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Comparing Long-Term CDs on Rates and Early Withdrawal Penalties


Savers have a difficult choice in today’s environment. It’s worrisome to lock into a long-term CD when there’s a good chance that rates will rise significantly in 2 to 3 years. However, if you stick with savings accounts or short-term CDs, you’ll receive a much lower interest rate than long-term CDs.

When deciding between a long-term CD and a savings account or short-term CD, it makes sense to consider a CD’s early withdrawal penalty (EWP). If the EWP is mild, you can do better in a long-term CD even when closed early. It should be noted that there are two risks of depending on an early withdrawal of a long-term CD:

  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 2011. 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. Don't forget there's also a risk that rates continue to stay low for many years.

If you accept the above risks, here are five nationally-available long-term CDs to consider. In our Early Withdrawal Penalty Calculator, you can review the rates of these five CDs when held to maturity and when closed early.

As you can see, the best deal is the 5-year CD at Garden Savings Federal Credit Union. If held until maturity, the CD will have an APY of 2.53% which is the highest rate out of the five at year five. Also, its 6-month EWP makes this the best deal when closed early. Only Ally Bank has a smaller EWP. If Ally still had a 2-month EWP, it would have been a better deal when closed within one year. However, with the new 5-month EWP and with a low 1.60% APY, Garden Savings Federal easily beats out Ally. Please note that Garden Savings is scheduled to end this CD special on March 31, 2014.

Franklin Federal Savings Bank’s CD has a higher rate, but it has a 7-year term and a 12-month EWP. That puts it below Garden Savings when closed early at 5 years or earlier.

The best internet bank CD is at Barclays with a combination of a very competitive rate (2.15% APY) and a mild EWP (6 months). CIT Bank’s CD has a higher rate, but its EWP is twice that of Barclays’. You’ll have to hold the CIT Bank CD to maturity for this to be a better deal than Barclays’.

The above rates and EWPs are accurate as of 3/26/2014.

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Anonymous   |     |   Comment #1
I called before mailing out all the required documents and a check. According to the CSR, their consent to make an early withdrawal is not necessary, all you have to do is notify them in writing through their website. However, the paper certificate that I received does indicate you need their consent to make an early withdrawal.
Anonymous   |     |   Comment #2
I opened a 5-year CD account with Garden Savings FCU.
Anonymous   |     |   Comment #4
I also opened a 5 year CD with Garden Savings FCU.  The CSR also told me that the bank's consent was not needed to close the CD early.  I have not received my paper certificate yet.  Is there any way we can establish if the CD can in fact be closed early without the bank's consent?
Anonymous   |     |   Comment #9
In fact, I do not plan to withdraw early unless I'm moving out of this country. Applying for membership to this credit union is much easier than Melrose CU and Nasa FCU. If I contact Garden Savings customer service by email about the early withdrawal issue after opening an account shortly, I might be tagged and could not make an early withdrawal if I really had to do so.
Anonymous   |     |   Comment #11
And the criteria for getting their consent?  The fact that "they" state consent is required indicates that there are some circumstances that consent would be granted...otherwise "they" could have stated no early withdrawal.  (Reminds me of the time when additions to CDs were permitted "with their consent."  Same issue)  Further, their consent may be at a price of x months of interest...on and on...
Anonymous   |     |   Comment #3

This is very good information.  Could you do a chart each week that would show this information for all CDs?  Thanks.
tricia   |     |   Comment #5
I think the best strategy is to spread it out. In other words, put your money in cds in at least 2 or 3 banks, instead of just one. That, will reduce your risk, if the early withdrawal on your cd is refused.
paoli2   |     |   Comment #7
I found a couple of  out of town banks that gave me a 90 day EWP on 5 year CDs.  I was told it was an error by the CSRs on the phone but they gave it to me any way.  I hold these CDs for "just in case" I need to do a EWP.  They'll come in handy if need be. 
Hoody   |     |   Comment #6
its no real issue with me, I have no problem eating the ewp, even for 12mo IF rates go parabolic, I took navy's 7yr @3.1 (3.05 rate) without too much heartburn over the time.
I figure IF rates go past 4% or 5% in 3yrs on short termers, I'll just close the 7yr eat the ewp, re do the CD's and take the loss on my tax as a adjustment. At 4.5 or 5% I'd make back the ewp in a year anyway.

But if rates only go to say 3% for 5yr CD's in 2 or 3 yrs, well I won't need to concern myself since that's what I'll already be getting. I've already had this talk with every rep at my local Navy FCU branch so they know what my plans are. They even think it makes sense.
Anonymous   |     |   Comment #8
I did the 5 year at Pen Fed at 3%, the Navy 7 year at 3.1%, the Garden Savings 5year at 2.53% and the Ge Capital Retail Bank 5 year at 2.25%.  Is there any other CD that looks good now?
anon   |     |   Comment #20
If you like GE's 5 year at 2.25%, then you might consider Melrose, which has a 5 year at 2.27%.
Anonymous   |     |   Comment #23
I'm looking at Melrose 5 year at 2.27% APY.  Do you think its a good buy even in light of their EWP? 
Anonymous   |     |   Comment #10
I never concern myself with EWPs.

I followed Ken's suggestion years ago and created a CD ladder.  Built a 5 year ladder with at least one 5 year term CD maturing every year and renew at the highest 5 year rate that I could find.  I did extend the ladder a few more rungs to 7 years when PenFed offered their 6.25% CDs.  When they matured this year, I pulled back to my 5 year ladder.  
Anonymous   |     |   Comment #12
6.25% matured this year? Ouch....welcome to us 2.5% crowd!
Anonymous   |     |   Comment #13
I'm sure you meant to type 6.25%.  Ouch is right!  But that's the beauty part of CD laddering.  I'm still holding CDs yielding 3 - 4%.  Seven years ago, who would have ever thought CD rates would be as low as they are today. 
Anonymous   |     |   Comment #14
Please dismiss the first line of my comment (#13).  Mistake on my part and no way to go back and edit.
Anonymous   |     |   Comment #15
At least, CDs are insured by FDIC. Last December, an assistant to a BB&T financial advisor tried to sell me a 5-year annuity at 2.5%  (a product not insured by FDIC). So I consider getting 2.5% - 3% for 5-year CDs is a blessing for me.
Anonymous   |     |   Comment #16
Yes.  FDIC insurance is a huge benefit.
HoHo   |     |   Comment #18
Section 33 in the Ally Deposit Agreement.

  Please be aware that accounts or services can change over time. We reserve the right to discontinue or make changes to accounts or services. We may change this Agreement, and we may add to or delete from this Agreement, and the updated agreement will supersede all prior versions. We will provide notice of changes, additions, and deletions as required by law. If we have provided advance notice and you do not agree with a change, you may close your account(s) before the effective date of the change, addition or deletion. 
Jay   |     |   Comment #19
So they say in their disclosures that they don't require consent but the papers you get AFTER you open it do say you need their consent?  Sheesh.  I think I'll stick with the better established banks, rather than open an account with a credit union on the other side of the country.
Anonymous   |     |   Comment #21
paoli2   |     |   Comment #22
#21 Yes it was.  They were a couple of little out of town banks I had never done business with and they seemed happy to get deposits and a new customer.  I found that searching for smaller banks in small towns was a better choice than the big banks in my large city which pays pitiful interest rates.  I made sure before I bought CDs with them that I checked out their bank ratings to make sure they had good ratings with Bauer and Bankrate.  They have sent out CD interest checks regularly to us by mail as we requested and have given us very good customer service.  My EWPs on other 5 year CDS with other banks or cus are usually 6 months interest which is still good by my needs.

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