Getting out of a 7 yr CD?

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ilan1h
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Getting out of a 7 yr CD?

Post by ilan1h »

6 years ago I felt like quite a genius when I invested my elderly mother's nestegg into a 3% CD at Andrews Federal Credit Union. That rate was significantly better than many other deals at the time and it continued to be an enviable rate over the last few years. There's only one year left to go on this CD. Just wondering if there is a way to withdraw the money and reinvest in elsewhere or if this type of manoever results in high penalties? I tried calling them a few times but it's impossible to speak to anyone there.
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arcticpineapplecorp.
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Re: Getting out of a 7 yr CD?

Post by arcticpineapplecorp. »

can't find it on their site (only see except for the 84 month cd...) but this site says:
Let’s take a closer look at this 84-month Share Certificate at 3.01% APY. The early withdrawal penalty is a rather modest 180-days of interest.

source: https://www.mymoneyblog.com/andrews-fed ... -deal.html
i'm not sure what's modest about losing 6 months of interest, but there it is. Do the computation to determine how much you stand to lose and if it's worth it to break for a higher yielding cd (looks like they have a 5% now, 7 month but that's only for new money brought into Andrews, not offered for money already there).
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mhalley
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Re: Getting out of a 7 yr CD?

Post by mhalley »

Looks like it was this one https://www.mymoneyblog.com/andrews-fed ... -deal.html with a 180 day interest penalty.
LOl posted same link at same time
Silk McCue
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Re: Getting out of a 7 yr CD?

Post by Silk McCue »

A web search finds this discussion for the CD you have.

https://www.mymoneyblog.com/andrews-fed ... -deal.html

According to this piece the penalty is
Let’s take a closer look at this 84-month Share Certificate at 3.01% APY. The early withdrawal penalty is a rather modest 180-days of interest.
Cheers
Chuck
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Re: Getting out of a 7 yr CD?

Post by Chuck »

I think I remember a double-asterisk that said the 7-year product had a 12-month penalty. Can't find any paperwork on mine though. I'm going to wait for it to mature.
Silk McCue
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Re: Getting out of a 7 yr CD?

Post by Silk McCue »

Chuck wrote: Tue Nov 15, 2022 6:20 pm I think I remember a double-asterisk that said the 7-year product had a 12-month penalty. Can't find any paperwork on mine though. I'm going to wait for it to mature.
Did you see the 3 posts above yours? If you want to wait fine but not if you just think it’s a 12 month penalty rather than 6.

Cheers
Chuck
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Re: Getting out of a 7 yr CD?

Post by Chuck »

All I can find is this:
Additional Share Certificate Disclosures -
With the exception of the 84-Month Share Certificate, if your account has an original maturity of less than 24 months, we will charge a penalty equal to 90 days of dividends.
With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends.
Chuck
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Re: Getting out of a 7 yr CD?

Post by Chuck »

Even if the penalty is 6 months, with 12 months left you need 4.5% just to break even.
Silk McCue
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Re: Getting out of a 7 yr CD?

Post by Silk McCue »

Chuck wrote: Tue Nov 15, 2022 6:27 pm All I can find is this:
Additional Share Certificate Disclosures -
With the exception of the 84-Month Share Certificate, if your account has an original maturity of less than 24 months, we will charge a penalty equal to 90 days of dividends.
With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends.
Yes 180 days not 1 year as you originally stated above. Three of us had already posted before you providing a link to a reference from 2017 stating 180 days. The question for you is do currentbrats suggest closing out the CD early provide you with a better return with very little effort. Rates can and will change before your current term is up possibly costing you even more by waiting should rates drop.

Cheers
marcopolo
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Re: Getting out of a 7 yr CD?

Post by marcopolo »

Silk McCue wrote: Tue Nov 15, 2022 6:37 pm
Chuck wrote: Tue Nov 15, 2022 6:27 pm All I can find is this:
Additional Share Certificate Disclosures -
With the exception of the 84-Month Share Certificate, if your account has an original maturity of less than 24 months, we will charge a penalty equal to 90 days of dividends.
With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends.
Yes 180 days not 1 year as you originally stated above. Three of us had already posted before you providing a link to a reference from 2017 stating 180 days. The question for you is do currentbrats suggest closing out the CD early provide you with a better return with very little effort. Rates can and will change before your current term is up possibly costing you even more by waiting should rates drop.

