Request advice regarding my CD situation

[Retfree17]

Andrews currently allows to close CDs early without EWP if you open new CD with them with maturity over 24 months. Do it thru chat while logged in to your account. There is extensive blog on Deposit Accounts about this.

I had CDs maturing in Jan 2024, Feb 2024 and March 2027. There is a chance that rates at the beginning of 2024 will be lower if Feds will start cutting rates ( March 2027 more likely lower), so I decided to close those CDs without penalty and opened 7 yr CD with 4.35% APY. It is not a greatest rate but I don’t want to take chances and guess where rates will be when my CDs will mature.

 

[Ustaad]

EWP

Is the EWP of 6 months’ interest for the latest or the earliest 6 months? If it is former the $ will be much more than the latter. Also, I do not understand why anyone in the current environment would want to invest in a bank or CU product and manage risks of deposit insurance, exorbitant EWP and additional taxes when Uncle Sam gives you higher interest rates with no state taxes to boot and you don’t have to worry about deposit insurance? Almost all banks and CUs are playing catch-up with the U. S. Treasury. And you can build ladders of t-bills just like CDs without having to deal with multiple banks and CUs. I have found very rare instances where it is worthwhile to put money in the banks or CUs these days. It could change though if a bank or CU is desperate for deposits.

 

[audreyh1]

Andrews currently allows to close CDs early without EWP if you open new CD with them with maturity over 24 months. Do it thru chat while logged in to your account. There is extensive blog on Deposit Accounts about this.

https://www.depositaccounts.com/banks/andrews-federal-credit-union.html

OK they changed their mind!!!

 

[jazz4cash]

Is the EWP of 6 months’ interest for the latest or the earliest 6 months? If it is former the $ will be much more than the latter.

It doesn’t work that way. It’s 6 months of interest on the amount withdrawn. Partial withdrawals are permitted. Example: 3% annually is .25% per month. That’s 1.5% of the amount withdrawn.

 

[jazz4cash]

Also, I do not understand why anyone in the current environment would want to invest in a bank or CU product and manage risks of deposit insurance, exorbitant EWP and additional taxes when Uncle Sam gives you higher interest rates with no state taxes to boot and you don’t have to worry about deposit insurance?

Rates have flipped (again). Right now CDs are significantly higher than Treasuries as they have been for most of the last few years. I love treasuries but I’m looking at multiple products for my fixed income allocation.

 

[thepalmersinking]

I want your opinion to help me make a big decision regarding CDs. I currently own 3 CDs at Andrews Federal Credit Union earning 3.01% each valued at about $160,000 (so a total of $480k). They mature in November (8 months from now). If I withdraw, the early withdrawal penalty is 1 year interest (total of $14,400 penalties for all 3 CDs).



Initially, I was thinking of just letting it ride, hoping that interest rates stay the same or continue to rise, and in November move to a 5 year CD at 5% or higher. But now I am concerned that interest rates could decline by November. I created some spreadsheets and it looks like 4.7% is about the break even point. That is, if interest rates decline below 4.7% by November then I would be better off breaking the CDs and taking the early withdrawal penalty. If interest rates stay at 5% for a 5 year CD or move higher then I would be better off not taking the penalty.



My current thought is that for a bird in the hand, assuming I can get 5% on a 5 year CD next week locked in for the next 5 years, that I would take the penalty. Another thought I had was to break 1 or 2 of the CDs and leave the other(s) in the 3.01%.



Opinions?



A couple other notes:

-I called Andrews and there is no option to not take a penalty and leave the money there.

-I want to keep this money in CDs (I already have enough in stock and real estate) – not looking to change asset allocation.

I bought a 5.25% CD from Schwab last night. Keep in mind to look to see if they are callable.

 

[badatmath]

Thanks for the heads up. Glad you got the divvies out. I had an account at a local community bank go dormant so I initiated monthly deposits but they never mentioned I had to go to s branch to get off the naughty list. I do have small deposits set up monthly/quarterly for most of my obscure accounts.

IDK if that whole dormant thing varies by company or state of residence but I am contacted every year to remind them I'm alive. And that is EVEN in years they got direct deposits from me.

 

[pletal]

I think I will look into withdrawing my accrued interest (dividends). It’s substantial.

