Like many people who realized 3 or 4 years ago that interest rates were not going to go up at the time, I locked some money into 5-year CDs back then.

These CDs are now within a year or two of maturity. The early withdrawal fees on these are either 6-months’ interest or 12-months’ interest. As long as you don't need the cash, a quick calculation that most people can do in their heads shows that the penalty would be more than any additional yield that you can get and it therefore makes more sense to hold them until maturity.

Yet, as rates have risen, the interest that these CDs are now paying is a little lower than today’s best online savings rates and is quite a bit lower than current best online one-year CD rates.

All online banks that I am aware of will allow you to withdraw the interest that has accrued to the CDs without any penalty. While the release of accrued interest is not a transaction that can always be done online, I found that with some online banks it is a 2-minute phone discussion.

It releases a small part of the money in the CD, freeing that money to earn a higher rate.

As interest rates have begun to rise, some BestCashCow readers have asked about ways that they can get out of paying early withdrawal fees on long-term Certificates of Deposit that they may have bought a couple of years ago, but that are no longer attractive.

As I stated in an earlier article, I strongly recommend against breaking any CD until the rate that you are earning falls below the current rates on comparable savings rates. In a rising rate environment, you do not want to break a CD in order to get another CD that you may then need to break. I have 2 years left on a 5-year CD at 2.25% and I will not break it until online savings rates are firmly above 2.25%.

If you do need to withdraw your money early, the withdrawal is entirely at the discretion of the bank or credit union. Most banks and credit unions will waive it because of death or adjudged incompetence of the holder, or because a bank merger causes the holder to be over FDIC limits. Early termination fees may be waived due to other hardships at the bank’s or credit union’s discretion.

Reg D forbids banks from allowing any withdrawal within 7 days of issuance (this restriction also applies to No Penalty CDs), but there are no other limits on a bank’s ability to waive early withdrawal fees. Any bank officer (or other website) that will tell you that they are lawfully required to charge the early withdrawal fee is misinformed.

However, a contract is a contract and you enter into a time deposit contract when you purchase a CD. When you break a contract, any contract, the counterparty has a right to extract penalties. In this case, the bank has made commitments based on its expectation that they are borrowing the money for the course of the CD at the indicated rate.

As with any contract, the party entitled to a penalty can exercise its discretion not to extract the penalty (to waive it). But, if I were an officer of a bank or credit, I would not be inclined to waive it simply because the customer can now get a higher rate. Would I waive it if the customer committed to do further business with my bank or credit union? Would I waive it on a one-time basis if the customer agreed to roll into a higher yielding but longer term CD? Maybe.

Forbes, the financial magazine that had been deceived for decades into believing that Donald Trump was a billionaire, is running an interesting advertisement on LinkedIn, Twitter and Facebook.

They are encouraging social-media users to consider a 3-month CD in lieu of keeping their money in savings accounts. The advertisement posits that 3-month CDs are a great way to lock-in a short-term rate without locking up cash for a long period. Those clicking through the ad to the Forbes website will land on a page of Forbes.com that lists several 3-month CD rates with the highest paying 0.20% APY. The best current online savings rates are currently 0.70%, and locally available savings rates are a little higher in some markets (check local savings rates where you live here).

One-year CDs and even six-month CDs have in fact been a great way to secure interest payments going forward in an environment where interest rates are falling. Through my use of the BestCashCow tables I have been fortunate to still have CDs that are paying close to 2% that don’t come due until the summer. If you believe that savings rates will continue to decline through 2021, and do not require immediate liquidity, you would put some of your cash into these instruments where you can lock in 0.60% to 0.70% through the remainder of the year.

3-month CDs, however, never pay much of a premium above the prevailing savings rate. In the current environment, they are paying a whole lot less. In fact, you would have to believe that all online savings rates are going to go to zero (or that you will be paying the bank to hold your money) within the next month to make locking into a 3-month CD rate at 0.20% even remotely worthwhile. With the 10-year US Treasury rate now firmly back above 1%, that is absolutely not a bet to make.

Online savings rates have performed very poorly versus a lot of competing places for your money. But, one thing they are guaranteed to do is to outperform is 3-month CDs.