Dedicated to Deposits: Deals, Data, and Discussion

Big Increase in's Early Withdrawal Penalty



One year ago I described the good deal at which was offering top rates on its 7-year and 10-year CDs. Not only were the rates competitive, but the long-term CDs had a mild early withdrawal penalty (EWP) of only 6 months of interest. That allowed these CDs to be good deals even if you had intended for the CDs to be closed early. It looks like the bank realized the deal was too good, and it has increased the EWP for the long-term CDs to be much worse. It's important to note that this change will only affect new accounts and renewals. Hat tip to the DA member who mentioned this change in the forum thread and posted the email that was sent by to its customers. Below is that copy:

Dear Valued CD Customer:

Effective July 10, 2012, our® CD early withdrawal penalties and renewal rates for new accounts and renewals changed as follows:

Early withdrawal penalties (a penalty may be imposed for withdrawals before maturity)

• If your account has an original maturity greater than five years: The fee we may impose will equal the loss of either all interest earned on the amount withdrawn or half the interest amount that would have been earned on the amount withdrawn during the entire term of the certificate, whichever is greater. Penalty may reduce principle.

Automatically renewable time account

Each renewal term will be the same as the original term, beginning on the maturity date. The interest rate will be the prevailing renewal rate on the maturity date which has the same term and minimum balance (if any) as the original time deposit.

You will have seven calendar days after maturity to withdraw the funds without a penalty.

These changes will be applicable to your account at time of renewal.

You can review the latest disclosure which includes this new EWP in this terms and conditions page.

This change doesn't mean much now since's 7-year and 10-year CD rates are so low (currently only 0.50%). However, has a history of making large rate changes so these could become more competitive in the future. Last week I reviewed some of the new competitive CD rates from

If does raise its 7-year or 10-year CD rate to be competitive, this new EWP will make the CDs a much harder sell. An early closure means the customer will lose at least half of the total interest that would have been earned on the amount withdrawn. So for a 10-year CD, that's 5 years of interest which is 10x larger than the previous EWP of 6 months of interest. The EWP can actually be even larger. It could be equal to all interest earned on the amount withdrawn if that's larger than half of the interest. For a 10-year CD, the customer will lose all interest earned if the CD is closed early between 5 and 10 years.

I don't like seeing such a harsh EWP, but I'm glad stated that this new EWP will only affect new accounts and renewals. That's how EWP changes should take effect. It should not affect existing CDs like what happened at two credit unions.

This is a useful reminder that you have to be careful when your CDs mature. If the CD rate is still competitive, you may be tempted to let the CDs renew without reviewing the latest disclosure. This shows why it's a good idea to review the latest disclosure. New and larger early withdrawal penalties have been common in the last couple of years. Last year PenFed raised its 5-year EWP from 6 months to 12 months of interest. Bank of America also increased its EWP. Unlike PenFed, Bank of America's EWP becomes very harsh for low rates. Both PenFed and Bank of America did not apply the new EWPs retroactively on CDs. The changes only applied to new CDs or renewals.

  Tags: iGObanking, CD rates

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Comment #1 by Anonymous posted on
Ken, you wrote:
“It's important to note that this change will only affect new accounts and renewals.”

But it does not says that the old accounts will forever be exempted.

If people start running for the exits, iGo has option to forbid early withdrawals,
which makes the old accounts on the same level as the new once.

I did read the iGo EWP disclosure and it says, you need prior approval if you like to exit before maturity, therefore, don’t count that if you are current iGo customer, you are exempt.

They will not let you go out that easy.

Comment #2 by Anonymous posted on
If you open a CD......just plan  to keep it all the way to maturity. You're just asking for trouble if you try to get it out early. Could be very expensive.....and I do think most banks say in the small print they don't even have to allow you to get your money early.

Also......unrelated.....But when I opened a CD with Igo by ACH......they held my money for a week without paying interest on it...I will not be doing that again with this bank. They lost my business.

Comment #3 by Anonymous posted on
I just spoke with a CSR at iGobank about the early withdrawal penalty.

Boy, was she fired up when I ask how long will take to close my CD with them.

She started to talk me out of closing it, than she started to give me run around, than she said I must put in in writing and to notarize it and mail it to them for approval.

The approval depends of the longevity of the CD, on the amount on the CD, how long I had it, full or partial withdrawal...and she kept going...while I was trying to get one answer at a time.

Finally she stop and I ask, how long will take once they receive the letter from me.

She started again like from a cannon, it depends whether we have to sell your CD back to the treasury or somebody else is opening similar CD at that moment or not, also it depends how big your CD is and we have board meeting once a week for such cases and may take up to a month to receive your proceed if the board had approve the closure and you will not receive any interest from the moment we receive the closure letter until we mail you the proceeds.

I could not take it any longer for giving me un-specified answers and hang up.

But you can get the picture of what will be all going through if this was a real case.

Comment #4 by Anonymous posted on
I can understand why CSRs would go ballistic when people inquire about the particulars to close out CDs early.  CDs were originally and still are meant to be TIME DEPOSITS for a FIXED TERM with few exceptions.  Today, too many people want to or plan on abusing the system if rates were to increase before their CDs mature.  What if it were the other way around?  For instance, PenFed is still paying 6.25% on some long term CDs.  What would you say if they said you had to cash them in now because prevailing rates are drastically lower.  Same thing, only the tables would be turned and the customers would be howling mad.

Comment #5 by Anonymous posted on
If that is how the institutions feel, then they should solve the problem themselves by simply prohibiting all early withdrawals.

That would at least be more honest and up front about things, and savers could make the decision about what to do based on accurate and honest information.

Would you accept a CD with a competitive (or even better) rate if the institution plainly stated "NO early withdrawals, period, no exceptions."

Comment #6 by Anonymous posted on
All this nonsense with the EWP would be a non-issue if there was a level playing field.  Remember interest rates are being manipulated by bernanke.  Banks are not hurting. their making record profits.