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Discover Bank's New Limited-Penalty-Free CD and its New Online Savings Account

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Discover Bank
Update 12/29/09: The savings account rate has fallen to 1.60% APY. Refer to the bottom of the post for the rate history.

Discover Bank just introduced a new feature on its 1-year CD today which allows account holders who open or renew a 12-month CD to make an early withdrawal without a penalty. However, it only applies if the account holder involuntarily loses his or her job during the term of the CD. The 12-month CD rate is fairly competitive at 2.20% APY as of 7/01/09.

Discover Bank also introduced a new Online Savings Account with a 2.00% APY on all balances as of 7/01/09. Minimum initial deposit is $500, but there is no minimum balance requirement after it's opened. Update 8/02/09: I spoke with a Discover Bank CSR concerning details about its ACH bank-to-bank transfer service. According to the CSR, its system doesn't keep other bank's routing and account number. You'll have to enter it for each transfer. The ACH transfers are free. I was told there's $100K/day limit on inbound transfers and no dollar limit on outbound transfers.

Discover Bank has long offered a Money Market Account with limited check writing and with ATM access. You can only access your money in the savings account via ACH electronic fund transfers (wire transfers are also an option). The downside with the MMA as compared to the savings is that it has lower rates and the rates are tiered. Also, with the MMA there's a $10/month fee when your average daily balance falls below $2,500.

The Discover savings account can be useful if you open a Discover Bank CD. When the CD matures, it's typically easy to instruct a bank to transfer the money from the closed CD into a savings account at the same bank. Once it's in the savings account, it's easy to transfer it. And with the savings account having no minimum balance requirements, you don't have to worry about leaving a large amount earning little or no interest.

The Penalty-Free CD Feature:

Details of this CD promotion are available at www.discoverbank.com/12monthcd. It's also described in this press release. Here are some of the details:

Certificate of Deposit Requirement:
  • 12-month term
  • Minimum deposit of $2,500
  • Opened or renewed between 7/01/09 and 12/31/09
Account holder Requirements:
  • Account holder be employed full time when the CD was opened or renewed
  • And for 30 days thereafter, involuntarily lose his/her full-time job
  • Also, he/she must provide proof of unemployment to Discover Bank
  • Proof includes a signed and notarized document proving unemployment
  • Also applies to self-employed under certain conditions
If Discover Bank approves, both the principal and the credited interest can be withdrawn without penalty.

In theory this is good for those who want to use a CD as an emergency savings fund. However, my question is how long will it take to go through this paperwork. Based on reports from many readers, there have been many issues with Discover Bank's customer service. Here are two comments that readers left in my previous Discover Bank posts:

Having had Discover CD's in the past, I would agree that phone customer service as well as website responsiveness is lax & unreliable at best.
I would say the operation is unprofessional, and a headache best avoided.

Discover Bank is very poor when closing out maturing CD's. They lost my close out letter ... and I received their auto-renewal letter on the last day of the grace period. Took another 20 days to receive my check. So ... figure that you'll forfeit at least 21 days of interest at the end of the CD....

In my opinion, Ally Bank's 9-month no-penalty CD (APY is 2.15% as of 7/01/09) is still a better deal (see post).

General Discover Bank CD Info:

AAA members who live in certain areas can receive a 5 basis-point rate bump on all Discover CDs. To find the AAA rates at Discover's website, start at AAA's financial services page and enter your zip code. You should then see a Discover Bank link on the right. Note, this Discover Bank AAA accounts don't seem to be available for all zip codes.

