Is It Legal What Some Of These Banks Are Charging For EWPS?

paoli2 | Mar 6, 2018 | 2,641 posts since 2011

I just got off of the phone with a local bank I bought CDs from years ago since they had a decent 5 year rate. When I asked what their early withdrawal penalty was it took so long for him to find it that I knew it was bad. But when he told me "what" it was I asked him if it was legal to have such a charge if someone had an emergency and needed the money back. In over 50 years of buying CDs I have NEVER heard of such a horrible charge. The one year's entire interest is bad enough but then you have to pay them 1% of whatever the amount is you loaned them and a certain amount of cash on top of that!!

People, all I can say is, don't buy a CD from ANY bank unless you get them to tell you exactly what their EWP is these days. Times have changed and now that rates are tweaking up a tiny bit, they are frying in oil, any saver who dares to try to cash in that CD early!! Well, they are crossed off of my list and can keep their CDs for those who are so desperate as to do business with them! I need a bigger mattrasse!

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Answers

buckeye61 | Mar 6, 2018 | 454 posts since 2011

I've been investing in CD's for over 25 years and have been fortunate enough to never have to break one for a financial emergency.....or to take advantage of a MUCH higher rate. Nevertheless, I don't feel comfortable with CD's from institutions that have punitive EWP's. Also, the interest spread on the highest yielding Online Savings Accounts is not much lower then the best CD rates(Of most terms), and now we are in a rising rate cycle....another reason to be cautious about locking into longer term CD's.

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david3 | Mar 6, 2018 | 9 posts since 2012

I don't understand why people get upset about the EWP. A CD is a contract that you agreed to "loan" the bank money for set period of time, and they agree to pay you based on that time.
If you had a fixed rate mortgage, and rates go up, and the bank then turned around and "called" the mortgage, people would be screaming holy hell. The bank/credit union has the right to set whatever EWP they choose, and the customer has the right to not do business with them if they don't like the terms.

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paoli2 | Mar 6, 2018 | 2,641 posts since 2011

I have very rarely in all the years I have bought CDs cashed one in early. Usually it's because I got a good interest rate and the interest was important to me. I was never one to place hop scotch with the banks just to get a bit higher rate. Like you posted, I felt I had made a "contract" with the institution which we both were supposed to fulfil. However, for so many years now savers have been ripped off with these paltry 1% rates that I think many of them play the switching game with the banks and now we all are being put into the fire to make sure "if" we try it, we will pay dearly.

As you stated, we do have the option to not do business with those banks who are being so unreasonable imo. My post was mainly to warn those who may be unaware that things have changed drastically with CDs and they need to know what the EWPs since a legitimate emergency can occur in anyone's life.

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RJM_Willy12 | Mar 6, 2018 | 149 posts since 2016

A well run bank can easily hedge interest rate risks, in case rising rates lead customers to terminate CDs.

An early termination penalty should cover that hedging cost. It is much easier and cheaper for a bank to hedge it than consumers.

No one is doing any favors, it is a business relationship. Understanding the business and the relationship helps.

And David is a bit incorrect. There are federal regulations on early withdrawal penalties, but they impose government required minimums.

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david3 | Mar 7, 2018 | 9 posts since 2012

You are correct, and my post should have stated banks/CU's can set whatever terms the like within federal regulations.
I may be wrong, but I believe the only regulation is that there must be a penalty if the deposit is withdrawn with 6 days of deposit

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buckeye61 | Mar 6, 2018 | 454 posts since 2011

"the customer has the right to not do business with them if they don't like the terms". Bingo! I'm not suggesting that any Bank is morally and/or legally wrong to charge a high EWP, but the fact that other Banks offer more favorable terms makes it easier for a customer to vote with their feet.

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