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E-LOAN and DCU Temporarily Waiving CD Early Withdrawal Penalties


E-LOAN is waiving CD early withdrawal penalties during March. They've been sending the following email to customers:

For the entire month of March 2009, E-LOAN will waive its Early Withdrawal Penalty if you close your CD early. For many of our customers this could mean substantial savings in penalties normally associated with early account closure.

CD Term Early Withdrawal Penalty
1 year or less 3 months simple interest
More than 1 year 6 months simple interest

If you would like to continue maintaining your CD with us, please rest assured your funds are safe and will earn the regularly scheduled interest for the existing term. However, if you would like to access your money early, please adhere to the following two guidelines:
(1) In order to close your CD with no penalty you must log in to your account and send us a secure message asking us to close your account without penalty. Requests received by Wednesday each week will be processed by the following Friday. Funds will be received in your externally linked account the following week.
(2) Your account will be closed and funds returned to your externally linked account, which must still be open, valid and verified in order for the funds to be returned.

E-LOAN is not alone, Digital Credit Union is also waiving CD early withdrawal penalties. This is described at DCU's front page.

Both E-LOAN and DCU had offered high CD rates last year. It was just October 2008 when E-LOAN was offering a 5.25% APY 5-year CD. The 5-year CD rate is now only 2.90% APY as of 3/11/09. Also in October 2008 DCU was offering a special 4.50% APY 16-month CD. Currently, DCU doesn't have any CD specials, and its highest standard CD rate is only 1.90% APY.

Both institutions claim this is intended to help customers get access to their savings in this troubled economy. However, the institutions are likely trying to cut their costs from high yielding CDs. Deposits have flooded banks while loan demand has shrunk.

E-LOAN is not even making loans any more. This was described in this SEC Filing from Popular Inc in October 2008:
The restructuring plan of E-LOAN (the E-LOAN Restructuring Plan) contemplates E-LOAN ceasing to operate as a direct lender over the next few weeks. E-LOAN will continue to market deposit accounts under its name for the benefit of BPNA and offer loan customers the option of being referred to a trusted consumer lending partner.

If you go to E-LOAN's home page, you're now referred to other websites for loan applications. Savings accounts and CDs offered through E-LOAN are held by Banco Popular Bank which is part of Popular, Inc. Like many banks, Popular is having a difficult time.

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Anonymous   |     |   Comment #1
This is absolutely fascinating stuff, Banking Guy. I wonder if we are seeing the beginning of a trend.

It's going to be tough for savers when (if) nobody wants to borrow our money and pay us interest!! Sure hope the add-on CDs don't get hit. They are my "ace in the hole" about now. But they HAVE to be vulnerable in this environment.
cackling good jokes
cackling good jokes   |     |   Comment #2
I got that email from ELOAN and laughed a good laugh.

I have four 20k@5.25%APY 5-year CDs with ELOAN that have over 4 years left on them.

If they want me out, they should be offering a premium!

PS: Thanks for the great blog Banking Guy!
Anonymous   |     |   Comment #3
This concept is not new. Banks already waive the early withdrawal penalty for making IRA distributions before the CD term has reached maturity when you have reached 70 1/2 years of age. In this case, they extended that privilege to people who need to make withdrawals due to budget reasons. I don't think they expect that people with high rate CDs opened many years ago to be among those that would close out their accounts (not unless they were also in some sort of financial bind).
Anonymous   |     |   Comment #4
To Anonymous, at 5:05 PM, March 11, 2009 - I agree with you that it's fascinating. But I think as with many industry sectors, there will always be some financial institutons that try to use this period we're in to expand their "market share" if they feel they're healthy enough relative to other institutions. For example, check out Northwest Federal Credit Union - they seem to be actively seeking new membets and paying good rates.
Anonymous   |     |   Comment #5
Yes, Banking Guy's info and Anonymous 5:05 PM post hit it right on the head.
Everyone should know by now, banks do not do anything out of the goodness of their heart. They simply want to get those high yielding CDs off their books and are hoping depositors will jump at the chance to cash them in early do to the poor economic climate.
CD Rates Blog
CD Rates Blog   |     |   Comment #6
The other thing to keep in mind is both banks and credit unions are going to be assessed a premium for the insured deposits they have on their books.

