bank rates

The Truth About Truth In Savings

In this rate environment, early withdrawal penalties don't matter.Recently, before opening a 5-year, 2.00% APY CD at BBVA Compass, I asked the branch representative for the Truth in Savings disclosures.

“Not that it’ll make any difference,” I added.

Did I really say this? Do I no longer care about the fine print?

In truth, I peruse TIS disclosures primarily because, as a former lawyer, I’d feel silly if I didn’t.

But it’s also the case that, once I know the rate and term, it’s unlikely those disclosures will change my mind.

I always confirm, by reading the TIS document, that interest is payable and withdrawable at least quarterly.

But few institutions bottle up CD interest. (Barclays Bank’s online CDs are an exception, permitting interest disbursements only at maturity.)

I also like to see language stating my funds can be withdrawn, without penalty, upon my death, at least where the law requires.

This supports the fiction that my CDs are worth face value, notwithstanding plunging interest rates.

Again, most institutions have this feature. (BBVA’s language is somewhat squishy on this detail; I’m OK with it, though.)

But I care little about what many consider crucial in a low-rate environment — optional early principal withdrawal rights and penalties.

First, paltry CD rates make standard early withdrawal penalties (like six or 12 months’ interest) a mere slap on the wrist.

And even if an institution prohibits me from withdrawing early without its permission (as BBVA does), or imposes a prohibitive penalty for doing so, I’m normally not deterred.

After all, I’m essentially contracting to lend money to it, and getting interest in return, so I shouldn’t expect to have the right to willy-nilly “put” my CD back if I have the notion.

Besides, I try to hedge my bets by balancing longer-term and shorter-term CDs to maintain a satisfactory overall yield over a forward three-year period (sort of free-form “laddering”).

This, however, can be tricky — and requires some luck.

For example, at the time I established my BBVA 5-year CD, I opened a CIT Bank 2-year Achiever CD at 1.25% APY (subject to step-up), so my blended APY for the same balance in both is 1.625% for the next 24 months.

Not ideal, but I’m fine with it.

Plus, CIT permits me to add money once, so I can extend my hedge to offset a future longer-term CD.

Perhaps most important, I don’t open CDs having terms greater than five years.

But, sadly, that’s getting harder and harder to do.

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