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CD early withdrawal penalties in effect at 89% of financial institutions.

BANKING AND CREDIT NEWS-December 10, 2015-CD early withdrawal penalties in effect at 89% of financial institutions

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A new Bankrate.com (NYSE: RATE) report says nearly nine out of 10 (89 percent) financial institutions will seize some of the principal if a customer makes an early withdrawal from a certificate of deposit and the interest earned is not enough to pay the penalty.

For three-month and six-month CDs, the most common early withdrawal penalty is three months' worth of interest. For one-year and two-year CDs, the most common penalty is to forfeit six months' worth of interest. These are unchanged from last year's survey. However on the five-year CD, the most common penalty is now to forfeit one year's worth of interest. This is a change from last year, where it was a dead heat between a six-month interest earnings penalty and a twelve-month interest earnings penalty.

Bankrate.com chief financial analyst Greg McBride said, "The steepest penalties on many maturities are those that are assessed as a flat percentage of the principal. In these cases the penalty far outweighs the interest than can be earned, putting some portion of their principal at risk, which is what CD investors were trying to avoid in the first place.

"The bottom line is that CD investors should be very certain they can live without the money for the term of the CD before investing," he said.

Other details from the survey:

o Whether the penalty is applied only to the amount withdrawn or to the full amount of the CD makes a big difference. The policies of the banks surveyed are nearly evenly split.

o Only in very rare instances are the penalties different for IRA CDs than for CDs held in a non-retirement account. More common is that the institution may not offer the CD in an IRA.

o The grace period on automatically renewable CDs is predominantly 7 days or 10 days. In no case was the grace period longer than 14 days.

Bankrate.com surveyed the top 10 banks and thrifts in the 10 largest US markets, plus the five largest credit unions nationally (by deposits), from October 1-13, 2015. The survey measured early withdrawal penalty policies on 3-month, 6-month, 1-year, 2-year and 5-year CDs.

Bankrate, Inc. is a leading publisher, aggregator and distributor of personal finance content on the Internet. Bankrate provides consumers with proprietary, fully researched, comprehensive, independent and objective personal finance editorial content across multiple vertical categories including mortgages, deposits, insurance, credit cards, and other categories, such as retirement, automobile loans, and taxes.

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Publication:M2 Banking & Credit News (BCN)
Date:Dec 10, 2015
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