While here at MyBankTracker.com we have many tools that help you find the best rates for your savings plan, sometimes there are ways to earn some extra cash that require you to think outside the box.
High Rates, Long Terms
One of these tricks is finding unique ways to take advantage of the high rates offered on long term Certificate of Deposit (CD) Accounts. 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.
How to Play the System
For some CD accounts that have a fixed penalty, however, the high interest rate could in fact 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 2.99%, 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 $299.00. If you withdrew right then, you would have to pay a penalty of two months interest, which would be $24.91 a month, or $49.83. That means that you would still have earned $249.17, which is still a great earnings.
Be Sure to Do Your Research
While this may work 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. If you plan on opening an account that you will close before the term matures, be certain of your bank’s penalty fee guidelines beforehand and make sure that other factors like compounding interest do not negatively effect your total earnings.