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Effect Of Canceling A CD Early

NanJP
  |     |   1 posts since 2022

Using your app to see if canceling a bank CD early makes sense, you say NO. But in my case, $212,000 in a 60 month CD, penalty is 12 months of 1% interest, & then putting the $212,000 into another CD at 2.25% interest for 23 months, makes sense to me. Yes I will lose $2100 when I cash the CD but after 23 months I will make $3000 more than if I had left it alone. And this takes the paid penalty into account.

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Answers
RichardW
  |     |   810 posts since 2019
NanJP…From the wording in your post, I assume these are the conditions of your situation:
Existing CD Information: APY = 1.00, Current Balance = 212000, Time Remaining Until Maturity = 23 months, Interest Penalty For Early Withdrawal = 12 months
New CD Information: APY = 2.25

When these conditions are entered in the DepositAccounts “When to Break a CD Calculator” available at: https://www.depositaccounts.com/tools/break-cd-calculator.aspx
The calculator’s conclusion is very similar to your $3000 conclusion. The calculator’s conclusion is: “YES! You should break the CD” “You will gain $2942.40 if you break the CD.” The calculator’s conclusion should not have been “NO! You should not break the CD” as you indicated.
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7
lou
  |     |   1,004 posts since 2010
The problem with your strategy is committing the funds to a CD at 2.25%. I predict you will be canceling this CD too.
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6
h_meister
  |     |   32 posts since 2014
Just did my 1st ever CD early withdrawal with NASA. Had 25K 49 month special opened in Jan22 at 1.7% Opened second 25K 49 month special this week at 3.85%. Called this morning and after 3 minute hold was able cancel prior CD and place funds in savings account. Lost all savings since inception of CD in Jan22 as withdrawal terms state for accounts open less the 365 days, loss of all dividends on the account. Net increase in 49 month CD earnings after $225 interest loss on Jan22 CD is $2,165. Overall, relatively painless and not time consuming.
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SouthernGirl
  |     |   210 posts since 2022
h_meister,
Will NASA open another CD for you at the new rate of 4.10% with no EWP? If not, it may be possible for you to withdraw all of the interest paid and accrued and close CD with no EWP and invest at a higher rate. Per NASA, interest may be withdrawn before maturity. Per NASA, there is no reduction in principal or loss of principal.
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highly_intrestd
  |     |   23 posts since 2022
2.25% for 23 months seems awfully low, considering the top 24 month is 3.5% (Bread Financial) and a 15 month gets you 3.75% (NASA FCU). doing the math, if you put $212k in a 23 mo CD @ 2.25% you net around $9200. the 15 mo @ 3.75% will net you $10k, and the 24 mo @ 3.5% nets you $15,100.
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Choice
  |     |   937 posts since 2020
what is the plan B for beyond 23 months...shouldn't some aspect of that be factored in?
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senda
  |     |   126 posts since 2015
Also remember that the IRS lets you DEDUCT any Early Withdrawal Penalty come tax time -- as an above-the-line deduction -- the best kind -- so that makes it even more worth it if the math makes sense in the first place.
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Choice
  |     |   937 posts since 2020
Where are you going to put the funds (don’t forget to subtract the penalty) after 23 months? 37 months of what? Zero or verses what y% with 60 month cd?. At the end of 60 months (what is that rate?) u will have x @ y apy and potentially only what ?  Sorry for my confusion but I’d need more facts
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SouthernGirl
  |     |   210 posts since 2022
NanJP. If your cd is with a credit union, determine if credit union will take the penalty below the principal amount. If not, withdraw all of the interest posted to the cd already. Interest is typically posted at the end of the month and close the cd without penalty on the 1st or 2nd of the month!!!
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Choice
  |     |   937 posts since 2020
Neat! To repeat, Neat!
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Ltssharon
  |     |   471 posts since 2020
I just did an early withdrawal at a credit union, and reinvested at a higher rate, longer 5 year term at the same credit union. I did not get a really top rate on the 5 year (just 3.25), but I was feeling that if I tried to open a trust account at another institution and get the money shipped there, etc., it might take so long that possibly the rate would be less even than 3.25. This was at Barksdale. It was a complicated special originally, requiring the opening of 5 cds. For some reason the clerk said I would not have to pay an early withdrawal penalty on the cd holding the most money. The clerk was probably mistaken, and I shall see about it when I get my statement. Or maybe it will show up at tax time, or worse, after I do my taxes they will find the mistake. Oh well. Anyway, congratulations on your reinvestment. It feels great to take that step, even if it is not the absolute maximum interest rate you get.
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Confused1
  |     |   87 posts since 2018
I bet you answered the 2nd question incorrectly Time Remaining Until Maturity, that's the only way it would tell you no. I suggest you try it again.
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