Over the past few weeks, we began a focused examination of Early Withdrawal Penalties (EWP) on CDs here on the blog, beginning with a general overview of the attribute, an explanation of its importance for consumers, where to find pertinent information on it, and a couple of ways a product with the right EWP can actually be advantageous. In our second article, we probed the aggregate data from our database and analyzed EWP averages on a range of products, pinpointed the upper and lower end benchmarks for EWPs, and researched how they might be affected by factors such as institution size and institution type. Here in this third and final installment, we’ll get specific and practical by highlighting some of the best CDs we’ve found according to the parameters set out in the prior articles.
Recall from the previous articles that simply finding a CD with a healthy APY, while paying no regard to how its EWP might be structured, is not necessarily a safe approach. Likewise, we trust that none of our readers would consider it a good idea to reach for a CD with a great (low) EWP if that same CD had a non-competitive APY. Indeed, the best option for consumers who cannot absolutely guarantee that they will have no need to extract money from the CD before maturity is one with both a healthy APY and a low EWP. With that in mind, we set out to find some of the best combinations of APY and EWP, focusing primarily on the longer-term CD products for reasons discussed in the previous articles.
Best Long Term Products
Long Term, Nationally Available CDs with High APYs and Low EWPs
|Xcel Federal Credit Union||60 Month CD||2.20%||180 Days|
|Colorado Federal Savings Bank||5 Year CD||2.15%||180 Days|
|Ally Bank||High Yield 5 Year CD||2.00%||150 Days|
Most consumers begin the search for their preferred product by comparing APYs, which is where we began, as we filtered out all but the most competitive APYs among nationally available products. From there, we drilled down to only those that had favorable associated EWPs. The product with the best combination of high APY and low EWP we found was the 5 Year CD from Xcel Federal Credit Union (note: several better options existed last week when we began preparing this post but their rates/EWPs have since changed). According to our Early Withdrawal Penalty Calculator, this particular product's 2.20% APY and 180 Day EWP would be competitive with the best nationally available 2- and 3-Year CD options if broken before maturity (see also chart below).
For sake of comparison with the Xcel CD, we searched out the lowest EWP on a 5 Year CD with nationwide availability and a relatively high APY and compared it to the Xcel CD. As seen in the above table, the High Yield 5 Year CD from Ally Bank carries an EWP of 150 days, which is only 30 days less than the Xcel CD. Yet, even with the much lower APY of 2.00%, the Ally Bank product is in the black one month sooner and outperforms the higher-rated Xcel CD up through 15 months. As seen in the chart below, the Ally Product also boasts a higher APY than the highest nationally available two year product and a rate that is competitive with the highest 3 Year CD. The 30-day difference in EWP is the reason.
Best Long Term Products with Limited Availability
The nationally available long term CD products all paled in comparison to some of the products that are limited in availability by region or other membership requirements. Our research showed that the longer-term CD products with the highest APYs accompanied by low EWPs are not nationally available. Two such 5 Year CDs in the chart below are immediately intriguing for their high APY and low EWP combination of 2.75% and 180 days.
Long Term, Limited-Availability CDs with High APYs and Low EWPs
|General Electric Credit Union||5-Year Share Certificate||2.75%||180 Days|
|Deere Employees Credit Union||60 Month Share Certificate||2.75%||180 Days|
|IH Mississippi Valley Credit Union||60 Month CD||2.63%||120 Days|
|Patelco Credit Union||60 month CD||2.50%||180 Days|
|Jefferson Financial Credit Union||60 Month Share Certificate||2.38%||90 Days|
Because of that combination, these CDs become competitive with shorter term CDs when broken at the one-year mark, boasting an effective APY of 1.37% versus the highest nationally available rate of 1.36%. They become highly advantageous shortly thereafter, quickly climbing to 1.85% at 18 months and 2.08% at two years. The following graph shows the advantage of the General Electric CD, in particular, versus the highest nationwide rates on several shorter term lengths:
The General Electric CD’s effective APY outperforms the highest nationwide rate of every term length from one to four years.
We also included in the graph one of the top nationally available savings account rates of 1.17% from Incredible Bank (and for the sake of simplicity, represented it as a constant rate over the course of the term). The heart of this EWP conversation revolves around liquidity of consumers’ resources and acquiring the best rates available for their given investment periods. For the first 10 months or so of the above example, the best combination of those two attributes is actually the savings account, assuming the rate remains constant. After that point, the General Electric CD quickly overtakes it and become the best longer-term option.
