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 Top Long-Term CD Rates After Early Withdrawal Penalties


I thought this would be a good time for another comparison of some top nationally available long-term CDs. The comparison of the rates takes into account the early withdrawal penalties. This allows you to compare not only the rates if the CDs are held until maturity, but also the rates if closed early. 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 reviewed the issue of banks refusing an early withdrawal in November. About the risk of banks increasing the early withdrawal penalties on existing CDs, there have been two cases of this at credit unions. The last one was in January. Don't forget there's also a risk that rates continue to fall and stay low for many years.

My last comparison was done in January of four nationally available long-term CDs. Three of the four CDs remain the same except for slight rate changes. These include Discover Bank's 10-year CD (w/o AAA bonus), PenFed's 7-year CD and Ally Bank's 5-year CD (w/o renewal bonus). I removed the 5-year CD at Digital Credit Union (DCU) due to a large rate cut. I replaced that with the 6-year CD at INOVA Federal Credit Union. Like PenFed and DCU, INOVA FCU makes it easy for anyone to join (see my review).

All of these four institutions have reasonable early withdrawal penalties.

According to Discover Bank's FAQs, the penalty for terms over 5 years is "9 months simple interest on the amount withdrawn".

PenFed's disclosure states that certificates with a term of 5 years or greater that are redeemed after 365 days will have an early redemption penalty of "dividends for the most recent 365 days." If closed before 365 days, all dividends will be forfeited which means that the penalty won't eat into the principal.

Ally Bank continues to have the smallest early withdrawal penalty for 5-year CDs. The penalty is equal to just 60 days of interest. Details are listed in the deposit agreement which is available at Ally's legal information page.

The early withdrawal penalty of the 6-year CD at INOVA Federal Credit Union is 180 days of interest. This is based on what I've been told by the credit union service representative. A reader also reported that he confirmed this in the disclosure. Unfortunately, the disclosure isn't available online.

Below is a comparison of the four CDs. 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 continues to be the best deal if you close the CDs within one year. For the case of PenFed, you will lose all interest if you close the CD within one year.

If you close the CD at or after 2 years, INOVA FCU takes the top spot until year 7 when the PenFed CD matures.

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 2/27/2012:

Approximate Yields After Early Withdrawal Penalties

Year of Early Withdrawal Discover's 2.45% 10-yr CD latest rates PenFed's 2.76% 7-yr CD latest rates INOVA's 2.50% 6-yr CD latest rates Ally's 1.74% 5-yr CD latest rates
Early Withdrawal Penalty 9 months 12 months 6 months 2 months
year 1 0.61% 0.00% 1.24% 1.45%
year 2 1.52% 1.37% 1.87% 1.59%
year 3 1.83% 1.83% 2.08% 1.64%
year 4 1.99% 2.06% 2.18% 1.67%
year 5 2.08% 2.20% 2.25% 1.74% (no penalty)
year 6 2.14% 2.29% 2.50% (no penalty) n/a
year 7 2.18% 2.76% (no penalty) n/a n/a
year 8 2.22% n/a n/a n/a
year 9 2.24% n/a n/a n/a
year 10 2.45% (no penalty) n/a 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 DepositAccounts.com.

Related Pages: Ally Bank, INOVA Federal Credit Union, South Bend, Chicago, San Francisco Bay, CD rates, IRA rates
  |     |   Comment #1
Ken, when interest rates go up, most of the banks and CU will not allow EWP to take effect no matter how bad the penalty might be.
Your posting is just hypothetical and does not account for FDIC rule that if bank or CU might become insolvent if most of the CD are withdrawn, then they can refuse to close any or all CDs and be within the banking or credit regulations in effect today.
All CD withdrawals are contingent by the bank or CU to permit you to close it. They can refuse EWP at any time even without FDIC regulations call upon in effect.
  |     |   Comment #2
Agree completely with post #1......For anybody considering a CD-You had better put your money in assuming that you WILL NOT be able to get it out until maturity. PERIOD. Banks can and will change rules at any time.....and refuse to allow you to close the CD regardless of the penalty. So.....you had better make sure you have enough liquidity.  Because once you put that money in.....it's gone until maturity.  Any rules and terms that are in place when you open the CD are meaningless.
  |     |   Comment #3
There is something I think some are not taking into account concerning the banks refusing to allow people to withdraw their money early.  Do you realize how catastrophe that could be for our country if word got out that this was actually happening to people?  It could affect our country economically in a drastic way.  If a bank is failing and can show good reason for why "they" can't allow a lot of funds to be withdrawn at the same time, that is one thing.  But if you are envisioning a national calamity where many banks do this, it can have drastic consequences for our government and people of all nations who buy our debt.  I don't think our government can afford to allow banks to take such drastic financial reprisals against savers.  

