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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Risks and Benefits of Long-Term Certificates of Deposit

POSTED ON BY

As I've mentioned several times this year, long-term CDs can be much better deals than short-term CDs even if you think interest rates will rise substantially in the next year or two. If interest rates stay low, the long-term CDs are better since the interest rates are much higher than short-term CDs. If interest rates rise substantially, you can close the long-term CD early. You'll be hit with an early withdrawal penalty, but for many banks and credit unions, the early withdrawal penalty is mild. With a mild early withdrawal penalty, the long-term CD closed early can return more than short-term CDs that you hold to maturity. It can also be better than just keeping your money in a savings account.

Two institutions which have competitive long-term CD rates and mild early withdrawal penalties are Ally Bank and Pentagon Federal Credit Union. Last week I reviewed their rates for both cases: 1) if the CDs are held to maturity, and 2) if the CDs are closed early.

As I mentioned in that post, there are two risks with this long-term CD strategy:

  1. The bank refuses to allow an early withdrawal
  2. The bank increases the early withdrawal penalty on your existing CD

Some banks include in their disclosures the right to refuse an early withdrawal request. For the second risk, it's not as clear. When we first learned of Ally Bank's early withdrawal penalty of only 60-days of interest, several readers were informed by Ally bank reps that Ally had the right to change the early withdrawal penalty on existing CDs with 30-day notice. I investigated this, and received assurance from Ally Bank's public relations director that Ally would not change the early withdrawal penalty on existing CDs (see post). A reader looked into this issue with Fort Knox FCU, and its compliance office claimed it held the right to change the early withdrawal penalty on existing CDs with just a 30-day notice. The concern is if one institution can make such a claim, other institutions in the future might also make this claim. If inflation and interest rates shoot up in a year or two, banks will have a big incentive to assert such a claim to prevent customers from withdrawing their money from their low-yield CDs.

I've worked with Allan Roth of the CBS MoneyWatch The Irrational Investor blog on this issue. Allan has done a well-researched post, CDs as Bond Bubble Protection - Revisited. On the question of whether an institution can change CD terms, such as the early withdrawal penalty, he received opinions from an attorney and spokespersons from the FDIC and NCUA. All had the opinion that the institution would not be able to "unilaterally change the early withdrawal terms." However, the reader who first looked into this topic thinks the issue is still muddy since the disclosures have terms that appear to give the institutions blanket allowance to make changes with a 30-day notice.

One thing that is clear is when the institution states in the disclosure that an early withdrawal can only be made with their consent. In those cases, you could be stuck in the CD until maturity. As Allan mentioned in his post, it's very important to read the CD disclosure before you open the account. Also, you should keep a copy of the disclosure.

As I mentioned in this previous post, there have been reported cases of banks making use of this type of clause and preventing customers from making early withdrawals. If interest rate shoot up in the future, we may see more of these cases.

  Tags: CD rates

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Comments
40 comments.
Comment #1 by Sree (anonymous) posted on
Sree
Even if they are changing the terms, they should give a 30 days notice. Using that notice, we will have an option to either bind for the updated terms OR break the CD.

They generally start this kind of magic when the rates shoots up or about to shoot up. At that time, its good for us to break the CD.

Am I missing anything here in my interpretation?

6
Comment #2 by starlight posted on
starlight
why read documentation before signing if institution has right to change terms unilaterally?????  crooks....

7
Comment #3 by me1004 posted on
me1004
Roth's article on this matter was poor. He did not show himself to understand the legalities of what he was asking about. What he got was NOT well researched. He merely got generic, first-year law school answers to generic contract matters. He did NOT get any input whatsoever on the details of these CD disclosures, although he mistakenly thinks he did. The ONLY thing he got was to be told to go read the disclosure -- but he mistakenly combined that with the generic answers and misconstrued that to mean the banks and CUs can't change the early withdrawal penalty in mid-CD; he did NOT read the disclosures thoroughly or follow their referenced entrails.

