About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Barclays Increases Early Withdrawal Penalty on New CDs


I received confirmation yesterday that Barclays has increased the early withdrawal penalty (EWP) on new CDs. There was some confusion over the weekend when a reader first noted the change in Barclays’ Terms and Conditions document. Barclays had forgotten to update its FAQs so there has been a discrepancy between the T&C and the FAQs. I was also worried yesterday when I first contacted Barclays customer service. I was told that the EWP did in fact change. When I asked if this only applies to new CDs, the CSR said he would have to get confirmation on this. I then sent an email to my Barclays contact describing these issues. My Barclays contact did confirm the new EWP, and she said that the FAQs are “in the process of being updated” and should reflect the changes as early as Tuesday. And Barclay customers who already have CDs don’t need to worry. According to my Barclays contact:

The new penalty pricing is only applicable to CDs that were/are opened from March 16th, 2013 forward. All CDs opened prior March 16th, 2013 are still regulated by the old terms (90 Days of Simple interest)

The new EWP is a disappointment, but it’s still competitive compared to other banks and credit unions. In summary, CDs with terms over 2 years now have an early withdrawal penalty of 180 days of interest. Here’s an excerpt of the new Barclays T&C document showing the new EWP:

Penalties for Early Withdrawal. A penalty will be imposed for any withdrawal of principal from your CD Account before maturity. If the amount required to be forfeited is greater than the interest earned or paid on your CD Account, we will deduct the difference from principal. For a CD Account with a term of 24 months or less, a penalty equaling 90 days simple interest on the amount withdrawn subject to penalty will be imposed, and for a CD Account with a term of greater than 24 months, a penalty equaling 180 days simple interest on the amount withdrawn subject to penalty will be imposed. In certain circumstances, such as the death or incompetence of a CD Account holder, the law permits, and in some cases requires, the waiver of the early withdrawal penalty.

Thanks to DA member KevinM who first reported on this change in the forum.

My Take

As DA member SnowSkier mentioned in the forum, this incident highlighted three issues with Barclays:

- Barclays competence. Can't draw any conclusions yet, but having FAQ and T&C out of synch at minimum seems to be an operational mistake. Where there is one operational error, there are often more.

- Barclays communication & transparency. I haven't received anything yet that communicates a change from 90d to 180d.

- level of Barclays customer support relative to Ally. Looks like no way to chat or call if it's not M-F.

On the issue of communication, I think Barclays management felt that since this change only affected new CDs opened on March 16th or later, a notification to existing customers wasn’t necessary. What do you think?

In my opinion, some customers may have opened new CDs and had assumed the 90-day penalty was still in effect. This shows why it’s important to read the latest T&C/disclosure document before opening a new CD and before you let a CD renew. To their credit, Barclays does have the T&C document online. Several banks and credit unions don’t have their disclosures online.

Even though customers should have read the T&C before opening a new CD, Barclays could have done more to ensure customers weren’t surprised by the change. An email notifying customers of this change would have reduced the chance of customers missing this change as they opened new CDs. Also, some customers may have only depended on the FAQs. To be fair, in my opinion, customers who had opened new CDs after March 15th and before the FAQs are updated, should be grandfathered in with the old EWP.

Barclays joins many other banks that have increased their early withdrawal penalties. Just last month Discover Bank announced the increase of its early withdrawal penalties on its long-term CDs. In my opinion, Discover handled the change better than how Barclays handled it. First, Discover clearly stated the date of the change in its disclosure so it was clear that the new EWP wasn’t going to affect existing CDs. Second, it removed the old EWP description from its FAQ and replaced it with a link to the disclosure.

When Discover Bank announced the EWP increase last month, several readers commented that these types of changes show the risk of depending on early withdrawals. When interest rates finally rise, the early withdrawal may either be not allowed or more costly than had been planned. However, Barclays has followed many other banks that have done the honorable thing by only increasing the EWP on new CDs. Only two credit unions have decided to take the low road. So in my opinion, these latest bank actions are increasing the chance that banks will act honorably in the future. There’s no guarantee, but don’t forget the risk that interest rates will remain low for many years.

Impact to Barclays’ 5-Year CD

I thought it would be useful to update the EWP table for Barclays’ 5-year CD with the new 6-month EWP. This table shows how the EWP will reduce the effective yields when the CD is closed early. For comparison purposes, I’ve included Barclays 5-year CD with the old 90-day EWP and Ally Bank’s 5-year CD with its small 60-day EWP.

As you can see in the table, most of the impact of this change is early in the term. Barclays’ new 5-year CD yield when closed after two years is close to Ally’s 5-year CD. At year 3, Barclays takes the lead. So Barclays’ 5-year CD is still a good deal even with this larger EWP.

The early-withdrawal yields listed below are based on the spreadsheet developed by Bogleheads forum members. It's available from the Bogleheads Wiki: Comparing CDs. It should be noted that the following simple formula comes very close to this spreadsheet:

Post Penalty APY = (Full APY) x (D - P) / D

D = days into term when the CD was closed.
P = days of the early withdrawal penalty

If you want an easy way to calculate the effective interest rates on your own, a reader developed this useful online calculator. It can calculate the effective interest rate for any month that a CD is closed before maturity.

