You know the frustration of dealing with unrealized losses in your investment portfolios. It's painful, isn't it? But consider this-you're creating immediate unrealized losses for your depositors every time they invest in your traditional CDs. Fixed early withdrawal penalties are just unrealized losses by another name.
If you dislike unrealized losses, why impose them on your depositors? This is a choice, not a requirement.
Beyond that A.I. Has Made Your Static Early Withdrawal Penalty an Unwarranted Risk!
Today CD holders can use A.I. to evaluate their early withdrawal options. Any bank using X-months of early withdrawal penalty is vulnerable. You have given a static penalty to a dynamic situation. In the past, few depositors could effectively evaluate the financial considerations. Today that is no longer the case. Chat GPT can tell a depositor at any point in time during the holding period of your deposit account if they would be better off executing the early withdrawal and pulling the money out of your account.
A depositor can now ask Chat GPT this question - "Consider the situation where I have a $100,000 CD today at 2.5% APY that is scheduled to mature on 7/15/2026 and it has an early withdrawal penalty of 90-days interest. If I can reinvest the net proceeds after paying the penalty, should I take the penalty and re-invest?" This is the answer I got today...
Conclusion
If you can reinvest at a new rate above 3.01% APY, you'll benefit by taking the penalty and reinvesting.
If you cannot exceed ~3.01% APY, you're better off leaving the CD intact until maturity.
Bottom Line:
✅ Reinvest if the new APY exceeds 3.01%.
❌ Stay put if not.
It will dollarize the benefit if you give it more information...
Conclusion:
At 4% APY, withdrawing early, paying the penalty, and reinvesting clearly makes sense, as you'll earn:
$1,227.74 more than keeping the CD until maturity.
✅ Recommended Action:
Take the early withdrawal penalty and reinvest at 4%.
Some banks are realizing that Redeemable CDs are the smarter solution to make term deposits more competitive and reduce bank risk simultaneously. With $3.5 trillion sitting in bank and credit union term deposits, is it time to bring this up to your executive leadership and ALCO? What do they think? Depositor decisions are changing with A.I.. Have you objectively assessed how the design of your CDs will stand the test of time?
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Neil Stanley
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Thanks for always sharing your insights with us.
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John Tyson
CFO;Chief Financial Officer - CFO
Altamaha Bank & Trust Company
Vidalia, GA
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Original Message:
Sent: 04-17-2025 20:44
From: Neil Stanley
Subject: A.I. is Creating New Thinking About the Old Subject of CD Early Withdrawal
You know the frustration of dealing with unrealized losses in your investment portfolios. It's painful, isn't it? But consider this-you're creating immediate unrealized losses for your depositors every time they invest in your traditional CDs. Fixed early withdrawal penalties are just unrealized losses by another name.
If you dislike unrealized losses, why impose them on your depositors? This is a choice, not a requirement.
Beyond that A.I. Has Made Your Static Early Withdrawal Penalty an Unwarranted Risk!
Today CD holders can use A.I. to evaluate their early withdrawal options. Any bank using X-months of early withdrawal penalty is vulnerable. You have given a static penalty to a dynamic situation. In the past, few depositors could effectively evaluate the financial considerations. Today that is no longer the case. Chat GPT can tell a depositor at any point in time during the holding period of your deposit account if they would be better off executing the early withdrawal and pulling the money out of your account.
A depositor can now ask Chat GPT this question - "Consider the situation where I have a $100,000 CD today at 2.5% APY that is scheduled to mature on 7/15/2026 and it has an early withdrawal penalty of 90-days interest. If I can reinvest the net proceeds after paying the penalty, should I take the penalty and re-invest?" This is the answer I got today...
Conclusion
If you can reinvest at a new rate above 3.01% APY, you'll benefit by taking the penalty and reinvesting.
If you cannot exceed ~3.01% APY, you're better off leaving the CD intact until maturity.
Bottom Line:
✅ Reinvest if the new APY exceeds 3.01%.
❌ Stay put if not.
It will dollarize the benefit if you give it more information...
Conclusion:
At 4% APY, withdrawing early, paying the penalty, and reinvesting clearly makes sense, as you'll earn:
$1,227.74 more than keeping the CD until maturity.
✅ Recommended Action:
Take the early withdrawal penalty and reinvest at 4%.
Some banks are realizing that Redeemable CDs are the smarter solution to make term deposits more competitive and reduce bank risk simultaneously. With $3.5 trillion sitting in bank and credit union term deposits, is it time to bring this up to your executive leadership and ALCO? What do they think? Depositor decisions are changing with A.I.. Have you objectively assessed how the design of your CDs will stand the test of time?
------------------------------
Neil Stanley
------------------------------