|
 |
Home >> Accounts >> Certificates of Deposit
15 Year Interest Penalty - WOW!
I have a CD that automatically rolled over while I was in NY. I live in Florida and I purchased it with Washington Mutual in 2008, for thirteen months at 5%. When it came due I was in NY and it rolled for another thirteen months, but the rate changed to .20%. I went into the bank and asked about early withdrawals, and was told that the penalty was six months interest. I went back in six months and was told by the new bank, Chase, that the penalty was 3% of the principal. I am receiving $55.20 a year in interest for a $27,600. The penalty for withdrawing early is $853.00, which is 3% plus a $25.00 fee. Can a bank charge this much as a penalty? Isn't this considered usury? All my other banks have penalties of three, six, or twelve months interest, which I understand would be like not getting the interest at all, but this bank is charging the equivalent of a fifteen year interest penalty. Please let me know if this is possible. I cannot locate all the papers the new bank sent me when they took over my old bank, but I do have my original CD, stating that the penalty is six months interest. Please let me know what I should do.
|
|
 Banks are permitted to alter the terms of automatically-renewing certificate of deposit accounts provided they do so effective with a maturity (rollover) date. A new contract replaces the old one. To do so, the bank is required to provide its depositor a disclosure of the new terms at least ten days in advance of the maturity date (assuming there is a grace period after maturity during which funds can be withdrawn without penalty).
One of the provisions that can change with a new CD contract term is the penalty for early withdrawal. That penalty can be as little as seven day's interest on the amount withdrawn, and as large as any applicable state law might permit. State usury laws would not apply, because the bank is not lending money, it is actually borrowing it.
If you are unable to convince your new bank to reduce or waive its fee, see if borrowing from the bank against the CD for the remainder of its term would be a less expensive alternative. You can also look around for other CD rates to see if it would be worth it to pay the penalty and move your funds to a different institution.
Published on BankingQuestions.com 4/23/10
|
| |
|
Accounts
Article
Q&A
Podcast
Video
Blog
Discussions
PDF
Powerpoint
