Scribd
Upload
3 views2 pages

Short-Term vs Long-Term CD Analysis

Investing in a longer-term CD that allows early withdrawal may earn more interest than a shorter-term CD, even after paying penalties for breaking the longer CD early. An example shows calculating the values and interest earned on a 4.5% long-term CD broken after 3 years versus a 3.5% 2-year CD, finding the long-term CD earns $94 more despite the penalty. Investors should calculate potential earnings on both options to determine the best strategy.

Uploaded by

rajsalgyan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
3 views2 pages

Short-Term vs Long-Term CD Analysis

Investing in a longer-term CD that allows early withdrawal may earn more interest than a shorter-term CD, even after paying penalties for breaking the longer CD early. An example shows calculating the values and interest earned on a 4.5% long-term CD broken after 3 years versus a 3.5% 2-year CD, finding the long-term CD earns $94 more despite the penalty. Investors should calculate potential earnings on both options to determine the best strategy.

Uploaded by

rajsalgyan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd

To Break a CD or Not

If you're considering a short-term certificate of deposit because you don't want to lock your money up beyond a certain number of years, consider whether you might earn more by investing in a longerterm CD that you can cash out of--or break--when the shorter-term CD would have matured. First, you need to calculate the value of CD#1 (the longer-term CD) and CD#2 (the shorterterm CD): Example Long-Term Short-Term $ 10,000 $ 10,000 4.50% 3.50% 60 24 $ 10,940 $ 10,724 Worksheet Long-Term Short-Term

Principal amount of CD Interest rate Term in months for Short-Term CD Value of each CD at end of term for Short-Term CD

$0

$0

Penalty Now, calculate the interest earned in the last three months -- or four, five or six months; whatever penalty your bank charges:
Example Worksheet

Enter the number of months worth of interest you lose for breaking the LongTerm CD early: Value of the Long-Term CD after subtracting the penatly for breaking the CD early: The difference between what you'd earn investing in a Long-Term CD and breaking it early vs. investing in the Short-Term CD:

$ 10,818

94

The Upshot

Adapted from "The Wall Street Journal Personal Finance Workbook," by Jeff D. Opdyke. Copyright 2006 by Dow Jones & Co. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House Inc.

k your money up ng in a longermatured.

Worksheet Short-Term

$0

a division of Random House Inc.

You might also like