New type of CD? (over 60)

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martinh
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New type of CD? (over 60)

Post by martinh » Mon Jan 19, 2009 12:42 pm

New to me, anyway. Local Credit Union offers CDs to folks over 60 which, for a $3 fee you can break the CD. Their best non-promotional rate is 5 year, 4%. So it doesn't make sense to opt for a shorter term at a lesser rate, since you can get your money any time you need it. Same deal if rates go up. You just cash out and open a new CD at the better rate. Seemed to good to be true but stopped in and had this explained to me and when I asked to read the "fine print" for some sort of catch, they said there were no surprises. Learn something new everyday, I guess. By the way, Pioneer CU, Idaho(several locations)

huskerblue
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Post by huskerblue » Mon Jan 19, 2009 12:51 pm

Interesting concept.

A reminder though that any CD can be broken but you forfeit some interest if you do so. How much would be spelled out in the contract but 3 months is typical for what I have seen.

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dm200
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Post by dm200 » Mon Jan 19, 2009 1:04 pm

huskerblue wrote:Interesting concept.

A reminder though that any CD can be broken but you forfeit some interest if you do so. How much would be spelled out in the contract but 3 months is typical for what I have seen.
It is absolutely NOT true that "any CD can be broken". Unless someone can cite some rule or reg that I have not seen, it is up to the financial institution to set the terms, if any, where the CD can be redeemed early. There may be some rules allowing RMDs for IRAs, but regular, taxable CDs have no such requirements. It is true, though, that most CDs from banks, and certificates from credit unions allow early withdrawal, with the penalties disclosed.

Just one example. Brokered CDs, as best I can determine, can not be redeemed early. However, the (perhaps even better) brokered CDs are usually marketable in the secondary market.

Many of the popular "myths" about CDs goes back many decades when there were a lot of federal rules and regulations about the terms allowed for CDs. Most of those type rules are no longer in effect. [Although there are many ore other rules that have been added]
Last edited by dm200 on Mon Jan 19, 2009 1:27 pm, edited 1 time in total.

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nisiprius
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Post by nisiprius » Mon Jan 19, 2009 1:22 pm

huskerblue wrote:A reminder though that any CD can be broken but you forfeit some interest if you do so.
As dm200 has noted, this is not true. I've been trying to pin this down the whole story on this, literally for decades and I've never gotten a clear answer. Banks do not like to talk about it.

I think dm200 is correct, thats the bank can set any terms and conditions it pleases.

What I do know is that

a) very often, regardless of what a rep tells you verbally, you can find a statement buried in the fine print saying that early withdrawal is at the bank's discretion;

b) some banks act in a manner that I can only characterize as "freaky" if you press them on this. The only way I can describe this behavior is "consistent with the hypothesis that they thought I was an undercover bank regulator trying to trap them into saying something wrong;"

c) some banks (it may have been dm200 who pointed me to one online) do appear to have terms and conditions that do give you the right to early withdrawal, but I do not think it can be taken absolutely for granted that such an agreement means what it says.

My suspicion is that even in such a case there might be regulations, intended to forestall bank runs, that might override those terms. It might have something to do with there being a hard-and-fast regulatory distinction between time deposits and demand deposits, or it might vary from state to state or vary with the bank's charter, or of course I might be just be totally wrong about this.
martinh wrote:when I asked to read the "fine print" for some sort of catch, they said there were no surprises.
1) Did you see the fine print yourself? Or just take a rep's word for it?

2) If you go ahead with this, I do wish you would try the experiment of writing on a piece of paper, "On CD #012345689, I have the right to withdraw my funds before maturity if I'm willing to pay the penalty," and seeing whether you can get anyone in the credit union to initial it. Be forewarned, see item b above, I tried this myself once, and ended up with a red-faced bank VP screaming at me and at a representative, and a representative literally in tears.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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dm200
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Post by dm200 » Mon Jan 19, 2009 1:31 pm

As dm200 has noted, this is not true. I've been trying to pin this down the whole story on this, literally for decades and I've never gotten a clear answer. Banks do not like to talk about it.
I edited my post while you were posting. Some of the wording, myths, common beliefs and practices about bank CDs goes back to the first few years (1970's) when the products became popular and the account/interest restrictions were being lifted. There were, once, very elaborate rules about penalties, early withdrawal, etc. As best Irecall, the common 3 month penalty today was once a regulation.

Another common myth is that a "CD" from a bank requires that "certificate" or piece of paper. It is not required at all. This "myth" leads to the tracking of and creation of lots of unneeded paper.

Let me also ad, that under the truth In savings law and regulations, you are required to supply a full disclosure of terms and conditions. It is in those required disclosures that any early withdrawal provisions must be specified. If it is not in these disclosures, almost certainly it is not provided for.

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martinh
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Post by martinh » Mon Jan 19, 2009 1:49 pm

Good idea about the signed or initialled clarification. I'll try that. Yes, I was given a brouchure that detailed the transactions I described, however, I don't know if it covered ALL the details. While I was speaking with the CS rep, the Branch Manager overheard part of our discussion and picked up on the fact that I was very skeptical about all this and reiterated exactly what the rep had told me. I also went so far as to check the rating of this CU to find it well rated. Martin

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dm200
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Post by dm200 » Mon Jan 19, 2009 2:40 pm

martinh wrote:Good idea about the signed or initialled clarification. I'll try that. Yes, I was given a brouchure that detailed the transactions I described, however, I don't know if it covered ALL the details. While I was speaking with the CS rep, the Branch Manager overheard part of our discussion and picked up on the fact that I was very skeptical about all this and reiterated exactly what the rep had told me. I also went so far as to check the rating of this CU to find it well rated. Martin
I would NOT depend on something hand written, or a written modification from a bank/thrift/credit union. The written disclosures should be clear about this. If it is not clear from the disclosure, don't depend on it. You can have someone read through it with you and help interpret, BUT if you don't understand it, don't buy the product.

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martinh
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Post by martinh » Tue Jan 20, 2009 4:06 pm

From the printed disclosure statement: "The early withdrawal penalty will not apply to members who have attained 60 years of age; however, term certificates will be subject to a certificate redemption fee of $3.00 per renewal or surrender before maturity."

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Post by shelanman » Wed Jan 21, 2009 1:21 am

martinh wrote:From the printed disclosure statement: "The early withdrawal penalty will not apply to members who have attained 60 years of age; however, term certificates will be subject to a certificate redemption fee of $3.00 per renewal or surrender before maturity."
The important section is the sentence before that where they might say " ... early withdrawals are at the discretion of The Bank. Any such early withdrawals are subject to an early withdrawal penalty of xxxxxxxxxxx ..."

(That is, great, if your withdrawal is approved, your cost is $3. But are they guaranteeing that they will allow the withdrawal at any time? Some banks say that you can make a withdrawal at any time -- subject to penalty -- but that the bank may require 7 days written notice... others say that they are simply at the discretion of the bank... others, who knows)

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