Cheers
The second sentence in the quoted text starts with the qualifier "With the exception of..."
Why would you then expect the 180 days to apply specifically to the thing they are excepting?
Once in a while you get shown the light, in the strangest of places if you look at it right.
international001
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Re: Getting out of a 7 yr CD?

Post by international001 »

Chuck wrote: Tue Nov 15, 2022 6:33 pm Even if the penalty is 6 months, with 12 months left you need 4.5% just to break even.
How did you made that math?
marcopolo
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Re: Getting out of a 7 yr CD?

Post by marcopolo »

international001 wrote: Tue Nov 15, 2022 8:49 pm
Chuck wrote: Tue Nov 15, 2022 6:33 pm Even if the penalty is 6 months, with 12 months left you need 4.5% just to break even.
How did you made that math?
It's a 3% CD.
6 months of interest is 1.5% that would be paid in penalty.
To break even, would have to earn back that 1.5% in addition to the old rate.

So, 3% old interest rate + 1.5% penalty = 4.5% to break even.
Once in a while you get shown the light, in the strangest of places if you look at it right.
DesertDiva
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Re: Getting out of a 7 yr CD?

Post by DesertDiva »

Remember, at her age, preservation of her nest egg outweighs the need for growth. She is past the accumulation phase. My $0.02 worth.
tomsense76
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Re: Getting out of a 7 yr CD?

Post by tomsense76 »

Here's what I'm seeing (feel free to correct any math/conceptual errors):

Stay the course (3% for 7 years): 1.03^7
Break now with 6mo penalty + losing this year's interest (3% for 5.5 years; 5.5 = 7 - 0.5 - 1): 1.03^5.5
Shortfall (needs to be made up in 1yr to break even): 1.03^7 - 1.03^5.5
Rate of return needed to break even (shortfall / breaking now; 7 - 5.5 = 1.5): 1.03^1.5 - 1 ≈ 4.53%

IOW one would need to make 4.53% at least to break even (by switching). That is ignoring the hassle involved in breaking the CD, finding an alternative, and executing on it. So would think one would want to make more (ideally 5%). Am not seeing anything attractive like this with a guaranteed rate of return (maybe a 1 year Treasury would do a bit better?), but I've not searched very hard.

Anyways I'd wait it out, but maybe I'm missing something.

Edit: To fix math error caught here ( viewtopic.php?p=6964644#p6964644 )
Last edited by tomsense76 on Tue Nov 15, 2022 10:47 pm, edited 2 times in total.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
marcopolo
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Re: Getting out of a 7 yr CD?

Post by marcopolo »

tomsense76 wrote: Tue Nov 15, 2022 9:18 pm Here's what I'm seeing (feel free to correct any math/conceptual errors):

Stay the course (3% for 7 years): 1.03^7
Break now with 6mo penalty + losing this year's interest (3% for 5.5 years; 5.5 = 7 - 0.5 - 1): 1.03^5.5
Shortfall (needs to be made up in 1yr to break even): 1.03^7 - 1.03^5.5 ≈ 5.33%

IOW one would need to make 5.33% at least to break even (by switching). That is ignoring the hassle involved in breaking the CD, finding an alternative, and executing on it. So would think one would want to make more (at least 5.5% if not 6%). Am not seeing anything attractive like this with a guaranteed rate of return, but I've not searched very hard.

Anyways I'd wait it out, but maybe I'm missing something.
your shortfall equation should be a division, not a subtraction. That yields a 4.53% break even rate.
Once in a while you get shown the light, in the strangest of places if you look at it right.
tomsense76
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Re: Getting out of a 7 yr CD?