However, since one never knows "which" may be that bank that will "try" to do such things, this is the reason that I have never put all our funds into just "one" bank or even cu.  I spead funds arounds and make sure those I select are in the best financial condition I can find at the time.  If such a calamity some are posting about ever happens in our country, no investment will be a safe place to protect your money, imo.  Once the dominos start falling, it won't just be CDs that are affected.  We either feel we can trust our government or we don't.  There is an election coming up this year.  If you are truly concerned for these problems, just make darn sure you pull that lever for the right candidate and let's make sure we "don't" have "change that we don't want to believe in".
  |     |   Comment #4
People shouldn't abuse Ally's generosity by deliberately cashing in early.  Ally will end that perk if they start losing money. 
  |     |   Comment #5
To #3......"xxxxxxxxxxxx"......Well said.....and so true. Really.....bottom line.....if you dont want this great country to be destroyed......then vote for someone/anyone other than Obama. Period. This nation CANNOT survive another 4 years of "hope and change" and "rainbows".
  |     |   Comment #6
This is an amazing service you are providing us!  The comparison tables are most helpful.  I have CDs at each of these and am planning to open IRA accounts for 2011 for my family, so this really helps.  I was wondering whether my memory serves me correctly that Ben Bernanke indicated that he intended to keep interest rates at very low levels until end-2014?  Is it possible to confirm this.  I imagine that would mean we would be in these CDs for at least 3 years or so.  Thank you very much, Ken.  I am grateful for this information
  |     |   Comment #7
If I wanted to have more than 250k insured with penfed, being just one person, how could I accomplish this?
  |     |   Comment #8
penfed is a much better choice than inova.  Inova is poorly managed.  I speak from experience.
  |     |   Comment #10
I agree with #2, I have always say the same thing, if i  lock it in, i better make sure i don't need it....bank can always change rules, and they have done it..
  |     |   Comment #11
As always, Ken's articles are judicious and accurate.  Some of the above posts, regrettably, are not.  The question of whether a bank or CU can change an EWD penalty is a complex and subtle one, implicating the specific contract language, contract interpretation principles, FDIC/NCUA policies, and consumer protection agencies and rules.  Ken's posts over the years have explored all of these points in detail.  The overly broad, ipse dixit statements of some of the above posters need to be taken with a big grain of salt.
  |     |   Comment #12

Well said
  |     |   Comment #13
Greg and Lou-

Bottom line is, one has to tread very carefully before depending on EWD's as a CD strategy.  Unfortunately, they have not proven to be 100% dependable.  I tend to agree with the posters who say that one should open a CD based on the premise that it will go to maturity.
  |     |   Comment #14
We can argue about the prospective treatment of EWP provisions all day without a conclusion.  But, the fact is, if the transactions that we enter (buy a CD) into include an EWP provision, then that's the condition of the deal.  In fact, the EWP is actually a Put option on the transaction.  Meaning that the seller is offering the buyer a Put on the transaction, allowing the buyer to sell the CD back at a fixed price (the EWP).  The cost of that EWP Put option is inherently included in the interest rate initially offered by the seller for the CD.  One could argue that, if in the future, an institution defaults on their obligation to uphold the EWP Put option, the institution then should increase the value (interest rate) given to a purchaser of a CD.  As a practical matter, I think some institiutions may reneg on their EWD obligations, and it will be highly unlikely that they will offer a higher interest rate for their default.   If an institution fails to uphold it's contractual obligation, then it's time to take legal action.
  |     |   Comment #15
I feel reasonably comfortable that both Ally & Penfed will honor early withdrawls even if rates went way up.

Now, if it was ING/Capital One, I wouldnt trust them for a second.

And Ken has posted the risk many times.


I buy CDs hoping I can find a better alternative before it ends that justifys taking the penalty.

It hasnt happened yet.

I think I need to have more of my money in the stock market because low rates should help stocks.

Even a 20 PE is a 5% earnings yield which is far better than any long term CD.

But, I usually buy things with lower CDs.

I used to make a lot of money in stocks. Over time, as liquidity opportunies arise, I find myself unable or unwilling to take the same risks as when I bought them.

I was a better investor when I had other, regular income because I was more willing to take risks.

Now, with no outside income other than interest & stock gains, if any, I am too cautious.

While i am very young to be retired, I dont want to be forced to get a job again and my previous occupation as a curbstone car dealer is not as lucrative as it used to be and enforcement in my area is much tougher than it used to be. 

Lots of anti-curbstoning campaining going on. Much of it false & misleading of course.

