Long-term CDs as a home for short-term savings

[kranky]

Tough to find any place offering interest rates over 1 percent these days for liquid savings. So I'm looking into long-term CDs which offer higher rates.

But there's a penalty for early withdrawal, you say? Turns out the penalties vary widely by bank.

Ally Bank has a 5-year CD paying 2.9 percent;. The penalty for early withdrawal is 60 days of interest. If I had to cash in the CD after just 3 months I would still be ahead of what I would earn in 3 months with my current bank's savings rate (0.9 percent).

Will probably put some money into the 5-year CDs (split into multiple CDs - never dump a bulk beef-sized sum of money into a single CD just in case you need to get some of the money before it matures. The penalty for cashing in 2x$1000 CDs is going to be less than if you cashed in 1x$5000 CD.)

I'm going to look around some more but I doubt I'm going to find too many banks with a 60-day interest penalty on long-term CDs. Most banks would penalize you a 6 months or a year's worth of interest on early withdrawal of a 5-year CD.

Always verify the terms before locking in because they can change without notice.

 

[JJChicken]

The penalty for cashing in 2x$1000 CDs is going to be less than if you cashed in 1x$5000 CD.

Is that because the nominal amount of $2,000 is lower than $5,000 or are there genuine penalty-savings to be had?

 

[rcpratt]

Is that because the nominal amount of $2,000 is lower than $5,000 or are there genuine penalty-savings to be had?

Just because you only have to cash out and take penalties on what you need, I believe was the point.

Those CDs look like a pretty good deal.

 

[kranky]

Is that because the nominal amount of $2,000 is lower than $5,000 or are there genuine penalty-savings to be had?

If I have one $5,000 CD and only need $2,000 out of it, I suffer the penalty on the whole $5,000 CD.

If I have 5x$1000 CDs and only need $2,000, I only am penalized on $2,000 worth. The other $3,000 in CDs stay intact.

 

[JJChicken]

Thanks, that make sense now.

 

[Elganja]

I've been considering this myself but was thinking a shorter term and similar to what you want to do... sort of (multiple smaller ones every 6months or so)

but that ally bank one is freaking awesome... it's makes a lot more sense just to do that!

thanks for the heads up!

 

[MetalMat]

Yeah thats a pretty good rate for a CD.

 

[rcpratt]

My banks 5-year is 3.0 percent, but 180-day interest early withdrawal fee. Might be something I look into after I buy my car.

 

[overst33r]

How much money are we talking here? If it's <$10000, then you could put it into a high yield checking account at 4&#37;. The only catch is that you need to do 10 debit transactions each month to get that 4&#37;. At least at my bank, most others require that you use Billpay and other services.

Edit: Idk why it's putting "4&#37;:" instead of 4.00%

 

[kranky]

How much money are we talking here? If it's <$10000, then you could put it into a high yield checking account at 4&#37;. The only catch is that you need to do 10 debit transactions each month to get that 4&#37;. At least at my bank, most others require that you use Billpay and other services.

Edit: Idk why it's putting "4&#37;:" instead of 4.00%

There's a software bug that eats the percent sign sometimes.

The high yield checking is certainly an option but for me it's not a good answer. I don't use debit cards, and no such banks are near me and I will only have a checking account where there's a local branch I can visit if necessary.

For people that would not be bothered by the requirements, the high yield checking accounts are a good option.

 

[Gunslinger08]

Hm.. I think I might have to start looking into CDs. 0.0&#37; checking account and 1.1% savings account.