These CD APYs are based on the yields listed at the Barclays and Ally Bank's website as of 3/19/2013:

Year of Early Withdrawal New Barclays 1.85% 5-yr CD latest rates Old Barclays 1.85% 5-yr CD latest rates Ally 1.54% 5-year CD latest rates
Early Withdrawal Penalty 6 months 3 months 2 months
year 1 0.92% 1.38% 1.28%
year 2 1.38% 1.62% 1.41%
year 3 1.54% 1.69% 1.45%
year 4 1.62% 1.73% 1.48%
year 5 1.85% (no penalty) 1.85% (no penalty) 1.54% (no penalty)
Related Pages: Barclays, CD rates

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  |     |   Comment #1
Thanks Ken. The only comment ref. the blog story is I can't get that reader developed on-line calculator to work. I made my response after your comment in the forum. After reading this I'm off to edit.
  |     |   Comment #2
If and when a large number of people actually want to do early withdrawals, such as when the heavy inflation and sudden big increase in interest rates eventually arrives, you can be sure that the early withdrawal penalties will be changed to zero, because the banks, including Barclays, will simply not allow anyone to withdraw their money. Which is why I don't buy long term CDs, or any CDs, anymore, for that matter. Too dangerous. Better to keep money in a higher yielding money market account. Return of capital is more important than return on capital these days...
  |     |   Comment #3
Wanderer makes a good point. Think I'm going to quit chasing for awhile.
  |     |   Comment #4
Agree totally with Wanderer, except I still have long term CD's. I  realize, though, that when the rush to the door occurs, it will likely be shut tight fairly quickly. In the meantime, I need the income from the CD's to live on so I don't really have any other reasonable choice.
  |     |   Comment #5
The key word "ladder",it makes life easier. 
  |     |   Comment #6
Wanderer:  How can you believe the US banks could ever refuse for any reason to allow customers to withdraw their money?  They would have to make it known before they sell us the CDs.  I cannot see US banks holding our money hostage.  Have you read the latest news on Cyprus?  They are not being allowed to do what they wanted to do on savings.  There is the possibility their banks could go bankrupt so in this case, I can see savers doing a "run" on the Cyprus banks.  I sure would hope we are not this far gone "yet" in the US.  I will be more prudent where I put CDs which are maturing tho for "just in case".
  |     |   Comment #7
I'm glad I opened my Barclays 5-year CD when I did (3/6). Even with an EWP of 180 days of interest, it's still one of the better deals at 1.85%. PenFed 5-year CD yields 1.65% with EWP of 365 days of interest. I may put more into another Barclays 5-year CD if I raise more cash in taxable accounts and rate still is competitive.

No, their customer service doesn't compare with Ally, and they don't offer checking accounts or IRA accounts, as Ally does, so Ally still is a good hub bank. Barclays web interface is much cleaner and faster than Ally's; wish Ally would remove so much gunk from their web pages.

  |     |   Comment #8
paoli2, you have more faith in our government and banking system than I do.  I may not live to see it, but I can foresee the day when our financial system here in the U.S. totally collapses.  Our national dept is too huge to withstand any meaningful uptick in interest rates which we savers are all hoping beyond hope for.  The day will come when just the interest alone on the national dept will be greater than the money coming in. 
  |     |   Comment #10
#8  I didn't say it would "never" happen.  I just think it is a few years into the future when they can't get enough oil for the printing presses to print our play money.  Cyprus had to try to do what they did because they don't have play money to print.  However, the outrage which got Cyprus to pull back would only be a dribble when they try that in the US. 

#9:  I, too, believe these times call for more than CDs but have you checked the price of "gold"?  When bad times hit, who do you think will have enough money to buy it back from you at the price you will need to get.  I missed the boat on gold when it was $35.00 an ounce so that is not an option for me.  I prefer something more affordable like silver coins etc.  We still have time to turn around our nation if the idiots in Washington use our shale resources.  We are sitting on an "oil mine"  in the US and going bankrupt instead of using it!!  Have a nice day.
  |     |   Comment #9
Based on #8's wise comments, I can't believe that it isn't prudent to have at least a small portion of one's assets in gold/silver.  I'm seriously considering maybe 5% to 10% of my assets in precious metals at this point.  The ultra low interest rates make it a very low cost proposition to hold these kinds of assets, and if there is inflation, they will rise with it.
  |     |   Comment #11
Can you say Cyprus?  Sure you can.  Look what they want to do (or really want to do).  Our goverment can do what they wish with the banking system if there is a crisis.  The goverment owns most of Ally.
  |     |   Comment #12
Have a kinda on topic question:

I remember one time a discussion about the differance betgween NCUA and FDIC, I am looking to open a new short term CD at Navy FedCU, I seen they use NCUA, not FDIC.I think I remember there was some kind of question about this NCUA insurance, that it wasn't as good as FDIC. Is this true? and is there more risk using Navy CU than a local banl with FDIC?

The rate available at Navy is 1% for a 1yr jumbo.
  |     |   Comment #13
To #12...... As quoted from NCUA on-line site:

"The National Credit Union Administration (NCUA) is the independent federal agency that regulates, charters and supervises federal credit unions. With the backing of the full faith and credit of the U.S. Government, NCUA operates and manages the National Credit Union Share Insurance Fund (NCUSIF), insuring the deposits of nearly 94 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions."

I would have no problem throwing my money into a Federal or state chartered credit union. The key for me is to ensure that it is affiliated with NCUA.
  |     |   Comment #14
Anon#12, you may be thinking about ASI.   From their website:  American Share Insurance (ASI) is a corporation which provides primary and excess share or deposit insurance exclusively to credit unions. They are the nation's largest non-federal insurer of credit union deposits.  It's the insurance fund of the ASI corporation  - and not a government or government-sponsored agency - which insure and guarantee the funds on deposit at an institution. 

In contrast, FDIC and NCUA are independent federal agencies with resources of the government.

My personal preference is to do busines only with institutions insured by FDIC or NCUA . 
  |     |   Comment #15
The level of paranoia in this thread and country is amazing.  My goodness.  If half of you honestly believe the entire US financial/banking system is going to collapse it's no wonder the unemployment rate in this country is as high as it is.  I would never hire you.
  |     |   Comment #16
#15....You have a job for me?

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