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  4. Are Early Withdrawal Penalties The New Way To Punish Savers?

Are Early Withdrawal Penalties The New Way To Punish Savers?

paoli2
  |     |   2,641 posts since 2011

I was looking for a bank or credit union locally this week for just a paltry 2% interest rate and seemed to be hitting the wall! Finally yesterday I started recalling the same institutions and they had gotten their new rates in and they had gone UP! Not by much but at least they were 2% for a 5 year CD! However, when I spoke to a banker on the phone I found out their notices allowed them to tweak up the rate but also change the EWP to a much higher penalty to make sure we couldn't afford to cash out if need be. The going EWP is now 3% of whatever one needs and on a $25,000 or more CD that can be hefty. I asked what happened to their regular 6 month penalty and they all said headquarters had informed them that if rates went up (no matter how small), penalties also had to go higher. Many already had penalties of 365 days and longer! I just said a quick goodbye to those!

The few local 6 month EWPs I did find now are attaching a certain dollar amount (ex. "$50.00 plus 6 months interest penalty),

Seems savers can't win these days. Their internet spots still show the 6 months but they claim anyone opening a CD has to take their latest EWP if a withdrawal is necessary. They are protected by their claim they can change interest rates at any time. That seems to go for EWPs too. I know I can do better with certain checking accounts but I am not up to fooling with them and the way they work. I just held my nose and opened up two stinky 5 year CDs at a rate which is worse than any so far. My problem is that I know I can do better if I go out of my town or state (I do scrutinize Ken's listings ) but if something happens to me, my family has begged me to keep everything in town so they won't have to go through fits contacting all the places I can still find best rates at.

That means bringing in less interest on CDs. So just take this as a warning that I think savers will be facing even higher EWPs if rates do go up even a bit. I would appreciate it so much if Ken could make it a practice of including the latest EWPS with bank info. It changes so quickly we would still have to recheck tho.

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Bozo
  |     |   1,375 posts since 2011
Paoli2, expect EWPs to get even more onerous in a rising-rate environment. Banks know what you, I, and DA readers know: rates are probably going up in 2018. Banks and CUs want to lock you in at today's rates. The only solution I have found is to keep terms short. When I can get roughly 2% for a 12-month CD and 2.4% for a 5-year CD, it's a no-brainer. I'll go with the 12-month CD any day of the week.
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Ally6770
  |     |   4,294 posts since 2010
CD's and IRA's that I had set up for my husband were all out of state except for one. Before he died (as POA) I had changed the beneficiary from myself to the children's names. They were already on the IRA's as contingent beneficiaries. Ironically the one local credit union was the only one that gave us trouble when I disclaimed his traditional IRA's, took his RMD and did a conversion. I had to call NCUA and they got them on the right track but they did give the paperwork to Ascensus to finish. They were also a pain. I had to write a letter to state I would be responsible for what I was doing. This was after I forwarded a letter from IRS, NCUA and our lawyer stating what I was doing was legal.
From all the other credit unions and one bank the boys were mailed the paperwork, (they called from my home and all of us were on 3 of the 4 phones I have throughout the house and they signed the papers and they were able to continue the high interest IRA's CD's until they matured after they split them between the boys. They also kept the CD's and the credit unions split them up and put them in their own names for the duration of the remaining period.There were no early withdrawal penalties on any of them. 
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