In fact, the disclosures I have read -- from both Fort Knox FCU and from Ally Bank -- say they CAN change any account in mid-CD. They say they must give notice, and you have the option during that notice time to close (but the early withdrawal penalty already in place apparently would still apply).

From Fort Knox:

Account Rates and Fees. Our payment of dividends on your account(s) is subject to the account rates, fees, compounding and crediting policies and balance requirements set forth in this Agreement. We may transfer from any of your account(s) any charges or costs in connection with the operation and maintenance of account(s) as stated in this Agreement or the Schedule. You agree that we may change the Schedule at any time upon proper notice as required by law. 

The schedule apparently is the fee schedule, apparently including the early withdrawal penalty.

From Ally:

18. Service Fees
While there are no monthly service fees, there may be service fees that apply to certain requests or actions. Please see our Fee Chart, Appendix A. These fees may change from time to time and in accordance with applicable law. We will provide you notice to the extent required by law.


Those fees seem to include the early withdrawal penalty.

The question that really needs answering is whether these "blanket allowances" can actually be used in mid-CD to change the terms. There are other points of law that would affect this, so what they seem to say on their face might not necessarily be what can happen. But Roth's article did not get this answer. 

Meanwhile, in fact, several people in the past several months have reported that their banks have increased their early withdrawal penalty in mid-CD! The latest posting of such came in comments on this site just last week, with the poster saying BB&T bank had just done so to his CD. This certainly would seem to mean that either they violated the law or there are no legal points blocking "blanket allowances" from being used to change the early withdrawal penalty in mid-CD.

And notice, these reported changes in mid-CD have been happening in this economic climate with rates only going down, so no incentive for people to pull out. Just wait a couple years when rates are going up, and maybe significantly so, and a lot of people suddenly want to start pulling their money out of the longterm CDs in midterm! The banks will have great incentive then to block that, either by substantially increasing the early withdrawal penalty to just denying the withdrawals. That is, this is a real risk going forward that must be weighed seriously -- each person must make their own decision on it. Some CSRs or public relations person's assertions that they would not apply that is not reliable.

30
Comment #4 by Anonymous posted on
Anonymous
I think that the no brainer way to eliminate deciding whether to invest in short or long term CD rates is laddering.  Always have CD's coming due like every 6 months and going for the highest rate possible at that particular time.  All I keep reading about is people waiting and waiting and waiting for higher rates down the road.  If you actually do the math you literally cannot make up the difference by going short term now and hoping to make up the difference later.  Keep in mind that the fed funds rate is between zero and a quarter percent.  It could take years before we see anything close to interest rates from what we just had not that long ago. 

21
Comment #5 by Anonymous posted on
Anonymous
Ken, don't pretend to be a journalist.  Just report the facts.

23
Comment #6 by Anonymous posted on
Anonymous
Anonymous argues for laddering and writes: " If you actually do the math you literally cannot make up the difference by going short term now and hoping to make up the difference later. "

This is truly ONLY if one assumes that the next several years look similar to the past several years. However, if one studies the history of Fed Funds during the 1970's and early 1980's, this statement is false and misleading.

For example, Fed Funds rose from 4% to 13% in the 24 month period 1972-1974. It also rose from 4.5% to 20% over the 3 year period from 1976 to 1979.  In that first period, CPI inflation rose from about 3% to 12% in only 2 years; and in the second period CPI inflation rose from about 6% to 14.5% in only two years.

It's important to keep these historical precedents in mind ... and not make blanket statements using words like "cannot."

9
Comment #7 by Anonymous posted on
Anonymous
Anonymous #6 you can keep waiting for the seventies and eighties to arrive again.  In the mean time if one always has money coming due an reinvest it at the highest rate available at that particular time the ongoing soap opera regarding interest rates does not matter.  You are basically dollar cost averaging your certficates of deposits interest rates year after year after year.

12
Comment #8 by cactus posted on
cactus
Allan Roth's blog says: "...Fort Knox Federal Credit Union in Fort Knox, Kentucky, unilaterally changed the terms of existing CDs."

