Here at MyBankTracker.com, we have many tools that help you find the best rates for your savings plan, but we also recognize that sometimes plans change unexpectedly, even when it comes to your investments.
High Rates, Long Terms
One of the advantages of locking in funds to long term Certificate of Deposit (CD) Accounts is the higher rate of interest earned. For CDs with terms of 1, 2 or even 5 years, rates are generally higher, as the bank knows that it will be guaranteed a certain amount of deposits for a longer period of time. In order to ensure that you don’t take it out before the set date, banks often impose an early withdrawal penalty, so this often deters consumers who think that they will want their money before the term is up. If you find yourself in a situation where you need liquidity on funds that you didn’t anticipate, it’s not always doom and gloom.
Be Sure to Do Your Research
It really pays to do the research on penalties and fees, not just the interest rates, so that if you do take a loss with an early withdrawal, it doesn’t have to equal a bad financial decision.
In the case of some banks with long-term CD accounts that have a fixed penalty, the high interest rate could outweigh the withdrawal penalty, even if you do end up taking your money out early. For example, Ally Bank offers a very good rate of 3.09%, and only charges a fee of two months, no matter how early you withdraw the money. This means that if you put in $10,000, after one year you will have earned $309.00. If you withdrew right then, you would have to pay a penalty of two months interest, which would be $25.75 a month, or $51.50. That means that you would still have earned $257.50, or a 12 month interest of around 2.575%, which is still a great rate and far higher than most 12 month CD rates.
While this may be the case for fixed penalties like Ally, some banks have scaled early withdrawal fees, which means you could have to pay more depending on how early you withdraw. Uncertainty is certainly a theme in the larger financial world these days, so if you plan on opening a long term account that you may have close before the term matures, be sure to read up on your bank’s penalty fee guidelines.