The details about Discover's CDs are listed at their CD overview page and the CD FAQs. Some of the details include:
  • Fund CD with an ACH electronic funds transfer or check
  • Early withdrawal penalty of 6 months interest on amount withdrawan for terms of 1 to 5 years
  • Grace period is 9 calendar days after the CD matures
  • Same rates available in IRAs
Discover Bank's Financial Overview:

I was going to say that one advantage of Discover Bank over Ally Bank is that it hasn't received any TARP funds. But this isn't the case. According to the NY Times database, Discover Financial Services, the parent of Discover Bank, received $1.2 billion of TARP funds on March 13, 2009. Nevertheless, Discover Bank has decent ratings for safety and soundness: 3½ stars (good) at BauerFinancial (based on 3/31/09 data) and 4 stars (sound) at Bankrate.com (based on 12/31/08 data). Discover Bank is a member FDIC (Certificate # 5649).

Savings Account Rate History:
12/29/09: 1.60% APY
11/03/09: 1.75% APY
10/01/09: 1.85% APY
07/01/09: 2.00% APY

  Tags: CD rates, IRA rates, Discover Bank, savings account

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Comments
15 Comments.
Comment #1 by Jason (anonymous) posted on
Jason
The only way I can transfer funds using Discover Bank is using their MoneyHQ program, which involves fees. Any suggestions on how to transfer between Wells Fargo and Discover Bank for FREE? The only other way to use one of my other MMA's as a middleman.

I do not qualify for free billpay on Wells Fargo either.

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Comment #2 by Anonymous posted on
Anonymous
There are no fees for their "standard" 3-day MoneyHQ transfer. Or you can call them voice and have them do the transfer for you if you have an amount larger than the daily/monthly maximums. This is also free.

2
Comment #3 by Anonymous posted on
Anonymous
Whats the best option to move from Ally?
-Discover
-AmEx
-Cap1

What bout ACH initiated from external bankls like Ally to Discover? Does this take 3 days too?

Thanks

1
Comment #4 by Anonymous posted on
Anonymous
I would recommend you stay away from Discover Bank if you want to put more than $20k in there. I missed the fine print that the MoneyHQ transfer program has a limit of $35k in total transfers in AND out (combined) for every 30 days. I put in $25k to open the account, and tried to put in more, but there is a cap of $25k inbound per 30 days (though the system incorrectly said $30k). Once I found out there was limits, I tried to take it all out, but I could only take out $10k. Thus, I now have $15k in the account that I can't touch for 20 more days. Very annoying. Thankfully I don't need it anytime soon.

I HIGHLY recommend Ally for it's convenience and high rate over Discover Bank. On October 1, I will be pulling out all my money (with the Sept paid interest) and closing my Discover account

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Comment #5 by Anonymous posted on
Anonymous
I just opened a Discover Savings account (currently @ 2.0% APY).
It was funded by an ACH debit from my designated external account.
They do tend to be slow and uninformed, as I too have had numerous aggravations with Discover Bank
(formerly Greewood Trust)in the past.
But, if you can use the Discover routing & account # through an outside financial institution, you can bypass whatever ridiculous ACH restrictions they may impose.
And,FYI, avoid customer service as much as possible.

1
Comment #6 by Anonymous posted on
Anonymous
Discover just lowered the rate on their Online Savings to 1.85%.

1
Comment #7 by Anonymous posted on
Anonymous
FYI:
Just opened the online savings with $500 a few days ago.
Then made an ACH "PUSH" ($30K) from outside into Discover.
Told them if this PRE-AUTHORIZED DIRECT DEPOSIT was not made available immediately, I would close the account.
Even though the Discover Bank website is hopeless, the $30,000 showed up and was available, but not the initial $500 (held for ten biz days!!!).
They dropped the APY from 2.0 to 1.85%, and I'm probably going to move most of it over to American Express online savings( also 1.85%).
At least they have a decent online interface, and customer service that knows its stuff.
After years of practice, Discover Bank is still not ready for prime time...

