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Minimizing CD Early Withdrawal Penalties
Old 09-24-2018, 10:40 PM   #1
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Minimizing CD Early Withdrawal Penalties

If you were investing 150K in a 12-month CD would it be smarter to create three 50K CD's instead of one large 150K CD? Would this reduce the early withdrawal penalty if you had to tap some of the money early?
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Old 09-25-2018, 05:55 AM   #2
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It depends on the policy of the institution offering the CD. Some permit partial early withdrawal and the penalty would only apply to the amount withdrawn. Others (e.g. Ally, I think) do not permit partial withdrawals so splitting the total into smaller CDs could reduce the early withdrawal penalty if you had to tap some of the money early.
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Old 09-25-2018, 06:06 AM   #3
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I always break up CDs into chunks in case I need to break any early.
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Old 09-25-2018, 07:53 AM   #4
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Yes, if you think there is a chance that you might need some of the money then split it up into smaller chunks.
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Old 09-25-2018, 07:55 AM   #5
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Or just buy t-bills.
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Old 09-25-2018, 10:49 AM   #6
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Yes, few institutions that I use allow partial early withdrawal, so I tend to buy in smaller chunks just in case.
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Old 09-25-2018, 10:50 AM   #7
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Does the institution you are buying from permit partial withdrawals? If they do, breaking it into smaller chunks won’t help, but it won’t hurt either.
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Old 09-25-2018, 11:03 AM   #8
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Thanks everyone. I'll probably go with 12-month Discover CD's at 2.5% interest since we already have our savings and CD accounts there. I don't think they allow partial withdrawals.

This will be for my mom's savings. She's in assisted living and she'll probably burn through her money in 8 years at the current rate so she can't tolerate any risk to her savings. We already had to tap into her current CD with a hefty penalty before we sold her house. Her current CD will mature in two days, so I'm looking to minimize the penalties with future CD's in case we need to tap into the money again. With proper planning we shouldn't need to, but emergencies happen, especially in her situation. I'll still keep a sizeable chunk in regular savings so she can get to it if she needs to.
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Old 09-25-2018, 12:14 PM   #9
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Looks like secondary market T-bills for 1 year out are yielding about 2.6% and they automatically come in $10K chunks. Much more liquid than CDs, so very little penalty for selling prior to maturity.


I think you can buy them on the auction at both Schwab and Fido for no fee.
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Old 09-25-2018, 02:56 PM   #10
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Quote:
Originally Posted by jim584672 View Post
I always break up CDs into chunks in case I need to break any early.
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Old 09-25-2018, 04:34 PM   #11
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My mom is in an independent living apartment. She needs to add about $1200/month to her income for rent and expenses. I had her purchase eight $10K CD's to use when her regular savings starts running low.
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Old 09-25-2018, 10:34 PM   #12
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Don't you love when something completely new to you seems so common sense to everyone else?
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