By timestaff
January 7, 2008

Question: My husband and I had a six-month CD with Countrywide Bank at a great 5.55 percent. News of the company’s subprime troubles concerned us, so when the CD matured in September (value: $37,745), we decided to cash it in. We mailed the form during the 10-day grace period and waited. No check. Upon calling, we were told that the bank hadn’t gotten the form and that the funds had been rolled over into another CD. We faxed another request and got our money – minus a $396 penalty! We didn’t do anything wrong. Can you help? -Barb Foster, Fairfield, Calif.

Answer: Losing half the interest you made may seem extreme, but Countrywide isn’t alone in imposing harsh penalties for early withdrawals. Banks set terms on CDs because they use the deposits to fund loans and want to ensure that they’ll have money at their disposal. On average you’ll lose three to six months’ interest if you take the money out before the term is up, according to Bankrate.com.

And you can get hit even if you didn’t intend to withdraw early: When a CD matures, most institutions give a narrow 30-day window – plus a short grace period – to cash it in or roll it over. Many depositors wait until the deadline to see what the new rate will be. If there’s any missed communication, you end up literally paying the price.

On our request, Countrywide gave you the benefit of the doubt and refunded the penalty plus forfeited interest, a total of $508. Next time you cash in a CD during the grace period, send the request by registered mail so you have proof of the date submitted.

An even better option: Spread out your money among CDs of maturities from three months to one year, and roll each one over as it matures. That way you’ll get an average rate close to the six-month rate and always have cash on hand should you need it.

One final note: You didn’t have to worry about losing your money because of the subprime mess. Countrywide Bank, a sister of the troubled Countrywide Mortgage, is FDIC insured, so funds up to $100,000 in an account ($250,000 in an IRA) are guaranteed if it goes belly up. Countrywide continues to offer high rates – 5.4 percent on a six-month CD of $10,000 – and it can do so because it doesn’t have tellers and therefore has less overhead than traditional banks.

So far Money Helps has saved readers $187,929.03

Having a financial nightmare? E-mail Donna Rosato at money_helps@moneymail.com.

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