Just because a guy sells cars off the side of the road does not automatically mean he is out to cheat you anymore than the guy with a car lot & high overhead. And 99.9% of the time, As is means as is no matter who you buy from.
  |     |   Comment #16
#15-  Interesting post.  You should look into Israeli Govt. Bonds.  The 10-year bond now pays 3.630% fixed rate guaranteed, interest paid twice a year.  The way I look at it, it's about 1.00% more for a 10 year term over anything else out there like bank CD's, and they've never defaulted.   Most would consider them a very conservative investment, interest comes twice a year.  good luck.
  |     |   Comment #17
Malcolm???????  First......why would you even think about putting money in a 10 year bond??  Anything and everything can happen in 10 years. Second........why would you but Israeli bonds??? There are plenty of safe investments here that pay close to the same rate. Why bother with Israeli to get a tiny bit more . Not worth it. Plus Israel always(ALWAYS) will be in severe danger of destruction......especially with Obama in office. I hope Israel survives and I support it.......but you would be taking a big risk for no reason.
  |     |   Comment #18
Most of us view this blog religiously for one reason -- we are interested in the highest obtainable interest rate on FDIC and NCUA insured products.  We are not inclined to risk our hard-earmed money elsewhere, i.e. foreign currencies, foreign bonds, stock market, etc.  This strategy had worked very well for me for the last 30 years and then, along came Ben Bernanke.  I believe that the only reason why the stock market is going up by leaps and bounds is because interest rates have been made to stay at such extremely low levels by the artificial manipulations and maneuverings of the Federal Reserve under Ben Bernanke.  If interest rates were determined by supply and demand as it should be in a capitalist economy, we responsible, hard-working savers would not be in this predicament and our retirements would not be in jeopardy. I have no doubt that a lot of people will be out of the stock market as soon as interest rates start to rise and the Dow, S&P and Nasdaq would lose much of their gains.  Although one does not discuss policy on this blog, it seems to be a really powerful force, and we are a strong voting bloc.  Let us all unite and make sure that we vote in a manner that ensures that Ben Bernanke will not be reappointed to the Federal Reserve when his term is up. He should not be messing with savers so that the stock market gains.  Any suggestions, please?
  |     |   Comment #19
In response to Poster Anonymous #17:

I have to say that I totally disagree with you.  In your post, you say that "There are plenty of safe investments here that pay close to the same rate."  PLEASE, tell me where one can get 3.63% fixed rate for 10 years.  The highest I see in a 10-year CD is about 2.70%.  That's almost a 1% difference, or 37% more interest over the life of the investment!  I don't think that difference is "tiny."   I also don't see much risk in these bonds...they have never been defaulted on, pay interest 2x a year, and are very easy for US citizens to buy and redeem at maturity.  If there were 3.63% CD's I would buy them.  Please tell us where!!!  As to a 10-year term, I truly feel that rates will be LOW for at least 5-7 years before they make a slow climb up.  10 years for a decent rate looks good to me.
  |     |   Comment #20
Many of the points raised by Anonymous #18 are similar to what I might say.   I would only add that I think Ben Bernanke thinks he is on some kind of mission to save the economy and if it means playing God and taking from savers to pay for the borrowers and gamblers he could care less.   All he wants is Gross Domestic Product to increase.   He thinks inflation is low but he is all wrong in my opinion.   He has afforded the big hedge funds to borrow money as cheap as it gets as well as corporations who are probably calling in their long term debt and refinancing it at much lower interest rates punishing whom? the savers, of course.   We have been down this road before.  I, for one, will do with less and will not get locked into cheap deposit rates only to find the market has turned around and I am stuck holding 5 year or longer cds.   No thank you!
  |     |   Comment #21
Malcolm......NO!  Please!!  Do not consider 10 year bonds. That's way too long. And why even bother for 3.6%.??? You're taking huge risk over about 1/2 % !!!!!!!  Think about it, my man!!!!!!!   1/2%!!!!!  You're also opening yourself to another risk besides the obvious(nuclear annilaition).....and that's currency exchange risk. And don't tell me all about how these bonds are in US Dollars and Israeli currency is not relevant. Guess what?  You think if Israel gets under severe economic pressure....they wont suddenly activate currency controls that will make your bond worthless. Don't believe it? look what has happenned in history. I really have no idea why we are even discussing this.....all for 1/2%!!!!  Check out some US I-bonds.....they are paying over 3% now.....and could be much higher with inflation. Come on, man......use your braion. you seem like a smart guy!!!
  |     |   Comment #22
To #21:  How do you get 1/2%% ??  To my math, 3.63% is nearly 1% over the 10 yr. CD's that are out there.  Any other opinions on this issue?  Ken?
  |     |   Comment #23
Malcolm, how liquid are these bonds? Do you have a cusip number? Is there an active market in the bonds, so you don't get killed if you have to despose of them early?
  |     |   Comment #24
Lou, from what I understand, there is some liquidity (secondary market) in these bonds, which is better than a bank CD, for which there is none, just maybe an Early Withdrawal option.  But I look at these like CD's, not bonds, and ladder them and plan on holding them until maturity. If you look at them like CD's, and I think that they are close to CD's in safety, then the 3.63% is attractive.  As totally-safe as a US savings bond or FDIC CD? No.  But as convenient to buy and redeem, and it pays higher and 2x a yr. interest direct to the holder.  I wouldn't put 100% of assets in them, but they have a place in my portfolio.
  |     |   Comment #25
Malcolm.......NO!!!!!!!!!!!!!!!!!!!!!!!!!!!!   3.63%!!!!!!!!!!!!!!  listen to yourself!!!!!!!! All this extra risk for 3.63%!!!!!!!!!!!!!It makes me want to scream!!!!!!!!!!!!!!!!  why!!!!!!!!!!!!!!!!!!!!!??????????????