I don't remember that any one here reported that this has actually happened -- just that the CU's Compliance lawyer said that they reserve the right to do so.

Did I miss something?

8
Comment #9 by Anonymous posted on
Anonymous
Anonymous #7 - what you say is correct -- but only if you keep your dollar cost averaging at short maturities. As for the 1970's and 1980's arriving again, obviously the folks who own gold seem to think we're already back in that period. Right now, treasury rates are below the CPI, and if you are a taxpayer, most after tax CD rates are below the CPI too. So you can feel smug and safe -- but your hard-eaned savings are losing their purchasing power EVERY day...and the Fed's quantitative easing will ensure that this only gets worse. Arguably, it's nearly as bad as the 1980's already....

5
Comment #10 by Anonymous posted on
Anonymous
I guess the bottom line is that whenever we open a CD, we are subject to the complete mecy of the institution involved. They can permit an early withdrawal or not and they can change the penalty sructure at any time.  When rates rise to a material degree and push comes to shove, and it will likely happen, there could be some adverse senarios for the CD holders trying to withdraw early. Even though this subject has been addressed by several "experts", none of them have provided a definative answer....in other words, the instutions have room to do as they choose and let the legal system sort it all out later. As for me, I do not have the funds to get into a protracted legal battle with an instution in this regard so I suppose that, as a practical matter, I will simply have to go with the flow and prepare for the worst.,,,a sad state of affairs.           

13
Comment #11 by Anonymous posted on
Anonymous
stop dreaming interest rates will not go up until at least 2015! My motto has always been when you see a frate of 4% or MORE grab it for 5-10 years and be happy--do not sit around and be greedy and think "oh what if the rate goes up!?" I reinvested all money in 5 and 7 yr CDs in 2008 at 5-6% int. when everyonw kept telling me" what if rates go up" my repsonse was"when in the past did you ever get 5-6% int. rates for longer then 2 years be offered--so if you see 5% grab it"

15
Comment #12 by Anonymous posted on
Anonymous
Am planning on doing Penfed 5% and have interest reinvested, but if rates come up a few years down the line I would like to change option and take monthly interest, Can you do that? Kind of confusing looking at Penfed disclosure. Says if you take monthly dividend it's subject to penalty if you have not chosen the that option.  

2
Comment #13 by me1004 posted on
me1004
Cactus: like I said above, Roth wrote a poor story! You are right.

However, the FULL quote from Roth is:

"One comment specifically mentioned that Fort Knox Federal Credit Union in Fort Knox, Kentucky, unilaterally changed the terms of existing CDs."

That comment he is referring to is from DepositAccounts. I am the one who made ALL the comments about Fort Knox -- and I NEVER said that. I said are you remember, that Fort Knox said it CAN do that, not that it has done it. I have no idea whether Fort  Knox lately or ever has done it.

But again, it is not very important whether Fort Knox has done it. We have SEVERAL other contributors over the past six to eight months or so who say it has happened to them, one just last week saying it just happened at BB&T bank! So, the bottom  line is: it does happen, whether legal or not.

When this first arose some months back, I and we thought it an aberration and that that bank was doing something illegal, breaking a contract. But now it appears it might very well not be illegal, and regardless many banks are doing it. This could very well even be a strategy now, to draw people in with a false promise of low penalty, but then switch later when interest rates start rising, either locking you in or getting enough more penalty from you to make you sorry.

Anonymous #10: yes, that seems to be the case, precisely! That is why what we thought was a great idea to get into longterm CDs at short term rates might not be such a good idea after all! So, buyer beware -- you will be taking on risk you previously did not think you were accepting.

8
Comment #14 by Anonymous posted on
Anonymous
Anonymous #9 what do you mean "but only if you keep your dollar cost averaging at short maturities".  If your CD's are properly laddered you could have a maturing CD say every 6 months for the next 5, 7, or 10 years for example.  You are always buying replacement certificates of deposit at the longest term and rate every 6 months.  Current interest rates are what they are and we cannot control that.  We have to work with what is available right now.  As far as purchasing power is concerned save more and spend less.

