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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Why Long-Term CDs are Currently the Best Deals


If you want anything close to a decent yield today that's safe and without balance caps and hassles (i.e. reward checking), a long-term CD is the only option. Most internet savings accounts and short-term CDs have yields under 1.50%. On the other hand, several long-term CDs have yields from 3.00% to close to 4.00%. The main concern with long-term CDs is being stuck in the CD if interest rates and inflation shoot up. However, if the CD's early withdrawal penalty is mild, this risk may be smaller than you think.

I've recently been posting on some long-term CD deals. The latest includes those from PenFed and Ally Bank. Allan Roth at The Irrational Investor Blog at MoneyWatch described these deals in a recent blog post. He suggests "Reframing the way you think of a long-term CD":

So don’t think of this as a seven year CD. Think of it as a two year CD that pays as high as any two-year CD, and that also gives you this free option to earn much more after two years, as well as a possible one-time bonus after seven years.

Also, he notes why these deals aren't getting the publicity they deserve:

These great CDs exist because no one has the incentive to tell you about them. They don’t pay commissions, and any planner charging a percentage of assets can’t use these vehicles to get their take.

We are actually fortunate that they're not getting the publicity. Otherwise, the rates may be falling much faster. But more people may be learning about these, and this may be why we have seen some big recent rate drops.

Allan provides the early withdrawal yield table for PenFed, Ally Bank, Discover Bank and USAA Bank that are similar to my tables for Discover Bank and PenFed and Ally Bank. I think his yield calculations are a little more accurate. As I've mentioned, I have just used a quick approximation method to determine the yields. Nevertheless, his numbers are close to mine.

The Best Deal is at USAA Bank But There's a Potential Gotcha

As you can see in Allan's table, the best deal for year 3 to 7 is USAA Bank's 7-year Super Jumbo CD which has a 3.92% APY as of 9/02/2010.

One potential gotcha with USAA Bank is the possibility that the bank may refuse an early withdrawal request. As I mentioned in my latest USAA Bank CD review, the CD disclosure does give them this right:

Any withdrawals before the maturity date require Bank’s consent

One of Allan's commenters also had this concern. Here was Allan's reply:

I'm not an attorney but I think if the agreement gives you the right to withdraw with the stated penalty, you have that right. I confirmed with all four financial institutions.

The USAA agreement did note they had the right not to honor such a request. The written response from USAA was as follows:

"Keeping its members' financial needs in mind, USAA would continue to honor early withdrawals for the balance of a CD after an offset (due to monies owed to USAA) or lien has been applied."

As noted in the blog - ALWAYS read the disclosure and don't assume any language. Many years ago I wrote about this strategy at Capital One. As a result of my article (I'm pretty sure), they changed the withdrawal penalty but could only do it for new accounts.

There's also a concern that the bank may increase the penalty on existing CDs. As Allan described, banks should only make penalty changes on new CDs and not existing CDs. I've looked into these early withdrawal penalty concerns many times for Ally Bank's CD and for long-term CDs in general.

Related Pages: CD rates

Related Posts

  |     |   Comment #1
That 3.92% at USAA may not last long, especially with nearest competitor PenFed cutting its rates yesterday.
  |     |   Comment #2
and Discover's 5 year rate is now less than 3.00%
  |     |   Comment #3
Longish (5 years plus) CDs have always been the best yielding, even (as I recall) with the inverted yield curve several years ago. Point being, if you have a ladder, your CDs will always be maturing at the longish end. So, you replace them with the longish yields. Seems a no-brainer to me.

Just my $.02.

  |     |   Comment #4
Regarding USAA, as a proud member, I can only suggest they have (and will continue to have, I suspect) extremely competitive rates on CDs, especially those "super-jumbo" CDs at 7 years. If you can ladder into USAA's rate structure, so that you don't get caught short if rates go up, you will do well.

Most folks think "three and a goose" (three percent and a goose, say, up to 3.5%) is a lame yield these days. Well, might I be the contrarian. It's all about your real rate of return, or ROR. If inflation is clicking along at zero to .5%, or your real inflation-impacted expenditures are closer to zero than .5%, then your ROR of 3% is really ever-so-much-better than when we were getting 5.75% on our CDs with inflation running 4% (think 2006).

On taxable accounts, the math is even better.