Post by tomsense76 »

marcopolo wrote: Tue Nov 15, 2022 9:53 pm your shortfall equation should be a division, not a subtraction. That yields a 4.53% break even rate.
Thanks! Corrected above (with an edit).
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

I broke my Andrews CDs earlier this year (1.5 years early) to buy ibonds, and it was a quick, painless experience via live chat. 1.5% penalty (6mo@3%), exactly what I expected. I don't know what you'd plan to do with the money, but you can do better than 4.5% TEY right now
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ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

nalor511 wrote: Tue Nov 15, 2022 11:22 pm I broke my Andrews CDs earlier this year (1.5 years early) to buy ibonds, and it was a quick, painless experience via live chat. 1.5% penalty (6mo@3%), exactly what I expected. I don't know what you'd plan to do with the money, but you can do better than 4.5% TEY right now
Is it always a 6 month penalty? If I wanted to yank it 5 months from the end do they pro-rate the penalty? I'm pretty close to the end period so I suppose I could just wait rather than cause problems.
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

ilan1h wrote: Thu Nov 17, 2022 4:50 pm
nalor511 wrote: Tue Nov 15, 2022 11:22 pm I broke my Andrews CDs earlier this year (1.5 years early) to buy ibonds, and it was a quick, painless experience via live chat. 1.5% penalty (6mo@3%), exactly what I expected. I don't know what you'd plan to do with the money, but you can do better than 4.5% TEY right now
Is it always a 6 month penalty? If I wanted to yank it 5 months from the end do they pro-rate the penalty? I'm pretty close to the end period so I suppose I could just wait rather than cause problems.
They do not prorate - it's a penalty, you've committed to getting an interest rate at the tradeoff of paying the penalty if you leave early. I asked about waivers, etc. and they said no. BUT you can take out the interest penalty-free, just not the principal
Topic Author
ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

marcopolo wrote: Tue Nov 15, 2022 6:43 pm
Silk McCue wrote: Tue Nov 15, 2022 6:37 pm
Chuck wrote: Tue Nov 15, 2022 6:27 pm All I can find is this:
Additional Share Certificate Disclosures -
With the exception of the 84-Month Share Certificate, if your account has an original maturity of less than 24 months, we will charge a penalty equal to 90 days of dividends.
With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends.
Yes 180 days not 1 year as you originally stated above. Three of us had already posted before you providing a link to a reference from 2017 stating 180 days. The question for you is do currentbrats suggest closing out the CD early provide you with a better return with very little effort. Rates can and will change before your current term is up possibly costing you even more by waiting should rates drop.

Cheers
The second sentence in the quoted text starts with the qualifier "With the exception of..."
Why would you then expect the 180 days to apply specifically to the thing they are excepting?
Did you ever find out the answer to this question? Their website claims:
"With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends."

To me, it sounds like there is a different penalty for 84-month CDs. I will try them again tomorrow and post the answer here if I can find it.
MikeG62
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Re: Getting out of a 7 yr CD?

Post by MikeG62 »

ilan1h wrote: Thu Nov 17, 2022 6:22 pm
marcopolo wrote: Tue Nov 15, 2022 6:43 pm
Silk McCue wrote: Tue Nov 15, 2022 6:37 pm
Chuck wrote: Tue Nov 15, 2022 6:27 pm All I can find is this:
Additional Share Certificate Disclosures -
With the exception of the 84-Month Share Certificate, if your account has an original maturity of less than 24 months, we will charge a penalty equal to 90 days of dividends.
With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends.
Yes 180 days not 1 year as you originally stated above. Three of us had already posted before you providing a link to a reference from 2017 stating 180 days. The question for you is do currentbrats suggest closing out the CD early provide you with a better return with very little effort. Rates can and will change before your current term is up possibly costing you even more by waiting should rates drop.

Cheers
The second sentence in the quoted text starts with the qualifier "With the exception of..."
Why would you then expect the 180 days to apply specifically to the thing they are excepting?
Did you ever find out the answer to this question? Their website claims:
"With the exception of the 84-Month Share Certificate, if your account has an original maturity date of 24 months or greater, we will charge a penalty equal to 180 days of dividends."

To me, it sounds like there is a different penalty for 84-month CDs. I will try them again tomorrow and post the answer here if I can find it.
OP, why don't you call AFCU and ask them?

If the penalty is 6-months, it may make sense to terminate it and reinvest the funds into Treasuries or perhaps a non-callable brokered CD.

