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April 25, 2016

Early Withdrawal Penalties Reach New High (or Low)

Filed under: Finance — Edgar (aka MrConsumer) @ 5:47 am

Dave S. recently wrote to Mouse Print* about an eye-opening notice he received from Wings Financial Credit Union when his certificate of deposit matured. It announced a change in their early withdrawal penalties.



Unbelievably, the credit union will now charge two-years-worth of interest on any CD over a year if you withdraw money early. In other words, if you opened one of their 26-month CDs with $25,000 paying 1.00% interest, and decide three months after opening the account that you need the money for another purpose, they will confiscate the interest you’ve already earned and put it toward a total charge of $500 in penalties! You will actually lose principal.

Mouse Print* contacted Wings Financial to question the severity of their new penalties. A customer service representative replied:

…we have had many members express the same frustration. We are awaiting Board approval to reduce the penalty…

This credit union is not alone in jacking up early withdrawal penalties. Gone are the days of the simple three months loss of interest for early withdrawals. Even MrConsumer’s own credit union is clamping down.


USAlliance terms

Here, the penalty is only a year of interest. How generous of them.

We’ve always thought of credit unions as being very member-driven, and offering better rates and terms than the big banks. That apparently is not always the case.

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  1. Your article prompted me to see if Capital One 360 online bank had changed policy:
    CD’s up to 12 mos. lose 3 mos interest. Those greater than a year (and up to their 60 mo. maximum) lose 6 months, with the caveat that some principle may be taken if not enough interest has accrued. Still sounds reasonable to me. Maybe those Debit Unions will alter their reputations if this expands.

    Comment by Marty — April 25, 2016 @ 8:02 am
  2. banks have to make money somehow…

    Comment by richard — April 25, 2016 @ 12:48 pm
  3. When we had to cash out a CD early because I had to have emergency surgery (no health insurance at that time) we weren’t penalized at all because it was for a medical emergency. i love our bank (1st Source)

    Comment by Anna — April 25, 2016 @ 3:21 pm
  4. I’ve never experienced this issue because I never owned a CD, but I will surely be careful if I do decide to invest in one.

    I always thought that CDs were loans to the bank so that the bank could borrow money to pay interest on, I had no idea that penalties for allowing the bank to borrow money were so great.

    Comment by Wayne R — April 25, 2016 @ 8:24 pm
  5. Back in 1980, I worked for a bank that would not allow any premature withdrawals at all. This was during the time that interest rates were increasing almost daily and people wanted to chase the highest rate.

    Comment by Bill — April 28, 2016 @ 11:04 am
  6. Do people really put $25k into a CD getting 1% interest? Put the money instead into a number of dividend champions and get (nearly) guaranteed 2-3% dividends with the possibility of capital gains. Sure there is the possibility of capital losses, but that’s rather slim over any 2+ year period and likely to be offset by the dividends.

    Comment by Tim — April 28, 2016 @ 12:26 pm
  7. @Tim

    As opposed to the incredible (sarcasm) rate provided by banks of 0.01%. Yes, way way less than 1% on the CD.

    Comment by bobl — April 28, 2016 @ 2:32 pm
  8. Capital one pays .75% on a savings acct and you can take any amount any time no penalties.
    I think AAA bank pays 1% and again put money in or take it out no fees.
    It makes no sense to put money in Cd’s right now.

    Sadly even the credit unions have become like banks with all the fees.

    Check out bankrate.com and you can see all the rates and terms.

    Comment by Tom — May 1, 2016 @ 6:54 pm
  9. It just means the old adage of buyer beware always applies. You have to check the fine prints for every transaction with any company, even credit unions. I think it’s crazy that penalties on CDs should be allowed to eat into the principal. I hope MrConsumer reports this to the CFPB. Doesn’t sound right.

    Comment by Tundey — May 14, 2016 @ 7:57 am
  10. @Tim: I think the point of a CD is to avoid the possibility of capital loss. But with fine prints like these one might have to rethink that.

    Comment by Tundey — May 14, 2016 @ 7:58 am

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