Banks always seem to make it easier to open a CD than to close a CD. They always hope customers will let their CDs automatically renew into another CD. For CD customers this is rarely a good choice. If you let your CD roll over into a new CD, the new rates will likely be much lower than if you had shopped around for a new CD. This is especially true when you take advantage of CD specials. Typically, CD specials will renew into standard CDs with much lower rates.
So before you open a CD, it's always a good idea to know what will be required to close a CD and receive the funds. This is especially important for internet banks and when you live far away from the bank branches. If you can't come into a branch, some banks will require written instructions to close a CD. Also, the bank may only offer to mail a check for sending you the money. Wire transfers and ACH transfers may not be options.
A reader was kind enough to email me about the problems he has been having trying to close an IRA CD at Dime Savings Bank. This was the hot 15-month IRA CD that I reviewed on March 2010. The reader provides important warnings that should be very helpful for those who also opened this IRA CD. Below is an excerpt from his email:
Many of your readers, including myself, opened IRA CD accounts at Dime Savings Bank after reading on Bank Deals Blog about their special offers in March-April the past couple of years.
Now, those of us who opened accounts in 2010, including myself, are having their 15-month CDs come due.
You might want to warn your readers that, as I discovered this morning, closing the account is nearly as much of a hassle as opening it.
There is paperwork to be done: a form must be mailed (not faxed) to you by them, and mailed back after signing. Thus, if you live in an outlying part of the country and wait until your maturity date to phone them regarding closing the account, it will certainly be at least a week, maybe longer, before you see your funds. You won't earn interest during that time, and there is the possibility that your paperwork will arrive back in Brooklyn after the ten-day grace period, thereby causing your CD automatically to renew at an unfavorable rate.
The maturity notice that they mail a month ahead of time makes absolutely no mention of this paperwork process, and gives no warning that one should contact them well in advance of maturity if one wants to close the account on the maturity date.
If you have any tips for closing Dime Savings Bank IRA CDs, please leave a comment. Dime Savings Bank has also offered (and still does) competitive rates on regular CDs. If you have experience closing these CDs, please let us know if there are similar paperwork requirements.
IRAs frequently require more paperwork than non-IRAs, and you have to be careful when you close IRA accounts to ensure you don't get hit with tax penalties. The reader also provided a useful tip for closing IRAs:
you have to be especially careful to make sure the bank completes the paperwork properly if you are taking your money out as a standard (or normal) distribution with the intention of rolling it over elsewhere within 60 days. I've had banks inadvertently check the "Minimum Required Distribution" box on account closing forms. If not not caught, this could cause serious issues with the IRS at tax time as the withdrawal would have to be declared as income.
One way to simplify closing regular CDs is to open a checking or savings account at the institution that holds your CD. If your CD is at a credit union, you should already have a savings account at the credit union. When the CD matures, I've usually been able to just call the institution and instruct the customer service rep to close the CD and transfer the money into the liquid account. Once it's in the liquid account, I can withdraw the money using another bank's ACH transfer service. If it's a checking or money market account, you can also write a check to deposit the money into another account. The only issue that I have experienced with this strategy is when credit unions don't allow ACH debits from their savings accounts. This happened to me when I tried to pull funds from my Navy Federal savings account.