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Retirement Savings: How Much Should I Save Each Month?Discover Bank's New Limited-Penalty-Free CD and its New Online Savings Account
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POSTED
ON BY Ken Tumin
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:
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:
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:
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
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 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
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
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
