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Some Input About The EWP Tool To Calculate When It Is Worth Suffering The EWP

me1004
  |     |   1,381 posts since 2010

Ken, I tried to use the “Is it Worth Paying an Early Withdrawal Penalty to Break my CD?” tool to calculate whether it is worth it to close a CD I have, suffer the EWP, and put it in a new CD. But it seems you have erred on an important part of the calculation.

I am looking to close a 5-year CD with three years left to go. I put in the info on the existing CD, but as for the CD I would open, your tool presumes it is the same length of time as left on my existing CD. No, I want to put it in a much shorter term CD.

You need to add into the tool the ability to calculate when one will be going to a different term CD than the time left on the existing CD.

OR, instead of putting in the Time Remaining Until Maturity, I think we can instead put in the shorter of either term of the new CD we want to move to or the time remaining on the CD we are closing. Then it will calculate how much interest will be earned in that time minus the amount of penalty, and compare against the amount of interest earned on the new CD. In other words, your tool half the time is having us use the wrong time frame, the term of the existing CD instead of the term we plan to move to. I think simply relabeling that headline on that part of the tool is all that is needed.

However, the detail on that second approach is that the APY would change since it would not necessarily be based on the full term of the CD. That would be a somewhat complicated calculation to determine — but taking the result of the second approach as-is, use it as a general figure, if it's a close call, maybe just not make the change because you can’t really know about close calls without calculating the difference in APY. Or, you could build that better calculation into the tool, and get it fairly exact — that’s what a tool is for.

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Choice
  |     |   937 posts since 2020
I agree but I’ll parrot the non-constructive folks, ie “what do your pay for this service?” Zero,”ask for a refund”, sad but true. A list of prospective projects would be a good start
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OrderlyChaos
  |     |   30 posts since 2018
me1004 - take a look at this link - https://thefinancebuff.com/cd-early-withdrawal-calculator.html . I believe it includes the calculation that you have sighted as missing from Ken's calculator.
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me1004
  |     |   1,381 posts since 2010
OrderlyChaos, interesting. That link cities the same issue with the tool here as I did. But the tool he offers is highly reliant on that wild guess about what rate woud be obtained when the current CD matures. Even a genie could not know that, I would not be two years into what now is a low rate five-year CD if that could be guessed.

I think what I suggested is more to the point, the overlap time. After the overlap time, you know you are getting better with the new CD than keeping the old one, that's why you are even considering it. The overlap time is the period between now and the shorter of either when the existing CD matures or the new CD matures, if a shorter term.
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keithsanfran
  |     |   15 posts since 2014
Why don't you just find another EWP calculator tool. I don't know of any. Why don't you build the tool. Ken sold depositaccounts. We are lucky he is still here offering his advice. He does not need to do anything anymore,
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Ltssharon
  |     |   472 posts since 2020
I would enter my apy for my current cd, but only enter it for the length of time that I wanted for the CD I am considering. In other words, I would not give the accurate length of time for my current cd; instead I would give the current cd the length of time that I would own my potential cd. Hope this helps.
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Ltssharon
  |     |   472 posts since 2020
Oh, by the way, this solution just popped into my head whilst I was doing something entirely different. Thank you for the quesiton, though, because with the volatile fixed income environment, I would eventually have run into this question myself. By the way, I am not at all a person who enjoys mathematical thinking. I can do it, but it is not fun at all for me.
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me1004
  |     |   1,381 posts since 2010
Ltsharon, well , that's pretty much what I said -- except it would not automatically be the length of time for the new CD - if the current CD does not run that long, then it won't give you that APY for the term of the new CD.
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Ltssharon
  |     |   472 posts since 2020
Ah, good point. Hm i guess enter whichever length of time is shortest , using that length of time for both the current cd and the new cd. It must be you that somehow got in my brain and it must not have been until some random time that what you said started to actually sink into my skull. Funny how that happens . Thanks
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RG
  |     |   9 posts since 2022
I have a little thing I wanted to point out. The existing EWP calculator assumes a fixed interest penalty, but there are some credit unions I use that have a days of interest up to the max for the certificate term as the penalty. For example, I closed a cert after 1 month and opened a new one at a higher rate. I lost 1 month interest, not 6 months. This can be accounted for by spoofing the calculator with the actual time (1 month) to see the effect.
I'm guessing the should I break this CD calculator will have the same issue, so double check there as well when using it.
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