Closing Out CD Early

Anonymous · ‎01-15-2018

I ran the numbers. I would make a few bucks extra by closing out a Cap1 CD early and moving it to a higher rate, despite the interest penalty.

Upsides? More interest, less recordkeeping (Planning the open the higher rate CD with a given amount, just adding the Cap1 CD amount or not.).

Are there any downsides other than the penalty itself of which I should be aware? I don't want to get blacklisted or anything with Cap1. Thanks!

Anonymous · ‎01-15-2018

Great question -- I have never heard of a bank blacklist over a CD. They love CDs because it gives them remarkable asset flexibility in creating new debt for others, and they do assume some CDs won't make it to maturity.

I also am considering close 2 CDs early and losing interest because the rates from last year were suckage. I think I may just ride it out because the difference isn't major, and the hassle of paperwork and bank bureaucrats offends me.

There are at least 10 financial analysts I trust who do think high yield savings will break 2% in less than a year, which is better than almost any CD available today, so I am really grinding my teeth over it. I want my 24-month CDs, but not if high yield savings ends up better. So I have a ton of forecasting spreadsheets to analyze this mess.

Of course, complaining about 1.75% versus 1.85% gains is superior to worrying over 27.9% versus 29.9% credit cards, lol.

SBR249 · ‎01-16-2018

Lately, I've been finding that Series I savings bonds tend to be a better deal than CDs for about the same restrictions. Current rates are around 2.58%. Minimum hold time is 1 year and redemptions within 5 years incur a 3 month interest penalty which is much less than penalties for many CDs. The rate is also adjusted every quarter so it does keep up with the Fed's rate adjustments.

Anonymous · ‎01-16-2018

Wow I forgo all about I bonds -- I think I invested in a few of those back in the 90s, maybe. That's crazy high interest for 1 year minimum and only a 3 month interest penalty on withdrawal before 5 years.

Sadly, these are limited to $10,000 per year per individual, but that's not really horrible. I'll do some math but may max out in I bond purchases this year if the rate is as good as it seems. Thanks for mentioning it!

arkane · ‎01-16-2018

Likewise. Even with the early withdrawal penalty the effective interest rate if you hold these for just 1 year is still 1.935%. Plus the earned interest is exempt from state taxes, making them even more attractive. I'm probably going to max out these I bonds this year as well.

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Anonymous · ‎01-16-2018

Is treasurydirect the only source for them? I emailed three of my bankers but didn’t get replies yet because 4 day banking week.

Going to pause my CD Ladder til May and use my $3000ish in Feb Mar Apr to snag $10k in ibonds and then restart the ladder in May — maybe interest rates will go up again lol.

It’s not a lot of money overall but every basis point means so much over 25 years. My projected need for cash is age 68 and I’m 43 so the ibonds+CD ladder are liquid and return enough to kinda offset inflation.

Thanks again for the mention, I had no clue this was a thing!

SBR249 · ‎01-16-2018

No worries, happy to help. I didn't actually remember about these bonds myself until recently. I still have a few paper Series EE bonds from a decade or so ago that you buy at half face value to mature in 30 years but didn't really pay much attention to these until they randomly popped up again on my radar a few weeks ago.

Speaking of limits, I think you can conceivably buy up to $15K a year since the website says $10K electronically and $5K in paper bonds via IRS refund. So you could conceivably make extra estimated tax payments any time before Jan 18th for tax year 2017 then claim it back when you file in the form of $5K in paper bonds. There is a loss of interest on those funds between time of payment and refund but if you time it right (make the tax payment at the very last minute, file the first chance you get), the loss on interest income would be minimal.

Anonymous · ‎01-16-2018

I’ve been filing taxes since I was 12 or 13 and have never once experienced a refund, lol. I hate loaning the dysfunctional any of my money if possible.

But for those who overpay $100/week it’s a fantastic deal if true!

Anonymous · ‎01-17-2018

@SBR249 wrote:
Lately, I've been finding that Series I savings bonds tend to be a better deal than CDs for about the same restrictions. Current rates are around 2.58%. Minimum hold time is 1 year and redemptions within 5 years incur a 3 month interest penalty which is much less than penalties for many CDs. The rate is also adjusted every quarter so it does keep up with the Fed's rate adjustments.

Since the 11/1/17 set inflation rate, yes, but there's a good chance this won't keep up while CD's are likely to become increasingly competetive.

That said, I'll probably still buy some. I'm expecting a small refund this year, so I'm currently debating whether I want paper or electronic.

Anonymous · ‎01-17-2018

@SBR249 wrote:
Lately, I've been finding that Series I savings bonds tend to be a better deal than CDs for about the same restrictions. Current rates are around 2.58%. Minimum hold time is 1 year and redemptions within 5 years incur a 3 month interest penalty which is much less than penalties for many CDs. The rate is also adjusted every quarter so it does keep up with the Fed's rate adjustments.

Interesting!