Confusion about Synchrony Bank Early Withdrawal Penalty

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Kevin M
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Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

The language about the early withdrawal penalty (EWP) in the Synchrony Bank (SB) Account Agreement and Disclosures is confusing:
Early Withdrawal Penalty - We will impose a penalty if you withdraw any of the deposited funds before the maturity date. The fee imposed will be equal to the following:
  • For a CD with a term of 12 months or less, the penalty will be an amount equal to 90 days simple interest on the amount withdrawn at the current rate.
  • For a CD with a term of more than 12 twelve months, the penalty will be an amount equal to 180 days simple interest on the amount withdrawn at the current rate.
People have interpreted the "at the current rate" language to mean at the rate of a CD of same maturity currently offered by SB. I thought that it could be interpreted as meaning the current rate of the CD you own; although the use of "current" seems unnecessary, I though maybe they included it to cover the case of a CD that had a rate bump option, which they don't offer now, but may offer in the future.

To clear up the confusion, I sent a secure message asking for clarification. This is the relevant part of the answer I received:
Synchrony Bank CSR wrote:For CDs with a term of more than 12 months, the penalty is 180 days of simple interest on the amount withdrawn at the current rate which is the rate your CD was established.
I bolded the clarifying phrase, which indicates that my interpretation is correct, and that the rate of currently offered CDs is irrelevant.

So a 5-year CD purchased at current APY of 2.25% will have an EWP of about 1.13%. Period.

Please share if you've received a different explanation from SB in writing.

I have sent a follow-up message asking why the word "current" is used at all, and suggested that they clean up the disclosure language to avoid the confusion.

Kevin
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skepticalobserver
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by skepticalobserver »

Your're right to be confused: "current" rate could also mean "prevailing" rate. That is, your penalty on a 5 year CD could be based on a rate that's "current" in respect to the future date that you might desire to make a penalized withdrawal (which, given today's low rates, would in a likelihood be a higher rate). Ask for the written clarification to include an example of an EWP.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

I included an example in my message to them. As is typical of responses to these types of questions (at all financial institutions, in my experience), it seems that they provide the minimum information necessary to answer the question. They did not respond specifically to the example.

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Tamales
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Tamales »

FWIW, I have an older account agreement dated Dec 1, 2013, and it has exactly the same language.

I remember having the EWP conversation with them via phone when I opened the account, and I had the same impression as you. I hadn't actually considered the alternate interpretation of "current" so I didn't ask specifically.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Call_Me_Op »

I agree that is is confusing and you should push to receive clarification/resolution.

I have found that banks sometimes do not provide the CD disclosure unless you ask for it. I have CD's with 2 local banks and the bank with the higher rates is very sloppy.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by HueyLD »

I think financial institutions have a tendency to change their EWP in order to minimize the put option available to their customers.

For example, Pen Fed changed their EWP again to read as follows:

"h. Early Withdrawal Penalties. All requests for early withdrawal must be in writing. In the event
of early withdrawal, one of the following penalties shall apply:

1) Six-month Money Market Certificates.

a) If redeemed within 90 days of the issue date or any renewal date, all dividends will be forfeited.

b) If redeemed thereafter, but prior to the maturity date, dividends for 90 days will be forfeited.

2) Certificates Having a Term Greater Than Six Months.

a) If redeemed within the first year, all dividends will be forfeited.

b) If redeemed thereafter, but prior to the maturity date, the early withdrawal penalty will equal 30% of what would have been earned if the certificate had been held to maturity, not to exceed total dividends earned."

Ouch!!

I am not clear if the new EWP rules apply to a CD opened before the rule change.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by skepticalobserver »

This has been gone over but it’s worth repeating: Carefully read the bank’s “Truth in Savings” document BEFORE opening up the account. The FDIC does not regulate EWPs, including the bank’s discretion as to whether to allow an EWP.

Further, familiar yourself with the bank deposit agreement. In some instances time frames (limitations) for remedies under state commercial codes (adopted UCC provisions) are permitted to be shortened under the deposit agreement.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

HueyLD wrote:I think financial institutions have a tendency to change their EWP in order to minimize the put option available to their customers.

For example, Pen Fed changed their EWP again to read as follows:
<snip>
I am not clear if the new EWP rules apply to a CD opened before the rule change.
The PenFed change did not affect existing CDs, but it's kind of a moot point for me, since my PenFed CDs are at great rates. I'm more bummed about them maturing and having to reinvest at lower rates elsewhere.

