Redeem CD early for no penalty?

They don't want to pay you 5% on your CD. Current rates for a 16 month CD are in the 1% range.

You should say, no thank you.

Like TheMightyAtlas indicates, this is a laughable offer. Another way to present the situation is that today's bid for a $14,000, 5% CD on the brokered market is about $14,686 (per Fidelity trading info on brokered CDs having a roughly 5% APY and maturing June-August of

2013).

Your CD comes up on a search at Fidelity for its CUSIP. Fidelity states it is not offering it, so I do not think the bid/ask information that comes up at Fidelity's site is very useful. For fun, try looking it up on TDAmeritrade's web site after you log in and see if it is trading. If so, it is trading for way more than $14,030.

If 5% is the APY, your CD is paying you about $57 each month or a total of about $969 for the rest of the CD's life. Lehman Brothers is offering you $30.

Lehman's being in bankruptcy may explain some of this.

The situation is a little more complex since the CD I bought is from the secondary market. I paid $15k for it a year and half ago. Now it is worth $14k. I keep getting timely dividends from it. I am afraid if I hold on to it, it's value may decline even more? It's really confusing what I bought.

Who is the CD issuer and is it FDIC insured? If so, and you won't need the principal until maturity then I agree with the others -- doesn't make sense to turn it in.

If *Lehman* is the issuer (esp. if it's not FDIC-backed) then the answer could be totally different...

On Feb 20, 10:20 am, Homer Simpson

My previous comments mostly do not apply now. How much is the monthly interest (which you call dividend)? Using the monthly interest, one can deduce about how much you will get back on July 1, 2013 when the CD matures. Then I can comment further.

Here is what I bought a year and half ago for . Now its market value is 13,600. I paid 14,200 when I bought it. It pays interest of around $400 twice a year. The problem is the statement is so confusing that I can not make figure out if I am making or losing money on it. Though I get interest, the market value seems to always go down some..

LEHMAN COML BK UTAH

CUSIP:

52520KVF1 5.000% 07/01/2013

Non Callable

Brokered CDs sold in the secondary market are subject to market conditions and if sold prior to maturity may return less than your original investment. In the event a CD purchase is made in the secondary market at a premium price over par (100) the premium is not FDIC insured.

Coupon & Yield

Coupon

5.000

Pay Months

Jun,Dec

Current Yield

4.713

Frequency

Semi-Annual

First Coupon

12-30-2008

Not only that, but they want to charge you $30 for the privilege of putting them off the hook for the 5% interest. Very generous, not!

Dave

According to FDIC.gov, a notice as of Feb 16th, 2012 says "Lehman Brothers Commercial Bank is no longer doing business as an FDIC-insured institution."

FDIC.gov also says that on Dec 30, 2011 the institution "Closed voluntarily and liquidated its assets."

Now, since your CD (a) still exists, and (b) isn't trading near zero, presumably it's been taken over by another bank. You may wish to find out which one and make sure it is FDIC-insuranced.

Now, as to your question...

A tradable CD acts just like a bond. Its value on any given day will go up and down with market interest rates. And it can be bought and sold for more or less than its maturity value.

So, what is the actual maturity value of the CD? That can be part of why it's been losing value. If you paid $14,200 for $13,000 of maturity value (which may well have been possible, given it has a 5% coupon in a very low-yield environment), the price will inexorably inch down to $13,000 because that's all that'll be paid out at maturity.

This information is not making logical sense to me. Here is my best guess:

The 5% coupon rate and $400 interest paid twice a year suggest this CD was worth $16,000 when issued new in July, 2008. (Certificates of deposit typically are sold in $1,000 increments, hence my guess is rounded to the nearest $1000.) So one way or another and absent any action on your part, supposedly at some currently unknown date in the future either this CD will mature and pay you the $16,000 principal, or the FDIC will redeem $16,000 to you.

Indications are that this bank is now known as Woodlands Bank (located in Utah) and that it may be or is in the middle of Lehman's bankruptcy proceedings. This suggests that this CD may be acquired by another bank (if it has not already), with you still owning the CD. The new bank by law may adjust the terms (maturity and interest rate) of your CD. You are supposed to get the option to cash out early if you do not like the new terms.

In the alternative, if the bank holding your CD fails, then because it is a brokered CD, it will take longer for FDIC to pay back the original, new issue principal.

Call whoever is holding this CD on your behalf and find out how much money you get if you pay the $30 and redeem the CD. Don't trust TDAmeritrade to get this right. Find out what bank is actually holding this CD for you and call it.

If I am correct and you will get some $16,000 upon redemption, then I would be inclined to redeem it. I would not want this $16k of money tied up for, say, ten years at 1% interest, under the new terms a different bank would set, no doubt with a very high redemption penalty.

But what bothers me is that the market price is so low, especially given what you posted about this offer (pay $30 and redeem the CD etc.) is surely public information factored into the market price of the CD.

Call whoever is holding this CD on your behalf and find out how much money you get if you pay the $30 and redeem the CD. Don't trust TDAmeritrade to get this right.* Find out what bank is actually holding this CD for you and call it. Shake the contact info out of TDAmeritrade and/or Lehmans (now Barclays). Don't panic. The law is on your side here. Hang in there and get the info.

*Had really bad communications with TD a few years ago about a CD's terms and personally won't trust their people farther than I can throw them for some years more.

Complex and intricate indeed are many of the details of stock and bond buying and selling. Although cloaked in professionalism, those transactions nevertheless display, from time to time, the same deviousness and deception found in the sales of used cars, patent medicines, insurance policies, and vacation timeshares. Caveat emptor.

that is likely a brokerage fee, but one that L.B. should have offered to absorb.

you have no record of the principal value of the CD you bought?

Not sure what happened to the OP. But assuming the OP paid $14,200, then I concur with Rich's estimate that the maturity value is likely $13,000. The OP said he bought this in mid-2010, with three years to maturity. Interest rates nationwide were between about 2% and 3% at the time for a three-year CD. The math and the fact that CDs tend to be sold in $1,000 increments point to a $13k maturity value. Interest would be about $650 total per year (about $325 paid twice a year).

There is no question to me that the CD under its current interest rate and maturity will remain FDIC insured. What to do? It sounds like the OP received three interest payments to date totaling about $975. The OP takes a loss of about $200 if he redeems the CD now, per the offer, for tax purposes only, really. If he waits until June 30, 2012 when the next interest payment occurs, he's a little ahead. ('Being ahead of where one started' serves only a psychological purpose. One should only care about expected future performance when trading any security.) But who knows? Maybe the CD's terms will stay intact until maturity on July 1, 2013.

I would hold onto the CD. Worst case, the bank that takes over sends a letter saying it is adjusting the terms, and the CD owner has X days either to redeem or agree to the new terms, I believe at no charge for redemption or conversion to the new terms.

Like Rich says, the trading value should lower to the maturity value (which again, sounds like it is $13k) in the coming months. The OP says he does not need the money, so he should not sweat the trading value. The OP should wait for the maturity value to land in his lap, one way or the other.