Trying To Decide Between 3 And 5 Yr CD

ORInvestor | Jun 17, 2019 | 44 posts since 2014

I am considering 2 Cds at https://www.enrichmentfcu.org. A 35 month Cd with an APR of 3.04% and a 59 month CD with an APR of 3.3%.

I realize nobody knows how interest rates will change in the future.

Assuming that the funds would not be needed for the next 5 years which CD would you pick?

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Answers

pgroove_fan | Jun 17, 2019 | 168 posts since 2019

The mild early withdrawal penalty of only 90 days on the 59 month offer makes it the clear winner. I used Ken's early withdrawal calculator, https://www.depositaccounts.com/tools/ewp-calculator.aspx and found that the 59 month offer, if broken at 35 months, generates exactly the 3.04% effective return as the 35 month CD held to maturity. For all other break dates beyond 90 days, the 59 month will have a higher effective yield.

ORInvestor | Jun 17, 2019 | 44 posts since 2014

thanks for the reply.
However, given Ken's earlier warnings that some banks fave changed their EWP (see https://www.depositaccounts.com/blog/important-details-of-cd-early-withdrawal-penalties.html), I do not want to count on the current very low EWP

AnnO | Jun 18, 2019 | 129 posts since 2018

That has been a very rare occurrence, FWIW.

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