Deposit accounts has a good calculator on analyzing the breakeven point on terminating CD's early. It depends on what you intend to reinvest the proceeds in.
Real Knowledge Comes Only From Experience
Topic Author
ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
Chuck
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Re: Getting out of a 7 yr CD?

Post by Chuck »

When is this money needed?
Topic Author
ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

Chuck wrote: Fri Nov 18, 2022 6:11 pm When is this money needed?
Not needed. Or at least not for the next decade or longer. Anyway, why is that relevant? Whether the money spends one more year at 3% or at 4.86% it's still one year. I think that at this point (and going forward) many people will be doing calculations regarding optimal ways to move their monies between investments of increasing yield. I remember my parents in the 70s running from one bank to another bank to physically withdraw money and move it between CDs whose interest rates were changing by the day.
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

ilan1h wrote: Fri Nov 18, 2022 5:00 pm So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
Your penalty is being calculated incorrectly - there is no penalty on interest, per the terms of the 84mo CD. BUT you likely need to remind the rep on that (because these things are calculated manually by the rep closing your CD), and hopefully you have a copy of the terms with you. The penalty for 84mo CDs opened at that time is 6mo interest, or $7500 on a balance of $500k.
Northern Flicker
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Re: Getting out of a 7 yr CD?

Post by Northern Flicker »

ilan1h wrote: Tue Nov 15, 2022 6:02 pm 6 years ago I felt like quite a genius when I invested my elderly mother's nestegg into a 3% CD at Andrews Federal Credit Union. That rate was significantly better than many other deals at the time and it continued to be an enviable rate over the last few years. There's only one year left to go on this CD. Just wondering if there is a way to withdraw the money and reinvest in elsewhere or if this type of manoever results in high penalties? I tried calling them a few times but it's impossible to speak to anyone there.
If interest is compounding (being reinvested) you may be able to withdraw the accumulated interest without penalty. If you pay a penalty to break the CD you will have to earn enough more with a new instrument to compensate for the penalty.

You also take the risk of rates changing while the move is in process, and not getting the rate you targeted when you initiated the process.

I would probably just hold it to maturity but see if you can withdraw the accumulated interest penalty-free.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

nalor511 wrote: Fri Nov 18, 2022 7:52 pm
ilan1h wrote: Fri Nov 18, 2022 5:00 pm So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
Your penalty is being calculated incorrectly - there is no penalty on interest, per the terms of the 84mo CD. BUT you likely need to remind the rep on that (because these things are calculated manually by the rep closing your CD), and hopefully you have a copy of the terms with you. The penalty for 84mo CDs opened at that time is 6mo interest, or $7500 on a balance of $500k.
Thanks nalor. Are you sure about that? I was also confused initially and asked her specifically why the penalty was not applying solely to the 500K initial investment. I will call them back on monday. I think that a $7500 penalty would be well worth what I could get on a 1 year T-bill at this point.
marcopolo
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Re: Getting out of a 7 yr CD?

Post by marcopolo »

ilan1h wrote: Fri Nov 18, 2022 5:00 pm So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
You will get about $10k extra in interest. But, you have to then subtract the $8k penalty, You will make about $2k extra by doing this.
Once in a while you get shown the light, in the strangest of places if you look at it right.
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

ilan1h wrote: Sat Nov 19, 2022 11:03 pm
nalor511 wrote: Fri Nov 18, 2022 7:52 pm
ilan1h wrote: Fri Nov 18, 2022 5:00 pm So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
Your penalty is being calculated incorrectly - there is no penalty on interest, per the terms of the 84mo CD. BUT you likely need to remind the rep on that (because these things are calculated manually by the rep closing your CD), and hopefully you have a copy of the terms with you. The penalty for 84mo CDs opened at that time is 6mo interest, or $7500 on a balance of $500k.
Thanks nalor. Are you sure about that? I was also confused initially and asked her specifically why the penalty was not applying solely to the 500K initial investment. I will call them back on monday. I think that a $7500 penalty would be well worth what I could get on a 1 year T-bill at this point.
I am 100% sure. I just broke 8x 7yr CDs. Read your terms
MikeG62
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Re: Getting out of a 7 yr CD?