Don't whine, the math is fine,

Fair and Balanced
  |     |   Comment #5
Demanding an early withdrawl on a CD is just something I would not care to do as a matter of course.  Going into a CD with the plan of withdrawing if rates go up, just doesn't feel right for me.  I hate returning things.  A deal is a deal and who wants to go beggin' anyway.   I know they hit you with the penalty, but I am pretty sure they would rather see the contract run full term. 

 It is kind of like, "try it out and if you don't like, bring it back and we'll give you a hard time about returning it".

Bozo's plan makes sense.  Spread them out and keep the size down so you have more options.  Save a little more diligently to make up the difference in the lower rate.  I try to add a little sweetener to the amount when I renew a CD.
Timothy Tolstoy
  |     |   Comment #6
Can you imagine that, if inflation is running wild, and yields on 7 year CDs go up to let's say, 25% - 30%, that USAA is going to "consent" to the withdrawal of an existing CD on which they are paying 3.92%??? 

A high CD yield scenario is quite likely, in the next few years, if we remember that the last huge monetary base expansion in the USA (in the late 1970s) resulting in CDs paying 22%.  This time, the Fed has expanded the monetary base by a far larger percentage than back in the late 70s.  There is more than $1 trillion worth of new counterfeit cash, printed up by Bonkers Bernanke, and the corrupt Federal Reserve, which has been given away to the derivative banking mafia, now sitting in so-called "Fed Reserve Deposits". 

When that money is deployed, and it will be, 25% 7 year CDs will be the lowest paying ones on the market, as this nation faces hyperinflation of 100% per year or higher.  USAA and other banks with early withdrawal rights based upon their discretion will NOT allow withdrawals if they have a legal avenue to stop them in the contract you sign with them.  That is why the non-consent provision exists.  If they didn't intend to use it in a scenario where the bank is significantly disadvantaged by your withdrawal (and you are significantly benefitted), the provision wouldn't be there.
  |     |   Comment #7
9/3/2010 -- I just reserved four of the CD specials, 10yr 5%, at Pentagon Federal.  The first person I spoke to said he couldn't reserve them without the funding being in my MM account at Pen Fed and anything over $5000 would have to be wired in, not ACH.  I spent quite a bit of time getting my wires lined up at different banks and then I called back to ask a question.  This time I got a different person who said I DID NOT have to fund them until a few days before my start date in January.  He reserved them for me and sent me the confirmation notices through e-mail.  I was able to call and stop my wires which would have been $15.00 each, plus I would have lost the 2% interest I'm getting on that money from now until January.  I even asked the first person if there wasn't some way around the wires being done immediately and he said that was the only way to do it.  As with almost everything it's ALL in who you talk to.
  |     |   Comment #8
To the poster # 7 at 11:19 AM where are you receiving 2% interest on you liquid funds?
  |     |   Comment #9
This article prompted me to check your listed CD rates for long term maturities. I spotted the whopping 5% rate at Fifth Third Bancorp for a ten year CD. But upon further checking I see no mention of it at the bank's own website. Am I missing something, or is this rate not still current?
  |     |   Comment #10
to Lou:  I receive 2%, no limit on amount, with my KASSA savings account that's connected to my KASSA checking, it's through a bank that used to offer it nationwide but now it's just for residents of Arkansas.
  |     |   Comment #11
sorry, should be KASASA (not KASSA) at First National Bank and Trust in Arkansas
  |     |   Comment #12
Thanks for your response. Unfortunately, the way I understand it is that only the interest from the cash account is allowed to be deposited into the savings account which earns the 2% interest. You cannot make an unlimted deposit into the savings account. Is my understanding of this correct? I am still searching for a liquid account which pays 2% or more on high balances.
  |     |   Comment #13
That whopping 5% CD from Fifth Third Bank is for 529 accounts - qualified accounts for higher education expenses. It's not a traditional CD.
  |     |   Comment #14
Lou -- that's not the way my account works.  It does take the interest from my checking account and put it into my savings account every month but I can put ANY additional amount I want into my savings account and still get 2% on it as long as I met the monthly requirements for the checking account, 10 card transactions, 1 bill pay, etc.  I've had this account for a long time so I know it works this way.
  |     |   Comment #15
wow - that's great you get 2% for unlimted balances. I have been trying to find an account like that, but there doesn't seem to be anything like it in Ca. or nationwide. I might have signed up for the account, but their website makes it seem that the savings account is restricted to only the interest earned from the checking account. They should make it clearer. Wish they weren't limited to Arkansas residents. Has anyone else found a local liquid account which gets a high rate, such as 2%.

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