Looking again at the chart of limited availability CDs above, you will see that there is one product that offers a standout EWP of only 90 Days, which is half the EWP of most of the others. Jefferson Financial Credit Union offers a 5 Year CD with an APY of 2.38% and the aforementioned 90 Day EWP. We compared that product to the General Electric CD and found that the Jefferson Financial CD made it into the black three months sooner than the General Electric CD and outperformed it until the 24 month mark:
Even lower APY products than the one offered by Jefferson Financial can overshadow their higher-rated competition when matched with the right EWP. The following is a list of a few 5 Year CDs with limited availability that possess comparably smaller APYs and EWPs as low as one-sixth of the length of those with higher APYs:
Long Term, Limited-Availability CDs with Good APYs and Excellent EWPs
|Icon Credit Union||60 Month CD Special||2.16%||90 Days|
|Toyota Financial Savings Bank||60 Month CD||2.02%||30 Days|
This comparison, using our Early Withdrawal Penalty Calculator, juxtaposes the effect of breaking three different 5 Year CDs before maturity, two from the first "Limited Availability" chart above and one from the second, including the one with the highest APY shown and the one with the lowest EWP shown. It reveals the best return on a 5 Year CD broken at one year (or slightly beyond) is actually from the CD with the lowest APY charted (2.02%), because of the associated–and unusually low–30 day EWP. The following chart is a visual representation of the comparison:
The best return on a product broken in the second year comes from the IH Mississippi Valley Credit Union CD, which carries a 2.63% APY and a 120 day EWP. That particular product is more productive than the General Electric Credit Union CD, which carries a higher rate of 2.75%, until the middle of the fourth year. Here again, the difference is the EWP. Very low EWPs can make quite a difference in effective gains on a broken CD.
EWPs Matter on Shorter Term Products, Too…
For good reason, the examples we’ve offered thus far have mainly consisted of longer term CDs, but shorter term CDs should be scrutinized, as well. Even the 1 Year CD can be greatly affected by an EWP. For instance, AloStar Bank of Commerce offers a 1 Year CD with an APY of 1.35% and a 30 day EWP. If broken at six months, it still offers a yield of 1.13%, which is higher than all other nationally available 6 Month CDs. Contrast those numbers with iGObanking’s 12 Month CD, which offers a similar rate of 1.25% but an EWP of 180 days. With such an extreme EWP, breaking the CD at six months would mean simply a return of principal with no interest, versus the 1.13% yield of the Alostar CD.
Other Short Term High(er) APY/Low(er) EWP combination CDs include:
Shorter Term, Limited-Availability CDs with Good APYs and Excellent EWPs
|Select Federal Credit Union||24 Month CD||2.00%||90 Days|
|1st United Services Credit Union||36 Month Share Certificate||2.00%||180 Days|
|Patelco Credit Union||36 Month Share Certificate||1.75%||90 Days|
Utilizing DepositAccounts’ Tools to Find & Compare Options
This article is filled with examples of top CDs broken down by using DepositAccounts’ Early Withdrawal Penalty Calculator, a very handy tool created for just this purpose. We should note that DepositAccounts also offers another tool that incorporates the broken CD concept for consumers considering a wider range of options for safely growing their bank deposits. On our banking calculators page, you will find a link to the Where to Grow Your Cash tool, in which you can explore options for maximizing your savings over a given period of time.
Enter the appropriate information in each field on the ‘Where to Grow Your Cash’ calculator and click the "Show My Options" button, and multiple strategies for growing your savings are automatically generated based on your inputs. One of those options offered on investment periods of less than five years is called "Use the Rules to Your Advantage." This option processes your inputs and generates a few of the best ‘broken CD’ investment choices based on the broken CD concept we’ve presented over the last three articles. This strategy on a four year $35,000 investment may look something like this:
CD EWPs – A Stranger No More!
Over the course of three data heavy articles, we’ve emphasized the bearing EWPs should have on a consumer’s search for a CD if he or she has anything less than 100% surety that it will not need to be broken before maturity. This final article has (hopefully) begun to bring the conversation out of the ethereal by offering some concrete examples. Please remember that EWPs, like APYs, do change. Those listed and charted above are accurate at the time of publishing. Also, please be aware that some risks exist in planning for an early withdrawal of a CD. We have seen rare cases when banks have refused an early withdrawal request and when credit unions have raised the early withdrawal penalties on existing CDs. To learn more about these past cases and these risks, please refer to this article.
Our hope is that, through this research, we have provided beneficial guidelines and have pointed out some worthwhile starting points and tools for your next CD product search.