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