the right to "not" do this.  It is at their discretion.  For example, I just checked two of my CDs from different banks and one reads:  "If we consent to a request for a withdrawal that is otherwise not permitted, you mayh have to pay a penalty"  Please notice the "IF".  That puts the ball in their court, imo.

The other bank adds:  "We will consider requests for early withdrawal and, if granted, the penalty as specified above will apply".   So, imo, there is nothing in either of these statements which guarantee one can get their funds out early.  It is all up to the banks.  Also, they know that most savers don't read all the fine print on their CDs but it's there to protect the bank's interest, not ours.

When I called and asked my banks about these clauses, I was told it is just something they add but they rarely have to refuse customers.  But that still tells me I have to make darn sure I stick with 4 and 5 star banks and hope they don't get in financial trouble and our nation can always follow through with the insurance to protect our funds.  
shinoby   |     |   Comment #43
Pursuant to a couple of the more recent (and on topic) posts here, I will confess this quandry regarding the Ally Bank (five year) CDs that I have confronted for a while:

Within my limited ken, I have attempted without success to place myself in the bank's spot, endeavouring to answer the question:  How do I invest these funds?

IOW, as a supposedly profit-making institution, where do I invest depositors' "five year" money beneath the constraint that I must provide them liquidity upon virtually zero notice, while garnering (for myself) only a sixty day interest penalty.  My ignorance regarding a method of accomplishing this is not determinative.   I'm not even a banker, no less a sophisticated one.  So there could easily be vehicle(s) out there, completely unknown to me, that get this job done.  But still, superficially at least for me, the entire setup does not pass the smell test.  

Nobody is cashing in Ally Bank five year CDs today . . . well, scant few folks anyway.  If it ever happens at all it will happen on an en masse basis, as some earth shaking event (financial or otherwise, but most likely financial) causes everyone simultaneouly to become liquidity focused.  Their pledges notwithstanding, I seriously doubt Ally Bank is prepared for such an outcome.  And if they are prepared, I have no clue how such preparation has been accomplished.  Indeed and in fact, I'd love to know.

lou   |     |   Comment #44

All the banks and credit unions where I have CDs do not have the language you cited. FYI, I would not purchase CDs or invest a significant amount of money in the bank you used as an example. Believe me there are banks out there that don't use this qualifying language. This is a choice you have when selecting a bank for a CD purchase.

Paoli2   |     |   Comment #45
#44  I reread all the remarks on ALL my different bank CDs and they all have the same type of protection for themselves with the "If we" etc.  Maybe it is just a thing with banks in my state.  You are lucky if your CDs don't have such wording but I would read them carefully.  It's not easy to notice unless you pay attention to exactly what they are saying.  Frankly, it never occured to me they had such wording until another banksite I was on brought it to my attention.  I don't have CDs with credit unions at this time but if I find a good rate, I will be sure to read their EWP very carefully.  If you are dealing with smaller state banks they may use different wording and forms.
Anonymous   |     |   Comment #46
Ken, if you are so sure that Ally bank will allow early withdrawal with 2 months of penalty and if you have that in writing, why don’t you post it for us to see it and evaluate your thinking. I’m sceptical; because I have Ally bank CDs and all of their early penalties revolve with If and But and if approved or allowed by us.
If your proof is issued from the headquarters of Ally lets see it, otherwise I remain sceptical of your findings and posting.
Paoli2   |     |   Comment #47
Anony #46:  I just finished reading Ally's Disclosure on the internet for all to read concerning ALL their rules etc. and was amazed to see that I could not find any of the language in it which is in my CDs. IMO, they seem to mean what they say and say what they mean.  They seem pretty imfactive that if you have a CD with a 2 month penalty,  EWD, they will stand behind it.  I could find no language in the entire Disclosure which gave them the power to keep your funds like I saw in my own CDs.  I have never done business with Ally so I do not have any of their CDs to check out.  The only thing I read was that they give themselves the right to change terms etc. at any time.  I don't know if or when they would do it but any bank we deal with is going to find some way to protect their deposits for their own good, imo.
Anonymous   |     |   Comment #48
lou   |     |   Comment #49
#48 can you tell me where you find this language in the Penfed CD Agreement
Anonymous   |     |   Comment #51
Sorry but I read Ally's Disclosure and could not find find the "If's" and "Buts" in theirs.  They also have their Disclosure on their website for anyone to read.  Frankly, I think most banks do have protection for themselves but Ally seems unique, imo.
Anonymous   |     |   Comment #53
To Lou #49,

Read paragraph h, m, it is conditional by PenFed approving your withdrawal.