Geez......I cant get through to you. This is insanity. Not only locking in 3.63% for ten years......but opening yourself to so many risks......political risk,currency exchange risk,default risk,nuclear annilation risk,terrorism risk,liqidity risk.......wow.......and all for 3.63%. Insanity defined.


  |     |   Comment #26
Malcolm.....I have to agree with poster above.....although he may be a bit intense. There is no reason for Israeli bonds.......you can get a pretty safe utility stock that pay great dividends that yield about 4-5% yearly and you dont have to keep it 10 yrs. Or think about US I-bonds....or an annuity. I agree there is way too much risk. Israel will certainly pay if it can.....emphasis on word "can". Aside from all the obvious risks.....remember israewl is also a very liberal country that implements leftist policies. That means they are more similar to Greece. well....guess what? Greece recently told government bondholders they will get 50% of their principal back!! You want that risk?? On top of everything else??? Dont do it.
  |     |   Comment #27
#26 -- "Pretty SAFE Utility stocks." Cmon.    One bad day in the market wipes out that 4%-5%  yield. 

Also, don't know how posters can assess "risk" on Israeli bonds -- they have never been defaulted upon from what I read as well.  The 'risk' you are speaking of is purely conjecture.

AND Ken: Please consider removing posts like #25 which are highly insulting to all of us.
  |     |   Comment #28
I've owned some "SAFE" stocks as well.  They paid 4%-6% dividends and I didn't have to deal with a bank and tie up my money.  I was an idiot.  Some of these stocks are down 10% to 30% from what I bought them at, a few cut their dividends, one nows pays no dividend.  I'm talking VERY BORING, SAFE stocks that got caught up in the recession.   I wish I had locked up the 5% CD's that were around back then.  This is a bank deposits blog.  Posters really shouldn't be advocating the stock market. 
  |     |   Comment #29
Terrence, I completely agree with your comment.  In fact, there are times when I question what various posters are doing on this blog.  Most of us are plain, boring people who just want to get a fair, reasonable and safe return on our hard-earned money via bank CDs and deposits.  It surprises me that people become so offensive when we express our frustration that interest rates have continued to be so low for so long.
  |     |   Comment #30
Terrance, you hit the nail directly on the head with your whole comment.  Especially the last sentence: "This is a bank deposits blog.  Posters really shouldn't be advocating the stock market." 

I believe the vast majority of people who visit Ken's site on a regular basis also agree with you.

  |     |   Comment #31
Anyone who risks their hard-earned principal in the stock market for a 4% utility stock yield is very foolish.  The risk/reward ratio just doesn't justify it.  As bad as CD rates are, one of the basic principles of economics is that you only risk principal for an appropriate reward.  4% in a stock vs. a safe 2.0-2.75% in a CD doesn't cut it. IMHO.
  |     |   Comment #32
Thanks for the great resource. Just a heads up about the INOVA Step Up CD, which I've been considering opening. The account disclosure for the Step Up certificate says: "These Dividend Rate(s) and Annual Percentage Yield(s) shown above may change at any time as determined by Our Board of Directors". In other words, while the regular CDs are "subject to a Fixed Rate", the Step Up CDs are "are subject to a Variable Rate" (quoted text taken from the account disclosure).

I inquired about this and was told that, "Rates are always subject to change, but because you are committing to a specific term your rate would be in effect for the duration of the stated term". The Step Up APY is only 0.10% less than the fixed rate (2.50% vs 2.40%), which seems like a worthy trade off to be able to bump up once. Still, this "fine print" is giving me some pause while deciding between the Step Up vs tradtional fixed rate CD.

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