Should I drop out of this CD?

[Callie]

No lectures. Hub signed up for this one.

3.9% ING matures March 2008, 35K, early redemption is 1/2 interest which would be $1061.

What rate would we have to achieve in order to dump this?

thanks!

 

[wabmester]

That's a stiff penalty.

$1061/$35K = 3%

So, you'd need a total return of 3% over the next 15 months (2.4% annualized) on top of your 3.9%, or a CD with a 6.3% yield over 15 months to break even.

 

[Craig]

The $1,061 seems too high ... if you mean the usual situation where you lose 1/2 year's / six months interest, then I would get $683.  What am I missing?

Taking your $1,061 at face value, if you go for a PenFed 6% CD (and just doing a quick SWAG), your rate difference covers that $1,061 in less than 17 months.  See the other 6% APY CD thread on this topic.  If it were me, I'd dump the 3.9%.  

Also, consider breaking up the investment into a few tranches ... perhaps three $10K CD's, plus a $5K CD.  Gives you more flexibility if you want to cash some in.

 

[Callie]

It's a 3 year CD so we are pretty far into it, that is why the interest is so high.

I guess I am stuck here.  Bums me out. 

ING's penalty is 1/2 the interest period, not 1/2 of years interest.

 

[FinanceDude]

It's a 3 year CD so we are pretty far into it, that is why the interest is so high.

I guess I am stuck here.  Bums me out. 

ING's penalty is 1/2 the interest period, not 1/2 of years interest.

That penalty is pretty high............. Chase bank charges you 3% of the amount invested, PLUS $25..................

 

[astromeria]

Kind of a side issue, but I never put as much $35k into a single CD. Max for me is $20k.

(Dates back to my first CDs--a 5-year ladder of $20k each. Still maintaining that ladder, all 5-yr CDs now, and not all at the same institution any more.)

 

[FinanceDude]

Kind of a side issue, but I never put as much $35k into a single CD. Max for me is $20k.

(Dates back to my first CDs--a 5-year ladder of $20k each. Still maintaining that ladder, all 5-yr CDs now, and not all at the same institution any more.)

Interesting...............

 

[Nords]

Interesting...............

It's nice to have a credit union (like PenFed) that offers great rates on smaller CDs. if you need to break a CD you can do it in much smaller increments, possibly avoiding larger penalties.

It might make more money for the financial institutions, too. Most ERs would be much more likely to break into a $5K CD than a $25K one.

 

[Callie]

We had 4 CDs at 35K that are laddered. But I totally get the point now and so does he and we have been breaking them into smaller amounts as they mature.