Anonymous   |     |   Comment #54
To #51.

Ally will send you the Ifs and Buts when you open the CD with the printed agreement addendum.
Anonymous   |     |   Comment #55
"If redeemed" clause by PenFed has been interpreted by the courts as If allowed to be closed or If PenFeds decide to allow to be closed prior maturity.
"If redeemed" has dual meaning, pertains to the closer and the institution, agreeing mutually to close the CD.

Notice, the party in “If redeemed” is missing, since two parties are required to close a CD.
Anonymous   |     |   Comment #57
Why are you looking for some "saverless gal"?  Everyone knows only great mines belong to the MALE species!  Aren't Geitner, Bernanke, etc. all males.  Then again, there was "Joan of Arc" and Mary of Delossouls.  Maybe we could all do a novena to them to bring us higher CD rates.  Surely isn't going to happen with the MEN!
only  CDS
only CDS   |     |   Comment #58
is this the only thing people have never here any mention  of bonds or mutual funds or reits  if the only choice is cds i will opt for the good sealy
lou   |     |   Comment #61
To #53 & 55

I read paragraphs h and M, and I don't agree with your interpretation at all. In paragraph h, the redeemer is the certificate holder. The purpose of the paragraph is to determine the amount of the penalty if the certificate holder redeems the CD. Paragraph M gives Penfed the right to wait 60 days to redeem the certificate. Not great, but certainly not a full denial. There are banks and credit unions that give themselves the right to refuse EWP, but there are others that do not.  I never purchase CDs from institutions that can unilaterally prohibit early withdrawal.
shinoby   |     |   Comment #62
So many myopic posters here:

Don't focus primarily on the (written) terms of the CD . . though I concede a few grant the institution an option to deny EW.  But that's not the point.

It will not, in most instances when the SHTF, be about terms.  It will be about the ABILITY of an institution simultaneously to accomodate (a great many) early withdrawals and CD closures . . . without croaking.

With eager government participation and facilitation the USA is rapidly becoming a banana republic.  At some point Americans will realize, doubtlessly all at once and amid massive shock and horror, that "the emperor has no clothes".  At that point liquidity will become paramount, as long term CD money will be becoming worthless. The banks and financial institutions will be unable to cope.  All this stuff has already happened in other countries over the years.  Regardless you might disagree, the USA does not have an exemption.  And on our current asinine course, it's just a matter of time.

Anonymous   |     |   Comment #67
They are going to discuss it at their next Monetary Meeting 9/20/11.  It can only mean more bad news for savers.  They are actually going to try to lower long term rates without affecting short term yields.  Where are my Kleenex?  More crying time for savers, imo!
ChrisCD   |     |   Comment #71
shinoby is correct in that mass closure requets will probably be met with denials.  So if you are doing this strategy the key will to be on top of the opportunities to close early.  In general, in order for the closure to make sense the new rate needs to be about 1.5% higher. 

We went through this in 2003/2004.  The strategy wasn't as popular so there weren't that many closure requests.  We only had two closure requests denied and one of those re-negotiated the penalty and still allowed closure.

99% of institutions do have the clause written such that they can deny a request.  Some don't, but other than the claims of Ally, I can't think of any off of the top of my head. 

Short-story, be trying to pull your trigger in the first waves.  Also, I would make sure I have other shorter-term duration CDs just in case some requests are denied.  I do believe laddering strategies work out the best in the end.  :O)

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