Paying Penalty's on CD's Question

[Drake3287]

Interested in hearing comments on this. I've had CD's all my adult life (besides other investments so hold your comments) and have never paid a penalty to reinvest one in a higher rate. Just luck I guess and most have been 12 month accounts.

Currently I have 6 CD's ($100k+) in various banks and S&L's, but with the current interest rate increases these days, I'm sure I'll be paying these penalties to reinvest them at a higher rate in the coming months. Using the online CD Penalty Calculator most of us already use, I already have one that rolled over 2 months ago that will pay for itself if I do reinvest for another 12 months.

Although each of my banks have different penalty amounts which range from 2 months to 6 months of interest, I can foresee most of my CD's falling into this situation of paying penalties maybe more than once in the coming months.

I guess my question is, is it unheard of to pay these penalties maybe more than once during a 12 month CD period as long as it makes financial sense? With the projected increases it seems to make sense assuming I have no need to withdraw any of this cash. I'm guessing many of us will be in this same situation in the coming months.

Has anyone ever heard of banks limiting how many times you can do this? I know it's a nice situation to be in finally.

[COcheesehead]

For future reference laddering fixed income investments helps eliminate the predicament you are in because you will always have fresh cash to reinvest as things mature and you won’t incur a penalty to get a higher rate.

[jazz4cash]

If you need to break a CD investment more than once in 12 months, you should definitely be laddering. I disagree that many of us will choose to break CDs due to better rates. The closest I have come is removing interest (no penalty) to move it into a better rate or longer term.

I would ask the bank if they would waive the penalty. Some have lenient policies due to covid. I might also ask if they could increase the rate.

[pb4uski]

Quote:

Originally Posted by Drake3287 ...Has anyone ever heard of banks limiting how many times you can do this? I know it's a nice situation to be in finally.

No. Each CD is it s own contract and each contract has an early withdrawal penalty provision. You can do it as many times as you like ant they are happy to take you early withdrawal penalty each time.

[pletal]

Quote:

Originally Posted by COcheesehead For future reference laddering fixed income investments helps eliminate the predicament you are in because you will always have fresh cash to reinvest as things mature and you won’t incur a penalty to get a higher rate.

Love the CD ladder. Mine goes out 8 years and about every 4 months something comes due. Have some dogs right now. 2.5 percent that still have a few years to go, but have a 2.4 coming due next month. About 200k . Going to dump it in a couple of MYGA’s at around 4.5 percent. Gotta love it

[Drake3287]

Thanks for the comments. Although I've technically been laddering these CD's for years, they haven't been as far out as 5 years simply because rates have been so low for so long that I was afraid to go that far out.

Now that things are changing almost weekly, I was just playing with numbers to see how I can get ahead with these changes. Good example, I recently had a $100k CD renewal at Ally at 2% and now a month later I can get 2.25% which technically makes me $34.32 once I pay for the penalty. Obviously this quarter percent increase isn't worth the trouble but once it hits 2.5% in a week or so I suddenly can make $370. for a few minutes work.

I know I'm chasing the endless interest dollar but with $600k+ in CD's, these small changes add up to real money. Just looking for another way to skin the cat on these. Especially when we're bound to see steady increases in the foreseeable future.

[Al18]

We are still in a rising interest rate environment. I would break-up the CD into 25K each and make multiple 1-3 year or 1-4 year CD ladders maturing every other month.

[pletal]

Quote:

Originally Posted by Drake3287 Thanks for the comments. Although I've technically been laddering these CD's for years, they haven't been as far out as 5 years simply because rates have been so low for so long that I was afraid to go that far out. Now that things are changing almost weekly, I was just playing with numbers to see how I can get ahead with these changes. Good example, I recently had a $100k CD renewal at Ally at 2% and now a month later I can get 2.25% which technically makes me $34.32 once I pay for the penalty. Obviously this quarter percent increase isn't worth the trouble but once it hits 2.5% in a week or so I suddenly can make $370. for a few minutes work. I know I'm chasing the endless interest dollar but with $600k+ in CD's, these small changes add up to real money. Just looking for another way to skin the cat on these. Especially when we're bound to see steady increases in the foreseeable future.

You talked me into it. Going to work on Cd ladder today and seeing about EWP on a few of mine. Thanks

[retired1]

I've held CDs also. I have closed CDs with early withdrawal penalty many times especially when they automatically rolled over at much lower % rate than current. No issues at all. In fact at the tax time, I think the penalty is deductible if I'm not wrong. But usually the amount of penalty is so small it really does not matter.