Not exact matches
If you believe interest rates will remain low for a long time, then getting the extra 1 % in the PenFed 7 - year 3.5 % CD (compared to the Ally 5 - year 2.49 % CD) may be worth the risk of paying the higher
early withdrawal penalty (
i.e., if you're wrong and interest rates increase a lot).
The PenFed customer rep clarified for me that you can not take a penalty - free
early withdrawal from the CD and deposit it in your IRA savings account at PenFed;
i.e., you have to take a distribution from your IRA (and pay any taxes that may be due).
The circumstances where you can avoid the 10 % penalty on
early withdrawal of earnings are the same as those with a traditional IRA,
i.e. first - time homebuyer, disability, qualified education expenses or for medical expenses.
There are 8 exceptions to the 10 %
early withdrawal penalty (
i.e. withdrawals that are taken before the age of 59 and 1/2).
If you were to close the existing CD at the end of the first year, pay the 24 - month
early withdrawal penalty (6.0 %), and reinvest the proceeds in a new four - year CD, your total return would be only 13.27 % [
i.e., 1.03 × (1.00 — 0.06) × (1.04) 4 = 1.1327].