11
Comment #15 by Anonymous posted on
Anonymous
What is the point of having a CD today at all? When quality money market rates are less than a percentage point below long term CD levels, doesn't it simply make sense to keep all funds in Money Market. I mean what is a fraction of a point worth? Are people really keeping hundreds of thousands of dollars in cash in bank accounts?

2
Comment #16 by Anonymous posted on
Anonymous
To prove my point above regarding MM vs CD, Capital One Costco InterestPlus currently pays 1.35% 10% bonus of the interest if funds > $10k = 1.485%. Best CD from Ally bank for 5-year term pays 2.50%. Why in the world would you want to tie up your money for 5 years for one more percent?

2
Comment #17 by Bob (anonymous) posted on
Bob
The operative terms here is for the bank to "give notice."  What does this mean?  When I set up an internet saving account with Capital One Bank, I have them send me an email each day with my balance.  When I ask them to send me an email each day with the interest rate, I was told that I must sign into my account everyday to check the interest rate.   They refused to send out daily interest rate emails. 

A bank does not have to mail or email you any "notice", it can post it on its website, that is, if you know where to look for it each and everyday!

3
Comment #18 by Anonymous posted on
Anonymous
Indeed it did happen at BB&T bank.  I received notice in the mail that they were changing the early withdrawal penalty for my existing CD's from the usual number of months penalty to the usual number of months penalty or $25 whichever is greater at the time of the early withdrawal.  When I went to my local branch to ask about it, I was told that BB&T was doing it because people were closing CD's early when they found better rates elsewhere.  They not only chnaged the rules in the middle of the contract but stated to me that the reason they were doing it was to discourage their customers from finding better rates elsewhere.  I told them that I would never open another CD with them, regardless of the rate they offered and I plan to stick by that promise.  The only reason I opened the CD's with them in the first place is because they gave me a special rate because I was a long time customer.  I would have had no problem at all if they had instituted the new penalties with NEW CD's but changing the rules in the middle of an existing CD was just shoddy.  If they can and will do that, is there really any limit to what they might do in the future?  I think not.

5
Comment #19 by Anonymous posted on
Anonymous
Anonymous - #18,

Did BB&T bank give you a option to redeem your CD at your original penalty, or were you stuck with the new penalty?

1
Comment #20 by Anonymous posted on
Anonymous
Anonymous #15 & #16 the interest rate on money market and savings accounts float with current economic conditions.  The rates are still trending downward.  The Federal Reserve wants things that way so that the banks stabilize and stay out of trouble.  If you do not invest in any fixed rate certificates of deposit for now things are going to get worse for you.  You will unlikely ever make up any difference by accepting less of a return now by waiting for higher rates in the future. 

6
Comment #21 by Anonymous posted on
Anonymous
BB&T did give 30 days notice before the new penalty took effect.  It did not say so explicitly in the letter I received but was told at my local branch that I could indeed close the CD's under the original penalty if done before the 30 days was up. 

I asked them if I could change the interest rate they paid me unilaterally at any time just as they were doing with the penalty if I gave them 30 days notice but they did not find that to be very amusing.

They made it very clear that they could change anything about the CD they wished so long as they gave me 30 days notice, but they were unwilling to provide me with the same option.

Everyone just needs to understand that when you enter into a CD contract the banks reserve the right to change that contract any way they wish at any time. 

Banks have all the power but they have it because their customers have allowed them to have it.   I went into my local branch about 5 days after I received the letter and they told me that I was the only person who questioned it up until then.  So long, as bank customers go along meekly with whatever the banks do, they will continue to do it.

It would not surprise me at all, that there would be banks that refuse to allow CD's to be closed early under any circumstances if they think thy can get away with it and keep their customers.

I have no problem at all with any rules banks wish to have on NEW CD's, but changing the rules in the middle of the contract is just plain wrong. 