1
Comment #8 by JCE (anonymous) posted on
JCE
There is a $25 Account Opening Bonus after 3 months for the 12 Month CD. $2,500 minimum, 2.0 APY. Deadline for the offer is 12/31/09. If my math is correct and you open the account for the minimun $2,500, the $25 bonus is the equivalent of 1.0 APY which would make the total rate for the year 3.0 APY. A better APY then is available anywhere else but the total earnings for the year would only be $75. But maybe taking advantage of these types of offers as the pop up is a better way to increase savings rather that rate chasing savings accounts that drop soon after you open them.
DiscoverBank.com/CDOffer
Offer Code: D120210

1
Comment #9 by larkin (anonymous) posted on
larkin
As you sign up, when you get to the "where did you hear about us" question, check "newspaper ad." I have noticed that if you check "exisiting customer, the offer code disappears. If you check "internet" it appends an "I" to the code.

1
Comment #10 by Anonymous posted on
Anonymous
DiscoverBank says: "Annual Percentage Yield (APY). This offer applies to personal accounts only. CD rates based on a $2,500 minimum balance and apply to terms of 3 months to 10 years. A penalty may be charged for early CD withdrawal. Fees could reduce earnings on the account. Advertised rates are valid as of 10/13/2009 and subject to change daily without notice. The $25 offer is valid through 12/31/2009. To receive the cash offer, the offer code listed above must be used when applying. A minimum deposit of $2,500 in new funds must be received within 30 days of submitting an application and must remain on the account for 90 days to remain eligible for the cash offer. The offer will be applied to your Discover Bank 12-Month CD account 90 days after new funds have been received. Should involuntary unemployment occur prior to the 90-day funding period, and the CD is broken without penalty, the account will no longer remain eligible for the cash offer. Offer may be withdrawn at any time and without notice. Cash offer is considered interest income and will be reported on IRS form 1099-INT." Must be only for 12 month cd!

1
Comment #11 by Anonymous posted on
Anonymous
Down to 1.70%

1
Comment #12 by Anonymous posted on
Anonymous
Sorry about the above post. I meant to post on American Express. Discover is still 1.85%.

1
Comment #13 by Anonymous posted on
Anonymous
Discover has a new secret "Premium" account.

 

Important Changes to Your Savings Account

===

As one of our first Discover Online Savings Account
customers, you're now among the select few to be automatically
upgraded on 1/31/10 to the new Discover Premium Savings
Account. The Premium Savings Account is a variable rate account
with the same features as our Online Savings Account - with a yield
at least equal to that of the Online Savings Account*.

The letter we recently mailed to you informing of your account
upgrade contains an error. That letter indicated that as of the
date of the letter, January 23, 2010, the Premium Savings
Account was higher than that of the Online Savings Account,
however on that date, the rates for both the Premium Savings
Account and the Online Savings Account were the same. We
apologize for any confusion this error may have caused.

Because the Premium Savings Account is not available to the
general public and the rate may be higher than that of the Online
Savings Account, you will need to log in to the Discover Bank online
Account Center to get the current Premium Savings Account Rate.

If you have any questions, please call one of our Banking
Specialists at 1-800-347-7000. Thank you for saving at
Discover Bank.

===

3
Comment #14 by Anonymous posted on
Anonymous
Opened Online Savings account at newly lowered 1.35% APY, accepted somewhat vague Account Agreement online dated 6/09, received Account Agreement dated 11/09 in snail-mail welcome package.  Most recent agreement requires acceptance of lengthy, previously-undisclosed agreement to use Discover's "Money HQ" in order to be able to transfer funds initiated via Discover.  Currently unable to execute any transactions via Discover (without signing up for "Money HQ".)  Apparently must do pull via external account to remove funds from Discover.  Notified Discover that I don't tolerate such dishonest practices, will consider contacting banking regulators if unable to promptly withdraw funds, and that I had better be able to withdraw my funds via external ACH transfer.

Heed this and the above warnings regarding doing business with Discover.  Refuse to tolerate entrapments to accept agreements that weren't fully disclosed upfront during account opening process.

2
Comment #15 by Anonymous posted on
Anonymous
I am an international saver in the US. I have already an account in the US.

I would like to know haow can I open a CD in your Bank. How can I make the transfer? Does it have any charge??

Do you have any contact in Spanish??



 

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