New Calculator To Compare CDs After Early Withdrawal Penalties

We have developed a new calculator to help you shop for CDs. It’s called the CD Early Withdrawal Penalty Calculator. You can access it using this link or from our home page where it’s listed under the Calculator and Tools section.

The new calculator shows the effective APYs when closing a CD before maturity. These APYs are the penalty adjusted net yields which take into account the effects of the early withdrawal penalties. The larger the penalty, the smaller the penalty adjusted net yields. The smaller the penalty, the larger the penalty adjusted net yields. When long-term CDs have small penalties, these penalty adjusted net yields are often higher than short-term CD yields.

In our new calculator, up to seven CDs can be compared in one table. We provide a few CDs that you can select in the top right box. Just click on those links, and the table will be filled out automatically. For other CDs, you’ll have to fill in the APY, term and EWP manually. We provide two tables. One is a short table which lists APYs for each year until the longest-term CD matures. Under this is a second table that lists APYs for each month.

I’ve done several posts in the past in which I compare top nationally available long-term CD rates after early withdrawal penalties. In those posts I used a spreadsheet to calculate the penalty adjusted net yields, and then I copied these yields into a table. The problem is that rates constantly change, and even early withdrawal penalties have been changing. So each change would require a new table. With this new calculator, you can immediately see the effects of rate and EWP changes.

Comparing the Latest Top CDs

To show a useful example, I filled in the table for seven top long-term CDs. You can see this table using this link for the 7 CDs.

This is a new version of the CD comparison that I did last month. There have been a few changes since last month. In addition to some rate cuts, Barclays increased its early withdrawal penalty on its 5-year CD from 3 months of interest to 6 months.

Due to this larger EWP at Barclays, Ally Bank’s 5-year CD is back as the best deal if the CD is closed on or before 18 months after opening.

After 18 months, Mountain America Credit Union’s 5-year CD becomes the best deal. This is because it has the highest rate, and its EWP is 6 months of interest. Note, this credit union often makes rate changes at the start of the month. With April starting next Monday, you may want to hurry if you want this CD.

For CDs with terms over 5 years, Discover Bank’s 10-year CD is actually a better deal than PenFed’s 7-year CD. The only exception is at year 7 when the PenFed 7-year CD matures and there is no penalty. In that case, the no-penalty yield is slightly higher than Discover Bank’s penalty adjusted net yield.

Barclays 5-year CD had been the best nationally available 5-year CD for a bank. That recently changed with a rate increase at The National Republic Bank of Chicago (TNRBoC). Its 5-year CD rate is 1.87% APY as of 3/27/2013 which just tops Barclays’ CD rate. Both banks now have an early withdrawal penalty of 6 months of interest for their 5-year CDs. I did a review of TNRBoC earlier this month when its 5-year CD rate jumped above 2%.

Risks of Depending on CD Early Withdrawals

Comparing the yields if the CDs are redeemed early assumes that the customer will be able to close the CD early with the early withdrawal penalty specified at the time the CD is opened. As I've explained many times, 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

The risk of Ally Bank refusing an early closure went up last year when it updated its CD disclosure. Due to this disclosure change, Ally joined other banks that have language in their disclosures which gives the bank the right to refuse an early closure. I reviewed these banks and credit unions in this 2011 post.

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 2012. Even though the NCUA did allow one of these credit unions to increase the early withdrawal penalty on existing CDs, it did require that the credit union notify members at least 30 days before the change took effect. That will at least allow members to redeem their CDs before the new penalty takes effect.