Penalty of $2300 on 9-month CD held for 2 months?

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CULater
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Penalty of $2300 on 9-month CD held for 2 months?

Post by CULater » Wed Nov 07, 2018 1:39 pm

Purchased a 9-month CD for $136,800 in Roth IRA held at local credit union on Aug 16. Decided to transfer my Roth to Vanguard, which required the the CD be liquidated. This was completed in October, but the amount transferred was short by $2,300.

Before deciding to do the transfer I had spoken with a credit union customer rep and was told there were no penalties for early redemption of a Roth CD if the Roth account was being transferred to an external trustee. Despite this, I was just told that the $2,300 was indeed a penalty and that amount was the total amount of the interest I would have earned on the CD if it had been held to maturity.

Disregarding the fact that I had been told there were no penalties, how in the devil can there be a penalty that amounts to interest that was never earned in the first place, and involves forfeiture of principal? Have you ever heard of such a thing?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

Silk McCue
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by Silk McCue » Wed Nov 07, 2018 1:50 pm

Sorry to hear this. Early Withdrawal Penalties (EWP) are discussed quite a bit here. Some are more egregious than others.

I would expect that bank may record their customer service calls. I would press the issue and insist that they pull the recording of the call to verify that you were advised incorrectly by their representative and were not going to accept the EWP as you otherwise would have left the funds in place and earned the interest due you.


Cheers

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samsoes
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by samsoes » Wed Nov 07, 2018 1:52 pm

Have you checked the terms and agreement document which should have been received when the CD was opened? Or the Deposit Account Disclosures for the institution in general?
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)

Grt2bOutdoors
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by Grt2bOutdoors » Wed Nov 07, 2018 2:21 pm

You should read the terms and conditions page carefully- it’s common to take penalties from principal when/if they are due. Earnings has zero (your earnings I must say) to do with it, the financial institution is another matter altogether.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

inbox788
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by inbox788 » Wed Nov 07, 2018 2:22 pm

The customer representative is correct, there is no penalty to take money out of your Roth.
Generally, you can take money out a Roth tax- and penalty-free if your account has been open for at least five years and you’re age 59 1/2 or older.
https://smartasset.com/retirement/ira-c ... r-roth-ira

They may have misunderstood your issue or you may have been discussing different things, but proving them wrong is going to be challenging, but it's worth a try. Too bad you don't have the recording yourself. I haven't gotten paranoid enough to record all my phone calls and driving habits yet, but if it becomes easier and more useful, I would start. https://www.youtube.com/watch?v=UnP7-1-W4VQ

Breaking a CD often times carries a penalty, and that seems to be what you were assessed.

Fees and penalties are minefields everywhere. It's safer to avoid dealing with complications in the first place, but some people like taking advantage of opportunities like credit card bonuses. I know some folks that can dance around those mines.

CULater
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by CULater » Wed Nov 07, 2018 2:26 pm

samsoes wrote:
Wed Nov 07, 2018 1:52 pm
Have you checked the terms and agreement document which should have been received when the CD was opened? Or the Deposit Account Disclosures for the institution in general?
Far as I know, I didn't receive anything from them. This was a rollover from a maturing CD into a 9-month CD at the credit union. I talked with two different representative at two different branches of the credit union and was verbally informed there was no early withdrawal penalty, but nothing in writing or recorded. I'll have to rely on the recollection of the last rep I talked with regarding this, who provided me with her business card. As luck would have it, she's been out sick and I talked with someone else today about the matter.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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HueyLD
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by HueyLD » Wed Nov 07, 2018 2:38 pm

I think many companies would tell you that verbal communications do not hold water should they conflict with the written ones.

I think your CU has written disclosures that clearly spell out the early withdrawal penalty on any CD.

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samsoes
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by samsoes » Wed Nov 07, 2018 3:27 pm

CULater wrote:
Wed Nov 07, 2018 2:26 pm
samsoes wrote:
Wed Nov 07, 2018 1:52 pm
Have you checked the terms and agreement document which should have been received when the CD was opened? Or the Deposit Account Disclosures for the institution in general?
Far as I know, I didn't receive anything from them. This was a rollover from a maturing CD into a 9-month CD at the credit union. I talked with two different representative at two different branches of the credit union and was verbally informed there was no early withdrawal penalty, but nothing in writing or recorded. I'll have to rely on the recollection of the last rep I talked with regarding this, who provided me with her business card. As luck would have it, she's been out sick and I talked with someone else today about the matter.
Check the Deposit Account Disclosure. It should be published on their website. If not, they can provide a copy. That's what counts and what you are bound by; not what you were told verbally.

If they won't make you whole as a courtesy, find a new bank or CU.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)

CULater
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by CULater » Wed Nov 07, 2018 5:05 pm

The CU verified the penalty is correct; however, they are taking responsibility for misinforming me regarding the penalty waiver and will be transferring the withheld amount to my Vanguard Roth IRA. Thanks to the posters who responded and informed me that the penalty amount is indeed valid. I had no idea. I always learn something new on this forum. :thumbsup
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

Silk McCue
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by Silk McCue » Wed Nov 07, 2018 5:07 pm

CULater wrote:
Wed Nov 07, 2018 5:05 pm
The CU verified the penalty is correct; however, they are taking responsibility for misinforming me regarding the penalty waiver and will be transferring the withheld amount to my Vanguard Roth IRA. Thanks to the posters who responded and informed me that the penalty amount is indeed valid. I had no idea. I always learn something new on this forum. :thumbsup
Great News!

Cheers

Grt2bOutdoors
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by Grt2bOutdoors » Wed Nov 07, 2018 6:07 pm

Silk McCue wrote:
Wed Nov 07, 2018 5:07 pm
CULater wrote:
Wed Nov 07, 2018 5:05 pm
The CU verified the penalty is correct; however, they are taking responsibility for misinforming me regarding the penalty waiver and will be transferring the withheld amount to my Vanguard Roth IRA. Thanks to the posters who responded and informed me that the penalty amount is indeed valid. I had no idea. I always learn something new on this forum. :thumbsup
Great News!

Cheers
You got lucky, good for you - that would have been a stiff penalty to eat. Roth dollars are very valuable.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

inbox788
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Re: Penalty of $2300 on 9-month CD held for 2 months?

Post by inbox788 » Wed Nov 07, 2018 6:57 pm

Silk McCue wrote:
Wed Nov 07, 2018 5:07 pm
CULater wrote:
Wed Nov 07, 2018 5:05 pm
The CU verified the penalty is correct; however, they are taking responsibility for misinforming me regarding the penalty waiver and will be transferring the withheld amount to my Vanguard Roth IRA. Thanks to the posters who responded and informed me that the penalty amount is indeed valid. I had no idea. I always learn something new on this forum. :thumbsup
Great News!

Cheers
Yeah, you got lucky. Maybe they earned an ongoing customer for stepping up for their mistake. But don't count on it again. And just be careful that this isn't their SOP and strategy: charge outrageous fees and penalties when you can get away with it and appease customers that complain to keep it quiet. There are companies that do just that.

Read the fine print! Better not to get in a similar situation in the future.

:thumbsup

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