Comparing CDs

In some cases, it may be advantageous to acquire a high yield Certificate of Deposit (CD) and redeem it early, rather than invest in a less attractive alternative.

However, CD issuers protect against this practice by penalizing holders with an early withdrawal penalty, in the form of reduced interest paid out. The CD issuer sets the penalty terms and conditions. For example, 60 days of interest will be withheld if the CD is redeemed prior to its maturity date (also known as "breaking" the CD early).

Reduction of the interest paid out is a reduction in the CD's effective yield. Building on the concepts in Comparing Investments, Excel can find the effective yield, which can then be used to compare with other CDs or investments.

Example with formulas review spreadsheet