Banks often don't make it easy to close a CD at maturity. They hope you'll let the CD automatically roll over. If you want to close the CD when the CD matures, you sometimes have to jump through hoops. For example, few banks offer the ability to transfer your CD funds via ACH to your account at another bank. This is even the case for some banks that allow you to fund the CD via ACH. You might have to request that the bank mail you a check. A wire transfer may be an option but an out-going wire transfer almost always has a fee. Also, some banks require you to mail or fax them written instructions for closing a CD. This can't be done online or by phone.
Problems Closing a Discover Bank CD
A reader recently emailed me about the hoops that she had to jump through to close a Discover Bank CD at maturity. Not only did she have to jump through hoops, but they charged her a penalty for early closure. On her request, I forwarded her email to my Discover Bank contact, and Discover management looked into this issue. They realized a mistake was made, and mailed her a reimbursement check for the penalty along with an interest adjustment for the lost interest.
The reader said she first called Discover Bank when she received the maturity alert letter. She asked for Discover Bank to mail her a check when it matured. Two days later she followed up, and found out that the CD was scheduled to roll over and not to be closed at maturity. She was told that since her CD balance was over $100K, they required written instructions to close it. She then faxed in the written instructions. When she followed up again, she was shocked to learn that they closed her CD early, and she was charged an early withdrawal penalty. This is when she contacted me, and I helped her get into contact with Discover management.
I'm glad to report this issue is being resolved, and Discover Bank was willing to make things right. However, it does show the complications that can occur when you're trying to close a CD at maturity. There are some important general tips that can be learned from this incident. Also, there are important details about closing a Discover Bank CD especially for those with CD balances over $100K.
General Tips for Closing a Bank CD
The first general tip for any bank is to make sure you follow up with customer service especially if you don't have anything in writing. When you do speak with a customer service representative, try to record the name of the rep and the date and time of the call. Ask for a letter or email confirmation of your instructions. If you don't receive the written confirmation, make sure you follow up with another call. If this reader didn't follow up with the Discover Bank rep, her CD would have automatically renewed. If she found out after the grace period ended, she would be locked into another term.
The second general tip for any bank is to be very careful about specifying when your CD is to be closed. In this Discover Bank case, I don't know how customer service could have assumed she wanted to close the CD early when it was going to mature in just a few weeks. You can't assume the bank will act with common sense. The reader provided the following tip for others when they instruct their bank to close a CD:
for any and all correspondence to include directions that specify "upon maturity" in bold lettering, and to not be reluctant to repeat the instructions, when closing a CD.
Hopefully, Discover Bank will improve their procedures to ensure this problem doesn't happen again. Also, I hope they make it easier for customers to close CDs. For now, the process to close a Discover Bank CD isn't the best especially if the CD has a balance over $100,000.
Instructions for Closing a Discover Bank CD
In my correspondence with Discover management, I obtained several important details about closing a Discover Bank CD. I thought this would be useful to mention for anyone who has a Discover Bank CD or who is considering opening one in the future. As mentioned above, Discover requires a written request to close a CD for amounts over $100,000. A secure message from Discover's account center will not currently satisfy this requirement.
To ensure that you don't miss important information in the request (like when to close), it's wise to ask Discover Bank to send you a closure request form.
If you're sending instructions without a closure request form, be sure to include:
- The name or names on the account.
- The account number(s). A good reminder is to note exactly which of the accounts are to be closed. A customer might hold more than one CD that matures on the same date. They may want a payout for one and a roll-over for the other; or some combination of the two.
- Specific instruction on each account number that is to be closed and the closing date. Some people have more than one account/CD, that they may reference on a call, or that might have the same maturity dates.
- Clear instructions on what amounts should be sent where. For example, the full balance can be sent out, and/or portions may be distributed among the customer's Discover money market or online savings accounts.
- If funds will be sent via wire transfer, Discover needs the account number and routing number you want it sent to. If the funds are going to an account that does not belong to the CD holder, they need to make it clear in the letter, and list the third party’s name and banking information.
- If the customer want funds sent by check, clearly list the address Discover is sending the funds to. It needs to be specified whenever the address is different from the one listed on the account.
- Ensure that the letter is signed.
When a Discover Bank CD account is closed, there are three options to receive the funds:
- Discover can mail the customer a check for the full amount -- or the customer can reinvest some of the money and receive a check for whatever amount she does not re-invest.
- For a $20 fee, the customer can receive his funds via a wire transfer through a manual verification process. Discover Bank does not currently use ACH capabilities for such transfers.
- Customers with money market or online savings accounts can transfer the funds through or into those accounts. However, these accounts have transfer limits, and customers are only allowed to transfer up to $100,000 every 30 days. So, for example, if my CD matured and I was due $105,000, I could only transfer $100,000 into those accounts and request a check for the rest. The customer would not need written authorization to do that, because it can be done within the security of her account center.
I'm surprised that the $100K transfer limit also applies to an internal transfer. One would think you could transfer the entire Discover CD into your Discover money market account without any dollar limitation.
It's a good idea to find out the requirements to close a CD before you open a CD. You don't want to be surprised by requirements when the CD has already matured. Also, the requirements are not always the same for everyone as can be seen with Discover Bank. Requirements can vary based on your balance.