Not only did PenFed increase their EWP to something quite noncompetitive, but their 5-year rate also has not been competitive for some time, so PenFed is not really in the game as far as I'm concerned. Fiancee had a CD mature there recently, and it is sitting in their silly IRA savings account earning 0.05% while we keep our eyes open for a good IRA CD elsewhere.

It has been quite common for EWPs to increase or for disclosure terms to change, but not on existing CDs. Here are ones that I can think of off the top of my head:
  • Ally EWP increased from 2 months to 5 months.
  • Barclays Bank increased from 3 months to 6 months. I know for a fact that this did not apply to existing CDs, because I did an early withdrawal from one with a 3-month EWP after the change.
  • PenFed EWP increased EWP on 5-year CDs from 6 months to 1 year, then to the even worse penalty noted by HueyLD.
  • Ally Bank changed disclosure language to include phrase, "If we consent to the redemption of a CD or IRA CD prior to the maturity date". Not clear if this applied to existing CDs or not, but I have not heard of them refusing an early withdrawal, so moot point so far.
  • Synchrony Bank eliminated the option of penalty-free early withdrawals on IRA CDs if age 59 1/2 or older (similar to PenFed, which I believe does still offer this). It was specifically stated that this change applied only to new CDs, not existing CDs.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

Call_Me_Op wrote: I have found that banks sometimes do not provide the CD disclosure unless you ask for it. I have CD's with 2 local banks and the bank with the higher rates is very sloppy.
At least it is very easy to find at Synchrony Bank: just click Disclosures near the bottom left of any of their web pages, then click Account Agreement on the Account Disclosures page.

I really like it when a bank or credit union makes the disclosures easily available to anyone.

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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by SmileyFace »

Thanks Kevin for sharing. I had always assumee it was the rate I opened a CD at (but never really thought about it so great you verified).

A bit off-topic but for me - what I like about Synchrony is they send me a single monthly statement (which I pull down electronically - hate paper) that has ALL of my CDs in a single statement/PDF. With some other institutions I get a separate statement per CD. For this reason alone - all else being equal (rates, etc.) I tend to favor Synchrony over others....
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

I never received an answer to my follow-up question about why they use the "current rate" language. Not only that, but when I checked my messages for an answer to the follow-up, I no longer saw the reply to my original question, which seemed suspicious (were they back pedaling on the reply?). So I sent another message about that. I received another reply which basically said the same thing as the first reply, but I think is a bit more explicit, so sharing it here.
Synchrony Bank CSR wrote:The penalty is based on the rate of the CD you making the withdrawal from., not the current "market rate". So you have a 60 month CD at a 2.30% Annual Percentage yield. If three years from now you decided to withdraw funds, the penalty would be calculated at the 2.30% APY.
Seems quite clear to me, so hopefully dispels the myth that the EWP is based on the current market rate, as opposed to the rate of your existing CD.

Kevin
Last edited by Kevin M on Sat Jul 23, 2016 4:02 pm, edited 1 time in total.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by dm200 »

Better wording, perhaps -

From a credit union disclosure: (note that credit unions use the term 'dividends' in the same way banks use interest)

Amount of Penalty: .. the amount of the Early withdrawal penalty is 180 days dividends calculated without compounding. The early withdrawal penalty applies to the amount of principal withdrawn from the account.

How the penalty Works: The Penalty is calculated as a forfeiture of part of the dividends that have been or would have been earnedon the account. It applies whether or not dividends have been earned.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Rob5TCP »

Synchrony Bank increased their EWP from 6 months to 12 months for all CD's over 48 months (effective Jun 13, 2016).
One of the reasons I chose their CD was because of a fairly mild EWP.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

Rob5TCP wrote:Synchrony Bank increased their EWP from 6 months to 12 months for all CD's over 48 months (effective Jun 13, 2016).
One of the reasons I chose their CD was because of a fairly mild EWP.
Only applies to CDs purchased on or after the date of the policy change. The EWP still is 180 days of interest for 5-year CDs purchased prior to that.

It's getting tough to find a 5-year CD with a competitive rate and an EWP of less than 360/365 days of interest.

