A good CD deal involves more than just a top interest rate. Certain features or terms of a CD are also important. One example is the early withdrawal penalty. Credit unions and banks sometimes will give CDs special terms to make them more appealing. The add-on feature is one example. This can allow a customer to make additional deposits into the CD before it matures.
A CD with favorable terms like unlimited add-on deposits can be a great deal. However, that great deal depends on the institution honoring the terms until maturity. We have seen a few credit unions that have failed to do this. There has been another case of this.
A member of Achieva Credit Union described his ordeal with an add-on CD in this Tampa Bay Times article. In 2010 the member, Mike Jordan, and his wife opened two 5-year add-on CDs at Achieva. According to the article "the "add-on feature" is spelled out on the CD itself." When they first made use of the add-on feature six months after the CDs were opened, Achieva allowed the add-on deposit. However, when they tried the second time, the credit union refused to allow the deposit. Achieva claimed the wording in the terms that said "holders may add money" gives the credit union the right to disallow the deposit.
The Achieva member then began a long effort to force Achieva to honor its terms. According to the article, he contacted nearly 75 people. He filed a complaint with the NCUA, and then the NCUA sent it to the Florida Office of Financial Regulation. This was probably done since Achieva isn’t a federal credit union. The NCUA isn’t the primary regulator for state-chartered credit unions. The Florida regulator didn’t find a violation of state codes, but it didn’t end there. The complaint went back to the NCUA since the complaint was an alleged violation of the Truth in Savings regulation, and that fell under the NCUA oversight.
After many months the NCUA finally made a ruling. According to the article:
The NCUA's Office of Consumer Protection wrote Jordan declaring that Achieva's disclosures were "not clear and conspicuous — a violation of the Truth in Savings Act."
But that didn’t end his ordeal. The NCUA made no promise to enforce its ruling, and Achieva continued to refuse to honor the CD terms. That finally changed when the newspaper contacted the credit union. Achieva decided to reimburse him for the lost interest. However, Achieva officials still think the credit union did nothing wrong, even after the NCUA ruling.
I’m afraid this is a disturbing example of the risks of relying on CD terms. The institution can decide to use legalese to change the terms of the CD before maturity, and the customer will have an uphill battle to change the institution’s mind. We first saw an example of this with United Services Credit Union in North Carolina. It decided to renege on the add-on deposit feature of its special CDs (see blog post and comments). We have also seen a similar issue with early withdrawal penalties. Both Fort Knox Federal Credit Union and CEFCU chose not to honor the early withdrawal penalty on active CDs (see blog post).
It should be noted that many credit unions have acted honorably when they made changes to the terms of their CDs. When they made changes, they applied those changes only to new CDs or CDs that have matured. PenFed did this when it increased the early withdrawal penalty on 5-year CDs. Amplify Credit Union did this with its add-on CDs.
Even though most credit unions have acted honorably, we should be aware there are risks of a credit union reneging on the terms. The risk is probably higher for better deals. An unlimited add-on deposit feature can be a great deal, especially when rates stay low like they have been. Credit union officials may not realize how costly this can be for the credit union. Please keep this in mind for the add-on CD deals that are currently available.
Thanks to DA member Jeff who posted on this news in the forum.