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What is a Callable CD?

Calling all CDs!As I was reviewing the CD rates of PNC Bank, after learning of PNC’s $100 checking account promotion, I saw that they offered a 36 and 60 month callable CD on their promotional rates page.

A callable CD is a CD where the bank has the option of closing it after the fixed period. The CD is usually “sold” as a fixed month CD with call protection, so a 60 month CD with 12 months of call protection. In that case you have a 60 month CD that the bank cannot call, or close, within the first twelve months. After the twelve months of call protection expires, the bank can close the CD if it chooses to. You, however, cannot. This shifts interest rate risk onto you, the depositor. If rates go up, you don’t benefit because you’re locked in. If rates go down, the bank can simply call the CD and you have no choice but to close it.

The payoff is in the rate. A callable CD will usually have a higher interest rate than a regular CD because the depositor is bearing the risk. In the case of PNC, the 36 month callable CD had a 2.00% APY yield while the 36 regular CD had a 1.15% APY yield. The difference for the 60 month CDs were even greater, with the callable yielding 3.00% APY and the regular yielding a mere 1.55% APY. By the way, according to our best CD rates, a 5 year CD currently yields at least 3.00% APY so don’t bother with PNC’s callable CD if that rate appeals to you.

(Photo: djbrady)


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