Should I cash in long-term (three year) CDs earning 4.35% and reinvest my funds in one-year CDs at 5.15%?
You can expect a yield of $515.00 in one year on $10,000 at the higher rate, vs. $435.00 at the lower rate. That's an increase in income of $80.00 per year on an investment of that size.
You will need to ask the bank holding your CD accounts whether you'll have to pay a penalty for cashing in early. That penalty -- if any -- should be described in your deposit contract, but even if it's there, you should contact the bank and find out whether it might waive the penalty provision.
A common penalty amount for a three-year CD is 3 months' interest on the amount withdrawn early. Three months' interest at 4.35% on $10,000 is approximately $108.75. If your bank will impose that penalty, or any other penalty of over $80, it will take you more than one year to recover the penalty amount with increased interest income. Since there's no guarantee that rates won't drop to 4.35% or lower at the end of the first year, cashing in early and paying a penalty of over $80 would be risky.
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You can expect a yield of $515.00 in one year on $10,000 at the higher rate, vs. $435.00 at the lower rate. That's an increase in income of $80.00 per year on an investment of that size.