Post by MikeG62 »

marcopolo wrote: Sat Nov 19, 2022 11:19 pm
ilan1h wrote: Fri Nov 18, 2022 5:00 pm So it turns out that getting out of a 7 year 3% CD that was opened 6 years ago with 500K will cost $8730. The 1 year T bill rate is now 4.68% There is now 594K in my Andrews CD. If they take $8K in penalty, that will leave me 586K to invest and with a T-bill I would get 28K. If I left the money with Andrews (ie: no penalty) at 3% it would be 18K. Seems like I make about 10K more moving to a T-bill. This also doesn't take into account that if I live in CA there are some tax advantages to a T-bill which I would not have with the CD. Also, T-bills are incredibly easy to buy, sell etc at Vanguard or Schwab compared to dealing with Andrews since those are the places I have my other monies. If I'm seeing this clearly it appears as if the decision is clear?
You will get about $10k extra in interest. But, you have to then subtract the $8k penalty, You will make about $2k extra by doing this.
^This.

Look at it this way, if you leave the funds in the CD you will have ~$612,000 a year from now when the CD matures ($594,000 x 1.03). OTOH, if you withdraw the funds now and buy a 1 year Treasury, you will have ~$614,000 a year from now ($586,000 x 1.047). So, net upside of roughly $2,000.

If you are only going to buy a one year Treasury, there is not much upside here.

I think the real upside would be investing in a longer term Treasury or CD with the proceeds. Maybe you won't earn much more than 4.7% in year one, but you'll have locked in today's (what I consider) very attractive rates for years to come.

Obviously, there is no knowing what longer-term yields will be a year from now (if you hold the CD and reinvest the proceeds upon maturity). Having said that, it seems to me (more likely than not based upon recent CPI and PPI inflation readings) that the Fed will pause at some point in 2023 (probably early 2023 in my estimation) and when they do that (or announce that the data is looking in such a way that they think they may be able to do that), I would expect longer term rates to decline markedly from current levels. Look, 7 and 10 year Treasuries hit cycle highs of 4.36% (on 10/20) and 4.25% (on 10/24), respectively. Those yields as of this past Friday are 3.92% and 3.82%, respectively. Why the decline? Lower inflation in recent CPI/PPI readings. Personally, I would lock in current rates for longer (I am doing that with my own fixed income investments).

All this said, with the appropriate caveat that I cannot accurately predict the future. However, I am managing my own money with this belief.
Real Knowledge Comes Only From Experience
Topic Author
ilan1h
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Re: Getting out of a 7 yr CD?

Post by ilan1h »

Is it easy to purchase 7 and 10 year treasuries at Vanguard? I would not mind locking in those rates for that period of time.
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

ilan1h wrote: Sun Nov 20, 2022 2:02 pm Is it easy to purchase 7 and 10 year treasuries at Vanguard? I would not mind locking in those rates for that period of time.
Trade->Fixed income -> search -> treasury -> set maturity -> sort by yield -> depth of book-> buy
protagonist
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Re: Getting out of a 7 yr CD?

Post by protagonist »

I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
I am not sure that you would do better to lose 6 months of interest and invest the proceeds at this point rather than waiting a year to cash out and reinvest. I doubt that the difference would be great.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today, with the Fed aggressively acting to tame inflation.
Last edited by protagonist on Sun Nov 20, 2022 2:46 pm, edited 1 time in total.
nalor511
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Re: Getting out of a 7 yr CD?

Post by nalor511 »

protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
nalor511
Posts: 3122
Joined: Mon Jul 27, 2015 1:00 am

Re: Getting out of a 7 yr CD?

Post by nalor511 »

protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
Topic Author
ilan1h
Posts: 967
Joined: Mon Oct 22, 2007 3:40 pm

Re: Getting out of a 7 yr CD?

