What is a Callable CD?

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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)

{ 15 comments, please add your thoughts now! }

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15 Responses to “What is a Callable CD?”

  1. cdiver says:

    I would think that callable cds would be a good buy for consumers now. You can always get out of a cd by paying a penalty. Understand what that penalty is so you can determine if its worth getting out for a rate bump or not. At least you are earning more now.

    • cubiclegeoff says:

      I think the point is the consumer cannot get out of the CD. However, if I’m wrong, I wonder what the penalty would be.. I assume much larger than just 2 months of interest.

      • govenar says:

        I think it’s rare for a CD to not allow early withdrawal. PNC’s website for the callable CDs says “Early withdrawal penalties apply for balance withdrawn before maturity”. I couldn’t find details on how much the penalty is though; my guess would be 6 months.

  2. eric says:

    File this away in my CD knowledge file. There are a lot more flavors of CDs out there than I thought.

  3. billsnider says:


    I buy CD’s through a mutual fund broker. This way I limit my exposure below the FDIC insurance limit.

    In the past I never thought much about the callable feature. Well, conditions have changed. When interest rates began to fall, almost all of my CD’s were called by the banks. They were happy to sell me the same CD opportunity at a much lower rate. I keep a list of these nice banks. Lesson learned.

    As to they pay a higher interest rate, I have never seen that to be true. Not saying it does not happen. Just not obvious to me.

    Bill Snider

    • cdiver says:

      You can also go with a bank who participates in CDARS. Say you take in $500k. They split it up amongs mutliple participating banks and that way you are fully FDIC insured.

  4. ziglet19 says:

    Thanks for the information, I was not familiar with a callable CD.

  5. Consumer007 says:

    Ummm…why is a bank allowed to get out of the CD and the consumer can’t? A commitment should be a commitment, and the bank should stick to it.

    A callable CD in concept is no more acceptable than a homeowner walking away from their home during the mortgage. People okay with the first concept should be okay with the second one as well.

    • Jim says:

      It’s allowed because you agree to it beforehand, you don’t have to open a callable CD. You get a higher interest rate that way and hope rates don’t go up in the interim.

    • Ben says:

      If the bank calls the CD you get your money back (plus what ever interest you’ve earned already)

  6. Ben says:

    Buyer beware!! A few years back I saw a 30 year callable cd where the interest was guaranteed at 10% for 5 years then dropped to 0%. Imagine having your money earn 0% for 25 years. (early withdrawl penalty was huge too, a guarantee to loose money)

  7. John Schang says:

    In July of 2008, our financial advisor suggested investing in callable CD’s. We placed
    $80,000 in 1 CD at 11%, and $20,000 in 1 CD at 9%. Both matured in 15 years with the 1st year fixed. Interest payments were made in arrears quarterly, which means we received the first interest payment 3 months after purchase and every 3 months after that. At the end of the first year, the bank (JPMorganChase) called both CD’s because interest rates had dropped. We reinvested these same CD’s at 8% and 8.5%. We expect them to both be called in July, 2010, because interest rates have dropped.

  8. Jay says:

    One possible way to buy these is on the secondary market in a brokerage account. If you buy it that way, you know you can sell it that way, too. No penalty from the bank, but you get a market price which could be higher or lower. There might also be markup to get over. It’s also common for these CDs to have rates that step up over time, so the risk of holding the CD while rates rise is somewhat offset. These are usually called step-CDs.

    John Schang: where did you get those high rates? Totally out of line for FDIC insured! Who’s the issuer?

  9. Gary says:

    What happens when the holder passes away during the term? Is the surrender penalty the same?

  10. Stanley R, says:

    I have 90k in callable PNC (Pittsburgh National) CDs that would earn 3% until 2015. Well, PNC called them all and my new rate is 0.2%. I had a big argument with the branch vp and all they could do was shrug there shoulders and essentially say too bad. I am going to close all my PNC accounts and take my banking elsewhere. Also I told them that smiling, greeting and giving customers coffee and cookies is not going to make them a great bank.

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