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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by rec7 »

Does anybody know what credit bureau Synchrony pulls?
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by HueyLD »

rec7 wrote:Does anybody know what credit bureau Synchrony pulls?
By Phone
1-866-226-5638

To speak directly with a Banking Representative, please call Monday through Friday from 8 a.m. to 10 p.m. Eastern Time or Saturday from 8 a.m. to 5 p.m. Eastern Time.

https://www.synchronybank.com/banking/contact-us/
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by HueyLD »

Kevin M wrote:It's getting tough to find a 5-year CD with a competitive rate and an EWP of less than 360/365 days of interest.
My local credit union still has 90 days EWP for up to one year CD and 180 days EWP for all other maturities. The CU does not offer CDs outside of its local field of membership.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

HueyLD wrote:
Kevin M wrote:It's getting tough to find a 5-year CD with a competitive rate and an EWP of less than 360/365 days of interest.
My local credit union still has 90 days EWP for up to one year CD and 180 days EWP for all other maturities. The CU does not offer CDs outside of its local field of membership.
What's the rate on the 5 year?
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Rob5TCP »

Melrose C.U. in NY (available nationwide) has a 5 year 2.42% rate.
The EWP is 6 months; however the interest rate for the entire period reduced to current savings rate (about .5%).
That's one of the reasons I took a slightly lower rate with a less draconian EWP.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by dm200 »

HueyLD wrote:
Kevin M wrote:It's getting tough to find a 5-year CD with a competitive rate and an EWP of less than 360/365 days of interest.
My local credit union still has 90 days EWP for up to one year CD and 180 days EWP for all other maturities. The CU does not offer CDs outside of its local field of membership.
There are three additional factors to consider and compare related to the EWP, since different banks and credit unions may apply the EWP differently.

1. Can the EWP eat into the principal of the CD/certificate if you take the EWP within the number of days of the EWP after purchase? So, for example, if you purchase a $10,000 cert/CD with an EWP of 90 days dividend/interest penalty and you withdraw 60 days after purchase, will you get the whole $10,000 or not?

2. Do or do you not earn (and are credited for) dividends/interest for the current period before the EWP is taken? Let's say, for example, a credit union certificate that pays/credits dividends at the end of each calendar month. Suppose the penalty is 90 days dividends. If you take the EW on the 28th of a month, will you get credit for the 27 days in that month before the EWP is taken, or do you forfeit the 27 days PLUS the 90?

3. Can you take out just part of the amount you need and pay the penalty just on that amount, or must you redeem the whole Cert/CD, or something else? Let's say you have one Cert/CD at a credit union for $30,000 and you need $9,750. Must you redeem the entire $30,000 and pay the EWP, or can you take out less? Some credit unions and banks would let you just take out the $9,750, some would force you to take the whole $30,000 and a few might require some thing else (such as even thousands).

As has been pointed out in a previous post, it is almost completely up to the bank or credit union to set the EWP and the various details of the EWP, as long as everything is clearly and accurately discloses AND such disclosures meet the regulatory requirements.
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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by Kevin M »

HueyLD wrote:
Kevin M wrote:It's getting tough to find a 5-year CD with a competitive rate and an EWP of less than 360/365 days of interest.
My local credit union still has 90 days EWP for up to one year CD and 180 days EWP for all other maturities. The CU does not offer CDs outside of its local field of membership.
If you can find a 5-year CD at 2% with an EWP of 180 days interest, then it's a good deal these days. Looking at three previously bellwether 5-year CDs tells the story: those from Synchrony Bank, Barclays Bank, and Ally Bank.

The two that had been reliably at or above 2% with an EWP of 180 days of interest for some time were Synchrony Bank and Barclays Bank. A close runner up was Ally Bank, that had dropped below competitive at times, but recently was back up there with the 2% pack, and Ally still has an EWP of only five months of interest on 5-year CDs (last I checked). Now what do we have?

The only one of the three remaining with a 2+% rate is Synchrony Bank, but they upped their EWP (on new CDs only) to 365 days of interest last month. The other two, that still have EWPs of five or six months of interest, have dropped their 5-year rate to 1.75%.

I recently bought a 5-year CD from Mountain America CU with an APY of 2.50% (now at 2.30%), but their EWP on 5-year CDs also has risen from six months to one year of interest. I honestly didn't even pay attention to this, since 2.50% was such a good rate. I think an extra 50 basis points in yield is worth an extra six months of EWP, especially with other CDs in the portfolio that have lower EWPs (and lower yields).

That leaves the best deal of all that I've personally benefited from lately--the Andrews FCU 7-year IRA (only) CD at 3% with an EWP of 180 days. Phenomenal, and nothing else that I know of (and can buy) comes close. Too bad it's only IRA, so no way to circumvent the $250K NCUA deposit insurance limit for one owner.

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Re: Confusion about Synchrony Bank Early Withdrawal Penalty

Post by HueyLD »

For my local CU, the EWP is the GREATER of $20 or 30 days of interest for terms <= 122 days, or the GREATER of $35 or 90 days of interest for terms 123 days to 366 days, or the GREATER of $50 or 180 days of interest for terms > 1 year. No partial withdrawals are allowed. Interest is accrued daily and credited monthly.
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