Post by ilan1h »

Had a very tortuous "chat" with a customer service rep that kept insisting that my penalty was $8700. I kept insisting that she was including both principal and dividends in that calculation and she kept saying that she didn't know what I was talking about and this is the penalty that the computer is telling her. Finally, I told her "can you send me the dividends that I've earned ie: 95K?" She said yes. I asked her what the penalty would be and she said "no penalty". This was done immediately and my account then said 500K like it did 6 years ago when I opened this CD. So now I have 500K again which is entirely principal. I will call them back and ask them what the penalty is on this for early withdrawal. I suspect it will be $7500. However, I was completely unable to get through to the first two people I've spoken to regarding why I'm being charged penalty on interest. This seems like a no-brainer way of resolving the problem.
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
Thanks for the tip!
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

protagonist wrote: Mon Nov 21, 2022 7:27 pm
nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
Thanks for the tip!
By the way, Andrews is now offering a 7 month CD at 5% APY, but for new money only....so another alternative could be to break the CD, take everything out except a few bucks (so you don't have to rejoin), and then reinvest it in the 7 month CD. https://www.andrewsfcu.org/Learn/Resour ... cate-Rates
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
nalor511
Posts: 3122
Joined: Mon Jul 27, 2015 1:00 am

Re: Getting out of a 7 yr CD?

Post by nalor511 »

protagonist wrote: Thu Nov 24, 2022 10:34 am
nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm
protagonist wrote: Sun Nov 20, 2022 2:39 pm I have scattered CDs with APYs varying between 3% and 4.2% that are maturing at various times in the latter half of 2023, so I am in a somewhat similar situation. I think most have about a 180 day interest EWP, if I remember correctly.
I am opting to hold them to maturity.
Consider that the Fed is aggressively acting to try to control inflation. I am not sure that you would do better to lose 6 months of interest at this point rather than waiting a year to cash out and reinvest.
My plan is to take the proceeds and invest in a TIPS ladder when the CDs mature. The risk is that TIPS yields may not be as favorable a year from now as they are today.
You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
The breakeven in your scenario is 4.57% according to depositaccounts calculator ( https://www.depositaccounts.com/TOOLS/B ... LATOR.ASPX ), BUT treasury has no state taxes so lower it by the effect of your state taxes. In my case it made complete sense to break the CDs.
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

nalor511 wrote: Thu Nov 24, 2022 1:55 pm
protagonist wrote: Thu Nov 24, 2022 10:34 am
nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm
nalor511 wrote: Sun Nov 20, 2022 2:44 pm

You would come ahead with breaking the 3%, but obviously it's your decision.
I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
The breakeven in your scenario is 4.57% according to depositaccounts calculator ( https://www.depositaccounts.com/TOOLS/B ... LATOR.ASPX ), BUT treasury has no state taxes so lower it by the effect of your state taxes. In my case it made complete sense to break the CDs.
Yes, makes sense I suppose for a $500K investment in taxable and a high tax bracket with high state taxes. Most of mine is in tax-deferred, my tax bracket is low, and I only have about $200K in Andrews, so not worth it for me. Anyway, thanks for bringing it up and getting me to research it...I had been thinking about it for awhile :sharebeer
nalor511
Posts: 3122
Joined: Mon Jul 27, 2015 1:00 am

Re: Getting out of a 7 yr CD?

Post by nalor511 »

protagonist wrote: Thu Nov 24, 2022 3:39 pm
nalor511 wrote: Thu Nov 24, 2022 1:55 pm
protagonist wrote: Thu Nov 24, 2022 10:34 am
nalor511 wrote: Mon Nov 21, 2022 1:41 pm
protagonist wrote: Mon Nov 21, 2022 12:07 pm

I'm looking into it, thanks.
Out of curiosity, is your 7 year CD with Andrews FCU? I have two 7 year CDs yielding 3% from Andrews, one maturing 7/8/23 and another maturing 11/25/23. At the time I purchased them they were the best deals I could find. The two together have a current value of about $200K.
Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
The breakeven in your scenario is 4.57% according to depositaccounts calculator ( https://www.depositaccounts.com/TOOLS/B ... LATOR.ASPX ), BUT treasury has no state taxes so lower it by the effect of your state taxes. In my case it made complete sense to break the CDs.
Yes, makes sense I suppose for a $500K investment in taxable and a high tax bracket with high state taxes. Most of mine is in tax-deferred, my tax bracket is low, and I only have about $200K in Andrews, so not worth it for me. Anyway, thanks for bringing it up and getting me to research it...I had been thinking about it for awhile :sharebeer
Never know, you might be able to get 5% soon (if you can't already) :)
protagonist
Posts: 7966
Joined: Sun Dec 26, 2010 12:47 pm

Re: Getting out of a 7 yr CD?