It is very likely they have that in the back of their mind as well.
jim   |     |   Comment #7
Sounds like a win-win for both sides, if you need the cash more than you need a 5% CD, E-LOAN lets you take it and they get it off the books.
Anonymous   |     |   Comment #8
I agree that bank(er)s do nothing out of the goodness of their heart and that they always act in their best interests (as do we).

And I like my high yield CDs as much as the next saver.

But some food for thought - Banco Popular North America (which is the "parent" of Eloan) has a 2-star rating on Bauer, which earns them a place on the "Troubled and problematic" list. That means I have to weigh the odds of Eloan closing before my CD matures in mid May this year. Unlikely? Probably - but surely FDIC still has enough money to cover banks going under...

However, given that FDIC can take up to 99 (I believe) years to pay on insured premiums, and given that the FDIC has said that it may need to borrow money from Treasury to "make payroll" so to speak if too many banks default, IMHO that will be something to consider whenever a bank offers an "early out" from here on in as this financial mess continues to unfold.
Anonymous   |     |   Comment #9
To 3:58 PM - you are sorely mistaken that FDIC will take up to 99 years to payout INSURED deposits. It normally happens within a day and at most takes a few days historically. If that's the basis for your reasoning, I suggest you reconsider your reasoning.
Banking Guy
Banking Guy   |     |   Comment #10
For those worried about the FDIC, please refer to this post. It includes excerpts from the FDIC regarding some common FDIC myths.
Anonymous   |     |   Comment #11
Not sure where my post went, but here it is in a nutshell.

Banking Guy thanks for the post with FDIC info. I appreciate the info, as it is interesting reading. Ordinarily I have no concerns about whether FDIC will cover my insured deposits if a bank fails.
However I don't consider these ordinary times.

And while I agree that historically it has been a day or two before the funds are made available, the article does go into some detail about the fact that it could under some circumstances be some time before the money was returned to the depositor (although probably not 99 years).

Call it a doomsday scenario if you will, but just because it is too awful to consider doesn't mean that it couldn't happen. Would a one-month delay in returning funds to me create a problem? Depends on what is going on at the time. That is why my CD ladder involves several banks around the country, all with Bauer ratings that are acceptable to me. Whenever one of those ratings changes for the worse, I evaluate the situation and act accordingly. I have never closed a CD before maturity. But when a bank which has a "troubled" rating offers an opportunity to withdraw the funds on deposit without a penalty it may be a good exercise - however academic it might appear - to think about it for more than a fraction of a second before discarding the possibility.

To each his own.
Anonymous   |     |   Comment #12
Notwithstanding the bank rating of E-Loan, this bank has its main HQ in CA which is one of the subprime meltdown epicenters in this country. Given the high foreclosure rates in CA, I am not too surprised at this development. If a bank located in North Dakota or Vermont were to suddenly offer penalty free withdrawals, I would be much more surprised.
Anonymous   |     |   Comment #13
Popular, Inc., the parent company, has its main headquarters in San Juan, Puerto Rico (Hato Rey)....just throwing that out there.
Anonymous   |     |   Comment #14
I guess I was basing the CA address on the website information and it located noted on for E-Loan.

E-Loan, Inc.
6230 Stoneridge Mall Road
Pleasanton, CA 94588
Anonymous   |     |   Comment #15
Typo on my post. I meant "and its location noted on".
Anonymous   |     |   Comment #16
To anyone who opened an E-LOAN CD in or before mid-December, remember to make sure you get your $25 bonus if you applied using the "times25" promotion code. I opened on 12/15, and the bonus is supposed to be credited within 90 days, which should be 3/15. I still hadn't received it on 3/12 so I sent them a message and it was credited the next day.

If you're thinking about closing penalty-free, you might as well make sure you get your bonus before you do so.

Any word yet on whether they pay March's accrued-but-not-yet-credited interest if you close?

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