Ad-On CD EWP Rules/Calculations

Zemo999 | Feb 1, 2019 | 103 posts since 2017

I wonder if folks can help me with this:

I've come across some relatively long-term ad-on CD offers. What I've done is open them with a very small minimum funding, which is irrelevant. But by opening them, given that one can add funds anytime, what I've really done is create more options for myself: They terms of 40 months and 60 months. I figure that, depending on how interest rates change in the coming months/years, I could plow significant money into them if rates looked to be on a downward trend. However, I'm wondering how banks/crus determine the EWP, if rates skyrocket and it makes sense to terminate the cd early.

I just spoke with Navy Federal, who has a very liberal policy - Even if you opened the cd with $100, and then in the 2nd year added $100k, and then some time later terminated the cd early, they'd only take the first six months of interest as the EWP.

Do people know if this is standard, or whether banks/crus maximize the EWP in their favor? (Such as calculating it on what 180 days of interest would be on the highest balance, regardless of when that balance was in the acct.)

Thank is advance for any replies.

4

Answers

paoli2 | Feb 2, 2019 | 2,641 posts since 2011

Trying to understand what the EWPs are for any institution is like playing Russian Roulette. You can call one day and be told one thing by an agent and the next something different. I use Navy Federal a lot because they will just tell you they have a 6 month penalty. However one has to read the Disclosure to try to understand how it works. The secret is with Navy always underline the part about "the lesser of the two" is what you have to pay and make sure the agent understands what that means if you ever have to close out a Navy CD. I have some maturing this year and I have never had to do an EWP with them so I can't speak from experience. I do know Navy has always been very cooperative with me for any concerns I have had.

I have had certain institutions tell me the 6 months EWP is on the entire amount of the CD and not just on what is withdrawn. I never use such institutions. If you are ever unsure, ask for a Supervisor to explain it to you and get their name.

3

AnnO | Feb 2, 2019 | 129 posts since 2018

I would be very surprised if that is standard/common. If that is indeed how Navy FCU's policy works, that is amazingly generous. I suspect the more common scenario is to base the EWP on the balance at the time you withdraw, regardless of how long that much money has been in the CD.

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Zemo999 | Feb 2, 2019 | 103 posts since 2017

Thanks for your reply.

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Sylvia | Feb 2, 2019 | 389 posts since 2012

That’s an interesting question since deposits can occur throughout term. To answer it, I took a look at two add-on CDs of mine, one that closed a few months ago (A) and another that’s still active (B), each from different CUs. They represent my most recent experience with add-on's that are not from Navy Federal. From their disclosures, for terms of at least 2 years:

(A) “ … the penalty will be equal to the lesser of 366 days of dividends on the amount withdrawn or all dividends on the amount withdrawn since the date of issuance or renewal.”

(B) “The penalty applies to the amount withdrawn each time a withdrawal is made … 180 days of dividends for account with terms greater than 12 months.”

In both cases, penalty is fixed # of days of dividends on amount withdrawn. In (B), it sounds like penalty could potentially exceed dividends earned and eat into principal.

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Ally6770 | Feb 2, 2019 | 4,294 posts since 2010

I find Navy great to work with. I only have IRA's but they are very generous with their rules. The CSR's also are very informed. I have never been misled by them in all the years I have dealt with them.

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