Post by protagonist »

nalor511 wrote: Thu Nov 24, 2022 3:45 pm
protagonist wrote: Thu Nov 24, 2022 3:39 pm
nalor511 wrote: Thu Nov 24, 2022 1:55 pm
protagonist wrote: Thu Nov 24, 2022 10:34 am
nalor511 wrote: Mon Nov 21, 2022 1:41 pm

Yes. I broke 8x 7yr CDs @AFCU via live chat, 6mo@3% penalty (1.5% actual penalty), make sure to tell your rep that the terms state *no penalty on accrued interest*, because it seems like the default for some reps is to try to penalize you on the full balance. This was not my experience, but someone here said it. My reps knew no penalty on interest.
By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
The breakeven in your scenario is 4.57% according to depositaccounts calculator ( https://www.depositaccounts.com/TOOLS/B ... LATOR.ASPX ), BUT treasury has no state taxes so lower it by the effect of your state taxes. In my case it made complete sense to break the CDs.
Yes, makes sense I suppose for a $500K investment in taxable and a high tax bracket with high state taxes. Most of mine is in tax-deferred, my tax bracket is low, and I only have about $200K in Andrews, so not worth it for me. Anyway, thanks for bringing it up and getting me to research it...I had been thinking about it for awhile :sharebeer
Never know, you might be able to get 5% soon (if you can't already) :)
Rates I think have come down a bit this last week. But if I did do it, it would either be for TIPS maturing in 2023 getting 2-2.5% real, or maturing sometime in the future getting 1.5-2% real. Most likely I will just wait it out. When unsure, inertia is not a bad policy. Especially if you have other things to do. :D

In your case you prob. made the right decision.
lakpr
Posts: 8763
Joined: Fri Mar 18, 2011 9:59 am

Re: Getting out of a 7 yr CD?

Post by lakpr »

protagonist wrote: Thu Nov 24, 2022 10:34 am By my rough simplified calculations, you would not be better off by breaking the 3% CD. Tell me if I am getting something wrong here with my calculations...

Let's assume your CD is currently worth $100,000 and maturity date is one year from now (for simplification...also ignore any compounding).
If you kept it in a 3% APY CD, $100,000 x 1.03 = $103,000 on closing 1 year later.

6 months interest on $100K at 3%/yr. = $1500.
If you broke the CD and took the 6 month penalty, today you would receive $100,000-1500= $98,500 .
If you reinvested the $98,500 at 4.5% interest for 1 year, you would get $98,500 x 1.045= $102,932.50.


You would thus get $62.50 LESS for every $100K invested in a year than if you did not break the CD.
You would have to get almost 4.6% interest to break even...even at 5% (which is higher than any guaranteed interest rate for a year currently available) you would still only come out $425 ahead per $100K. Perhaps if you are in a high enough tax bracket and the money is in taxable a 5% nominal Treasury would be worth the hassle factor, but at current rates it's splitting hairs.
I think this was answered already by original poster @ilan1h and poster @nalor511, above, indirectly. Your starting assumption is that the 6 month penalty is levied on the full current value, $100k value today. But since this is a 6 year old CD, the penalty is levied on less than $100k (original principal balance only), which is proportionately closer to $83k ($594k in @ilan1h's actual scenario vs your $100k hypothetical scenario, so approximately one-sixth;.thus the original actual principal of $500k should be reduced to one-sixth to fit your hypothetical scenario, thus approximately $83k).

So 6 months penalty comes to only $83k * 1.5% = $1245. Proceeds in your hand after breaking the CD = $100k - $1245 = $98755. Reinvesting $98755 at 4.5% will yield $103,200.

Leaving $100k at 3% for 1 year will yield $103k. Net gain $200.

[ The calculations change slightly if we use precise figures, based on @ilan1h's post the gain is expected to be $2000, one sixth of that is closer to $330 ]
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