That’s what I did last week. It was over 60k

 

[Ustaad]

It doesn’t work that way. It’s 6 months of interest on the amount withdrawn. Partial withdrawals are permitted. Example: 3% annually is .25% per month. That’s 1.5% of the amount withdrawn.

That’s how it worked in my case when I broke a share certificate with a credit Union in the North East. The terms just said 6-month penalty. It did not say which 6 months. Partial withdrawal was not allowed. I learned my lesson to ask this before I put in my money. At least with Uncle Sam, you know ahead of time when it comes to ibonds. Also, with t-bills and ibonds, you report income to the IRS in the year of maturity or withdrawal unlike CDs and Share Certificates. Banks and CUs issue 1099s for calendar year accrued interest even though they are not yet matured. So, you’re paying taxes on the money you have not received yet.

 

[jazz4cash]

I don’t see how it matters which six months. It should be based on the amount withdrawn. I admit the details are often gray so if you can somehow negotiate a lower penalty, go for it. Credit unions are generally more flexible with their rules.

 

[brucethebroker]

Who said you have to do all three CDs. I'd lop one and let the others ride.

+1.
Or, move some of your liquid acct. (MM?) if you have one, to set up a high interest rate CD today, and replenish that cash when your lower rate CD's come due. (You can always cash in your low rate CD if you need quick cash in the interim.).

But, basically, I would wait. Pass the time reviewing the history of 10 year Treasury yields. Then remove the lower rates of the last 5-7 years from the average. It would seem, if 30 or 40 year history is any indication, we may be returning to normal times for longer term rates.

 

[audreyh1]

OP here. So, I called Andrews on Monday to inquire about the CD withdrawal terms and they informed my that my savings account (which only has $2 in it) went dormant since I have not used it since I opened it 6 years ago. Therefore, they could not help me with CD questions. The 800 number said the main branch would call me back within 2 days. I just got a call back and they informed me I just needed to make a $1 transfer 1x per year to keep the account from going dormant. And if I did a $1 transfer today it would fix it. So, that is FYI for all you Andrews people out there that do not touch your savings account.

Anyway, getting to the main point of the thread ... I went ahead and withdrew all my dividends/interest and there was no penalty. I submitted a wire for a fee of $25 to get the funds sent to my bank. They also confirmed the early withdrawal penalty for closing a CD is indeed only 6 months (not the year I thought). I have not pulled the trigger on canceling any CDs today, as I was waiting to see what the Fed decision was today. Pulling out the dividends was an obvious decision since it added up to almost $80k that was only earning 3.1% and I could get 5% on that as soon as the wire is complete.

I have a transfer link to Andrews from my brokerage account, so I never have to do a bank wire. I just pull and push from my brokerage no fees. Usually available next day.

 

[cyber888]

Thre’s a chance that the Fed will hold rates till near the end of the year. While you may not get 5% CDs then, maybe 4.5% CDs are till available

 

[Chuckanut]

But, basically, I would wait. Pass the time reviewing the history of 10 year Treasury yields. Then remove the lower rates of the last 5-7 years from the average. It would seem, if 30 or 40 year history is any indication, we may be returning to normal times for longer term rates.

+1

There is something called Recency Bias that makes us think whatever is happening today and in the recent past is the norm. But, in my decades on this planet CD and savings rates have hovered more in the 4 to 5 percent area than the 1% area that we have seen over the past decades.

IMO, interest rates are now about normal for my lifetime except that long term rates are still on the low side. Therefore, I am wondering just how low they will go when the Fed starts to back off its current policy.

 

[audreyh1]

When the Fed backs off from raising rates, long rates can rise. Right now long rates seem to be anticipating a recession, and that the Fed will be successful fighting inflation. If that outlook changes, it seems like long rates could go up.

 

[Car-Guy]

When the Fed backs off from raising rates, long rates can rise. Right now long rates seem to be anticipating a recession, and that the Fed will be successful fighting inflation. If that outlook changes, it seems like long rates could go up.

And why is that?

 

[audreyh1]

And why is that?

Because lower short-term rates can cause longer term inflationary expectations to increase. That has happened at times in the past.

 

[COcheesehead]

Short term rates will drop as the Fed pauses or drops rates. Longer term rates will rise on eventually less fear and more hope of future growth, thus a rotation from bonds back to stocks. I think this is years away yet, but my opinion on how it will play out.

