When To Close A 3% CD Account And Move To Higher Rate?

chrisoffice | May 15, 2018 | 21 posts since 2018

So I have a CD with Andrews FCU which earns 3%, the account has a 180 day early closing penalty. Now I see the CDs with 3.4% rate popping up, and we probably will see some higher rate CDs soon. At which point should I close the 3% and move to the higher rate? I think there is a formula to calculate, but I simply could not find it now. Any advice?

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Answers

MidAtlantic | May 15, 2018 | 142 posts since 2012

Are you thinking about the "When to break a CD calculator" here?

https://www.depositaccounts.com/tools/

Rooks777 | May 21, 2018 | 40 posts since 2014

It seems like the calculation whether or not to break a CD is a bit more complicated than just plugging the numbers into the CD calculator. If the Fed hikes rates 3 times in 2018 and 2019, then the implied target Fed funds rate would be 3% in 2019, in which case there will probably be CDs in the 4% range. This would could prompt another round of, "should I break my CD?" Unless I'm thinking of this the wrong way, the calculation would require some other assumptions that are not really asked for by the calculator. And since a lot of it is unknown anyway, it's kind of difficult to figure out. If anyone has a better way of thinking about this, I'm all ears.

locojoe | Aug 4, 2018 | 9 posts since 2018

Sooner or later rates will go lower. The economy is based on debt and the federal reserves only tool is debt devaluation through artificially low interest rates. I'm thinking long and short. If the top rates on 5 yrs goes down to 3.25, you may rationalize waiting for it to come back to 3 and a half. And then went it goes down to 3. As CD investors, we are conservative. We put at least equal weight on downside risk. Right now, I'm moving towards the longer end of maturity with my CD ladder. Don't want to get caught up in the sub 3% rate fiasco of the last decade.

highrate | May 15, 2018 | 46 posts since 2016

I have that 7 year cd. I didn't calculate anything but I don't plan on closing it unless rates go higher which they may. no point doing a 3.4 cd and then changing again even if there's a little more interest to be had

chrisoffice | May 15, 2018 | 21 posts since 2018

yeah, but at which higher rate should we move? I think there is a formula for cost-benefit analysis, i.e., plug in the 3% current rate, the higher rate, the early closing penalty, etc, and come up with a decision whether or not to move.

Ricochet | May 15, 2018 | 522 posts since 2010

MidAtlantic
GAVE you the link for the tool you seek.
Copy / paste it / enter
It will tell you Yes or NO
YOU just enter numbers no figuring

Rooks777 | May 19, 2018 | 40 posts since 2014

Where are you guys seeing 3.4% CDs?

DAJunkie | May 19, 2018 | 12 posts since 2016

I'm not sure about 'popping up' but there's one in Ken's CD Rates Summary for May 8, 2018. There you'll find NWFCU 3.41%, 5yr (Heritage Club 0.25% bonus rate, 62 yrs old, $250k min, non-promotional and non-add-on certificate types only!).

chrisoffice | Aug 3, 2018 | 21 posts since 2018

Now that the Senate FCU has 3.53% 5-yr CD, should I close the 3% with Andrews and move over to the Senate FCU? Decision, decision, decision.

lou | Aug 3, 2018 | 1,004 posts since 2010

No, you should wait. It would take 3 years for you to break even if you closed the Andrews CD. I would wait for 4% CDs at a minimum.

Ratesaver | Aug 3, 2018 | 187 posts since 2013

if you are laddering the cds you could as I am using the 3% 4or5 yrs cds. as a bottom as most of my 5and 7yrs are coming to a end .. In other words I am looking at 3rys forward and using 3% as a bottom as I have a lot of cd to contend with....

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