I no longer do any business with BB&T and would not do any with any other bank who did something similar.  Unfortunately, most customers stay with the same bank no matter how they are treated because they are too lazy or just plain unwilling to shop around to find quality bank services.

So long as the banks who treat customers poorly still have customers, there is no incentive for them to treat their customers any other way.

It is much like voting for politicians and then being outraged when they do something you don't like and then going to the polls and voting for the same people again.

Customers have to take ownership for the decisions they make.  If I had stayed with BB&T, I could hardly complain about being treated poorly or unfairly in the future.



 

9
Comment #22 by allanroth posted on
allanroth
me1004 seems to be taking it personally.  I've found that those starting with personal attacks are addressing emotions rather than facts. 


If you read the language, you will note that it refers to fees and applicable law.  Of course they have the right to change fees on their schedule such as bounced checks, etc.   me1004 disagrees with both the FDIC and the NCUA as to whether they have the right to change a contract.

I feel the NCUA and FDIC is better researched than any personal attack.  I have about as much chance of convincing me1004 of his error as I do convincing an annuity salesman he's getting rich from selling bad product to the elderly. 

 

 



 

2
Comment #23 by Anonymous posted on
Anonymous
Sorry, #22, but I do not think that me1004 either took it personally or made any personal attacks. If you choose to see it that way, that is your right. Instead of blaiming the messenger, however, perhaps you might be a bit more factual in your presentations? If others disagree, or otherwise point out any areas of disagreement with you, don't be so lame as to merely sluff it off as a personal attack...hopefully, you will offer some solid facts to  support your postion without the need to demean others.  JMHO    

7
Comment #24 by me1004 posted on
me1004
Thank you Anonymous 23. And AllanRoth #22 -- you still fail to understand that the FDIC and NCUA have NOT told you anything at all about the right of the institutions to change their fees/penalties in mid-CD. You did NOT understand what they said. They gave you generic, general answers straight out of first year law school about contracts generally. They did NOT give you any specific, in depth input on these disclosures, whether they go beyond what would be allowed in a contract as fair, whether there are any particular exemptions granted to these institutions that would allow them to do this, whether the various parts of the disclosure read together -- which you failed to do -- provide for this, etc. 

Yet what you wrote tells the reader that if that one paragraph specifically talking of penalty for early withdrawal does not say that it can be changed at any time, then they cannot change that penalty. You fail to see the parts of the disclosure that provide for changing anything at all, which would include the early withdrawal penalty. You failed to get input on whether that broad assertion in the disclosures can even be applied in mid CD or whether that would constitute an unfair contract that would not meet legal standards. You looked at the one paragraph, considered a broad statement about contracts generally, and made a conclusion -- misguiding the readers. 

I'm not disagreeing with the FDIC or the NCUA. I haven't even heard their considered analysis of this matter, as you did not present it. I would like to hear that analysis. But meanwhile, it certainly appears that the banks and CUs are, in fact, changing these rules, such as early closure penalty, in mid-CD, despite that one paragraph you rely on saying nothing about them being able to do that.

I have no idea where you see me taking anything personally in this. 

14
Comment #25 by allanroth posted on
allanroth
Me1004

Regarding your comment:

Thank you Anonymous 23. And AllanRoth #22 -- you still fail to understand that the FDIC and NCUA have NOT told you anything at all about the right of the institutions to change their fees/penalties in mid-CD. You did NOT understand what they said.

I'm pretty sure you weren't part of the conversation so your conclusion is emotionally based.  Do you think I wouldn't confirm what I wrote with the FDIC and NUCA?

As mentioned, I will never convince you of anything and that isn't my goal.  You are free to anonymously post misinformation.

 



2
Comment #26 by Anonymous posted on
Anonymous
To Anonymous #15

Yes, I am doing that.  A fraction of a point is significant for my overall account balance.

1
Comment #27 by me1004 posted on
me1004
AllenRoth: I'm not going to take this any further in this forum. But I stand by what I said of what you published.