 

[Montecfo]

Yes. And in fact if the Fed begins cutting long rates could rise somewhat.

Why? Market begins to anticipate higher long-term inflation.

 

[VFK57]

We are in a bad stagflation (high inflation and weakened, by the rising rates to fight it, economy). IMO the Feds should not continue with raising rates as it will cause more trouble in economy and Banks (may not survive farther rates raising). Weak economy will give less Taxes and we are back to a very high Budget deficit and higher chunk of the Government income going toward Debt service. Cutting Government expenses, what could be very much needed, not possible due to Ukraine war and Taiwan very possible conflict, based on our and Chinese actions.

 

[audreyh1]

Andrews currently allows to close CDs early without EWP if you open new CD with them with maturity over 24 months. Do it thru chat while logged in to your account. There is extensive blog on Deposit Accounts about this.

https://www.depositaccounts.com/banks/andrews-federal-credit-union.html

Thanks much!

I gave it another try today. After reading the deposit accounts comments I messaged Account Maintenance at Andrews FCU requesting that 2 of my existing certificates be rolled over to the 24 month raise your rate certificate without penalty, and to my delighted surprise they just went ahead and did it. No 180 day penalty!

Another sweet result is that between my first attempt (on Jan 18) and this one, the rate went from 4.05% to 4.50% APY. Especially considering that the best 24-month call protected rate offered via Fidelity is 4.7%.

 

[adrift]

Andrews currently allows to close CDs early without EWP if you open new CD with them with maturity over 24 months. Do it thru chat while logged in to your account. There is extensive blog on Deposit Accounts about this.

https://www.depositaccounts.com/banks/andrews-federal-credit-union.html

Thanks much!

I gave it another try today. After reading the deposit accounts comments I messaged Account Maintenance at Andrews FCU requesting that 2 of my existing certificates be rolled over to the 24 month raise your rate certificate without penalty, and to my delighted surprise they just went ahead and did it. No 180 day penalty!

Another sweet result is that between my first attempt (on Jan 18) and this one, the rate went from 4.05% to 4.50% APY. Especially considering that the best 24-month call protected rate offered via Fidelity is 4.7%.

Thanks from me also. I sent a secure message over the weekend and yesterday (Monday), my two 3.05% CD's that were due in late 2026 were converted to a 24-month 4.50% CD with no EWP.

 

[sheehs1]

Following this thread as I am considering breaking two 33 month jumbo CD's ($250,000 total) at Langley Federal Credit Union currently paying 3.25% that I purchased last July. The penalty is 6 months of interest. The new 5.35% CD is for 22 months. They come due almost a year earlier. I have been waiting until the Fed meets in May to see what they do. After the last Fed meeting, it took about a week for Langley to increase rates.
To offset the pain of the early withdrawal penalty, we can at least deduct the penalty on our taxes. That helps some.

 

[Earl E Retyre]

OP here! Well, I procrastinated long enough on cancelling the Andrews CDs that the 5-year brokered CD rates dropped and it no longer was a good option. However, I was delighted to see that Andrews now allows a transfer of CDs to a better rate with no Early Withdrawal Penalty. Yesterday, I successfully transferred all 3 CDs to a 24 month, Raise your Rate CD earning 4.5% APY with no Early Withdrawal Penalty. This was no easy feat so wanted to explain what I went through to make this happen.

I initially telephoned Andrews and spoke to someone who told me that they could not transfer my CD with no EWP but if I did a “chat” that this would contact someone in the back office who could. I then chatted with someone who told me that Andrews could not waive the EWP. I told her that I just spoke with someone from Andrews who indicated I could and that I had a friend that did this just last week. She replied that this could not be true since Andrews has never waived an EWP. I figured perhaps I got someone who did not know what they were doing and tried a second chat. This person also replied that Andrews could not waive the EWP and also said that Andrews has never allowed it. Both people were adamant that Andrews had never allowed it.

I then carefully re-read Audrey's post indicating that the way she did it was by sending a message to Account Maintenance. I therefore sent a message and got a very quick response saying Andrews could do this and everything was handled quickly and easily. Thanks @audreyh1.

So, in the end, I think I have the best deal. I was earning 3% and now earning 4.5% with an opportunity to raise the rate in the future. All with no Early Withdrawal Penalty. This added up to an additional savings of $500/month for the next 24 months.