Certificate of Deposit Practices (United States District Court) – Some banks have adopted bad faith practices in regard to their automatically renewing certificates of deposit (CDs). These practices result in customers – who are often elderly – having their interest rates reset at far below market rates, sometimes for years. Moreover, if customers request to withdraw their funds they are subject to sizable penalties that bear no relationship to the bank’s actual costs. We are currently pursuing a class action lawsuit regarding these practices.

I hate Wachovia, too!

Wachovia charges me dormant account fee without any prior notice. When I told to the branch manager, she insisted it is a valid charge.

Then, I told her I am willing to pay the fee but I wanted to close my account. She did not allow me to do so. I have to wait for more than one week to go the branch again to close my accounts.

Now I see I’m not the only one, and I hate the banks, and I especially hate Wachovia (now Wells Fargo).

Her explanation was that the account notes aren’t necessarily going to be accessed while a call and notice given to the local branch directly means that someone is going to be personally responsible for making sure that the CD is dealt with per your instructions.

Yes, that is right.

Citibank pays its saving account interest rate each day the money stays there during the grace period. Some local banks (Valley National Bank and United Commercial Bank) do not pay any interest at all.

Wire transfer may incurr double cost — $25 for send and $10-$20 for receive. Wamu charges $10 and Bank of America charges $25 for receive.

Perhaps you just talked to the wrong person or what you wanted was not clear? Or is this something that could vary state to state (like California has some rule requiring Wamu / Chase not to auto renew but others states allow)?

- YES YOU CAN lose principal if you withdraw early. The penalty is calculated based on your interest rate x a certain number of months or days, but the penalty is NOT only subtracted from your accrued interest. Say you open a 12-month CD, and your penalty is 3 months of interest at a rate of 5%. This means your penalty is 1.25% of your principal (5% / 12 * 3). If you close the CD a week after you opened it, your penalty is still 1.25% and you will cut into your principal. If you close your CD 3 months after you opened it, you will get back your principal with no interest. Any time after the first 3 months, you will get back more than your original principal.

- Now, say you open a 12-month CD with $10,000 principal at 5% with an early withdrawal penalty of 3 months. Your CD grows to $10,500 after 12 months. Now it automatically renews for the next 12 months, but the rates have dropped and now you’re getting 2%. After your auto-renewal, your penalty now is equal to 3 months of interest at the new rate of 2%, which is 0.5% of $10,500, which is about $52.50. If you close your CD 1 month after the auto-renewal, you have accrued about $17.50 of interest on your $10,500. So, you walk away with $10,500 PLUS accrued interest of $17.50 MINUS penalty of $52.50 = $10,465.

When you open a CD account with a large bank, there are often a lot of options that the representative will not mention. If you don’t bring up your distribution options, they will just go ahead and open the basic CD that auto-renews at maturity and automatically reinvests interest into the CD. That’s the easiest thing FOR THEM. However, there are many options that may be available to you. ASK! If they say, “Um, I don’t think you can do that,” ask to speak with a manager to double check that what they’re telling you is correct. Some of these distribution options are rarely requested, and if the rep is new, they might not even know that some of these things are available at their bank.

- A lot of banks will let you designate your maturity distribution options when you open the account. As in, you can say you want your whole CD to be transferred over into your checking account upon maturity. You have to tell them when you open the account (some will let you change this option mid-term). They usually WILL NOT ask you if this is something you want, but if you ask them, they will often have that option.

- Various interest distribution options are a standard feature in the banking industry, not just at credit unions. If you do not want your monthly or quarterly interest to be added into the CD (and you don’t mind losing the effect of compounding interest!), then you should ask what other options you have for receiving your interest. They should be able to deposit your CD interest into your checking account at the same bank. This shouldn’t be anything out of the ordinary–a lot of people live off their regularly-distributed CD interest. They might be able to send you a check in the mail, though a lot of banks are trying to cut down or eliminate this option because it costs them a lot more than an electronic transfer into your checking. Again, the bank will not offer you this option unless you ask, because it means 1) more work for them (if filling out an extra form can be called “more work”), 2) they’ll have to tell you that you’ll earn less interest this way since it will not be compounded (so you’ll get the amount of interest equal to just the straight-up interest rate, and not the APY).

- Even if you did not choose to have your CD interest to be regularly distributed every month or quarter, you should still be able to withdraw your CD interest at will. That’s right, you can walk into the bank and ask for your CD interest, and you should not be penalized for it. Again, I can’t guarantee that this is the case at your bank, but I have never worked at a bank where this was not practiced. That’s because your original contract locks up your principal only, not your interest. Say you put $100,000 into a 12-month CD at 4%. Then six months later you need a couple of grand. You come into the bank and ask to withdraw your CD interest. This is a rarely requested transaction, so if the rep is new, they will definitely look at you like you have two heads and will try to tell you that you can’t do that, but if you check with a supervisor, you should be able to get your interest.

- Finally, never have I ever worked at a bank where they didn’t notify you by mail that your CD maturity date was coming up. Somebody above mentioned ING sends you an email. Well, if your bank does not send you an email OR mail you a letter when your CD is about to mature, there’s something wrong (with your mailing address, your mail carrier, or the bank). Most banks will send you a letter about 3 weeks ahead of the maturity date, and the letter should tell you your distribution options. Usually, there’ll be a place on the letter where you can tell them to close the CD and send you a check or deposit the CD proceeds into your checking account at that bank. You sign the form and send it bank to them. This is a good option if you want to close the CD but are afraid of missing the grace period (typically, a 7-day window after maturity) or plan to be out of town. Most large banks have moved away from allowing you to do this by phone because they want to document the transaction with your signature. It has nothing to do with “improving customer service” (what a joke!), it has to do with fraud–a VERY serious concern for banks today. But you should have the option of telling them what you want to do with your CD by mail.

If you open your CD at a bank, and walk out of there not having a clear idea of exactly what will happen 1) if you withdraw early, 2) when your CD matures, then the customer service representative didn’t do their job. Period. They may have, however, handed you some papers. Read them. You’d be surprised how much you can find out by reading the terms and conditions to which you agreed.

Basically what I’m saying is that it would have taken some careful (if not anti-consumer) T&Cs writing for these banks to legally bind customers with new T&Cs (e.g., a new rate) yet apply an early withdrawal penalty based on the period that ran under the old T&Cs. This whole perceived dilemma might be smaller than everyone thinks IF the most to lose is the interest accrued after the bogus renewal — that would make me a lot less tense about a small window of time.

2) One calendar day grace period may impose serious problem. I think Congress should have included this issue in their credit card reform bill

3) Last Nov when my CDs at INGDirect matured, I withdrawed the CD into my saving account. I could do that online when I placed the withdrawal request at least one day before the maturity day. When I did it on the same day, INGDirect website had automatically locked and renewed my CD. I had to call them, unlocked/close the CD and transferred the money into saving.

I have never seen this before, but it’s been years since I’ve owned a CD. It used to always be a penalty never to exceed the interest paid/accrued.

WAMU forfeits interest gained, so if u have a 10K cd and it renews to 0.25% thats $20 a month of interest. I dont think they forfeit interest yet to be gained. Thats what they told me the last time. Not 100% sure.

I used the contents to pay off my car, and put the remainder into a CD that was several points higher.

I asked them why they changed the rules. They said to enhance customer service.