3
Comment #28 by allanroth posted on
allanroth
me1004,

If you care to contact me directly and identifying yourself, I'd be happy to show you regulators thought my article was accurate - ar@daretobedull.com.  Speaking of accuracy, it's AllanRoth rather than AllenRoth.

1
Comment #29 by Anonymous posted on
Anonymous
How about publicly sharing the "regulators" thoughts with the rest of us also.  A bit of credence to your article would be a good thing, would it not? This is a subject that could possibly concern many of us when an early withdrawl is being considered, or a long tem CD is being contemplated, so the more conclusive you can be, the better, wouldn't you say?  If an article, such as yours, is written, the author should be sure of his "facts" and do everythng that he can to insure that the readers completely understand the contents. In any event, a reader should not be subjected to baseless ridicule for simply asking for clarification on obvious inconsistent or seemingly unfounded statements or conclusions. Now, ridicule on.    

10
Comment #30 by allanroth posted on
allanroth
Anonymous,


As previously noted, I checked the statements I made with the FDIC and NUCA and named the sources.  Rather than throw out insults, I merely pointed out that Me1004 cannot logically draw the conclusions he made unless he was on the calls with the FDIC and NCUA.  Feel free to contact me directly if you want some additional facts. I'm sorry my article didn't fit your mental model.

Good luck to you and Me1004.

1
Comment #31 by Anonymous posted on
Anonymous
For some reason, you obviously feel a need to talk down to, and/or ridicule, others instead of having the ability to man-up and be accountable for your postings. So far, you have not directly answered the very valid questions by me1004 and obviously do not intend to do so. Very likely, you do not have an answer but are not willing to admit it.  If you hold yourself out as an "expert", or post as a "expert", then good grief, man, at least  try your best to act  like an "expert" and otherwise be professional about it in the process....your reliance on the "emotional" and "mental" words as your primary response just doesn't hack it. Get the idea?  So far, you have failed noticeably in the professional regard and have probably lost a bit of respect in the process. Henceforth, I will consider your future posts as being no more helpful and/or meaningful, as your recent ones, and simply scroll on by.  lol   

11
Comment #32 by lou posted on
lou
Not that he needs me, I am going to defend Mr. Roth. I think we should all realize that he is on our side and wants to preserve the contractual right to break a CD with penalty. Although it may not be satisfactory to many of you, I am happy that he contacted FDIC and NCUA and at least was able to get someone there to agree with that intrepretation of the law. If a bank or credit union attempts to unilaterally renege on this contractual provision, i will contact Mr. Roth and his contacts at the agencies and remind them to enforce the assurances they made to Mr. Roth. This may not be the ironclad guarantee we are all looking for, but it is better than nothing. So I would like to thank Mr. Roth for his efforts and assure him that there are many users of this blog who appreciate what he has done on our behalf.

1
Comment #33 by Anonymous posted on
Anonymous
Actually, lou, the question isn't who is on whose side. Those "assurances" are not only not better than nothing, it appears they are nothing, and in fact seem to have been misinterpreted anyway. That's the point that has been made. The point hasn't been that Roth didn't mean well, but that he misunderstood and jumped to a dubious conclusion, and so very well appears to have misadvised us. The NCUA and FDIC aren't going to do anything just because Roth wrote his piece. If banks can do this, those agencies aren't going to bother them about it. And as has been stated above, banks have been doing it. If you end up getting burned but taking that approach on longterm CDs, Roth's article isn't going to help you at all, not  even with the FDIC or NCUA.

9
Comment #34 by lou posted on
lou
To: Poster#33   You may be right, although I am not sure how you can be so certain that he is wrong. Until I hear a better idea from someone else, anything he can contribute should not be categorically rejected. Unless your position is that you don't ever intend to purchase long-term CD's regardless how attractive the rates may be, it is going to be a risk we will have to assume. So whatever assurances we can get from wherever that may be will have to suffice. Do you have a better plan?

1
Comment #35 by Anonymous posted on
Anonymous
Savers should look at CDs as they were original intended for:  locking up your money for a specified period of time for a guaranteed interest rate.  CDs were never intended to be an alternative investment trading vehicle verses the stock market.  As has been highly recommended many times, building a CD ladder is a very good approach for savers who rely on interest income. This would negate most of the apprehension about early withdrawal penalties while averaging out the interest rates through the high and low cycles.

4
Comment #36 by Anonymous posted on
Anonymous
As I am considering the 5 year CD, I have carefully reviewed the Ally Bank Deposit Agreement dated October 16, 2010. Paragraph 34 on page 12 is very troublesome to me. Basically it says that they can do anything they want to the CD with NO notice except when required to by law. What law? They can even change the Agreement itself. I called their CSR who told me nothing would change over the 5 years but they would NOT put that in writing. Like I really trust the banking industry. This CD could easily be a "bait and switch" deal if interest rates rise. I just don't know about. Since I am considering depositing a considerable amount of money I am at serious risk. Any comments?

8
Comment #37 by me1004 posted on
me1004
#36: precisely. And that is exactly what I pointed out above.

1
Comment #38 by Anonymous posted on
Anonymous
#36 - I think your conclusion is entirely correct. My wife and I have a couple of 5 year CD's with Ally which were opened about two months ago. Although our contingency  plan was to make an early withdrawal, and forfeit the three months of interest, if and when rates materially increase, the more I think and read about it the more I realize that this type of thinking is probably wishful thinking at best. If rates do rise substantially, more likely than not, Ally, and others as well, will change the rules to either prohibit an early withdrawal entirely and/or steepen the penalty on the early withdrawal. They certainly do not want to see a mass exodes of the deposits and will do whatever it takes to limit the loss of same. So far, there are apparently no rules, laws or guidelines, that I am aware of, or that anyone has reasonably assured me of, that would prohibit them from doing so. Accordingly. as a practical matter, none of us can control such a possible senario so, in my specific case, I will simply collect the interest and not worry about it. I do feel, however, that laddering is a reasonable approach.      

3
Comment #39 by lou posted on
lou
99.9% of banks and credit unions believe they have a contractual obligation to adhere to the provisions in the CD Agreements, otherwise you would see a hugh number of them changing their rates on prior CD's to accomodate this low rate environment. There are many fiscally-distressed banks that would love to do this. It isn't happening because they are prohibited from doing so. In contract law, a distinction is made between material and immaterial changes, where the former is generally not allowed, but the latter is given more leeway. Someone used BB&T as an example, but I noticed that  the change they requested has a very small impact. All they did is add a floor of $25. Believe me you can read any contract ( I do for a living) and find all kinds of tortured language which would cause a great deal of consternation. In context it rarely means what a layperson thinks. Before puchasing CD's I read these agreements very carefully, and I am convinced these agreements are binding and that these institutions will not be able to make the type of changes that many of you fear. Otherwise, CD's would be no different from liquid money market accounts, and I think most reasonable people here don't believe that.

5
Comment #40 by starlight posted on
starlight
i purchased a jumbo cd at 5% from Wamu the week before Chase bought it and was happy to see that Chase honored it at maturity.  Chase doesn't have the best reputation at customer service but they did right by me.

2
Comment #42 by anon123 posted on
anon123
FWIW, as I just posted at

http://www.depositaccounts.com/forum/thread/2810-fort-knox-fcu-early-withdrawal-penalty-refusal-to-allow-closure.html

thread, I did receive an email from a Fort Knox FCU manager stating that unless I owe FCU money, they WILL allow me to withdraw money and the penalty is 90 days. I did tell them that unless they can give me something like this in writing (email accepted), I will not open my CDs there and she agreed to send me the email.

Other readers may want to do the same thing before opening accounts there or at other institutions (I had done it in others too) to ensure they will have something in writing / email stating these conditions will not change. Normally I talk to someone at customer service who would try to assure me that they cannot change the penalty and of course they will let me withdraw money. But if they cannot send me an email, I ask to talk to a manager, and manager (also trying to assure me of the same thing) CAN send something like the email I had mentioned in my post.

1