Bank of America drastically raises fee for early withdrawal from CD

Published 5:00 am Friday, May 6, 2011

It seems as if every time you turn around, banks find a new way to stick it to you.

The latest example comes from Bank of America, which has significantly toughened the penalty for early withdrawals from a certificate of deposit.

In the past, Bank of America would charge 90 days’ worth of interest for early withdrawals from a CD good for 12 months or less. In other words, a $10,000, 12-month CD with an annual yield of 0.3 percent would entail an early withdrawal penalty of about $7 if you took out the entire amount.

Now Bank of America is charging a flat $25 plus 1 percent of the amount withdrawn for CDs with terms under 12 months, and 3 percent for longer terms.

That means the early withdrawal penalty for that same $10,000, 12-month CD now runs $125 — a nearly 1,700 percent increase. The penalty for a five-year, $10,000 CD is $325 — a roughly 1,600 percent increase.

Gregg McNelly discovered this the other day when he went to a Bank of America branch to ask about the consequences of withdrawing a $10,000 CD to help cope with some medical expenses. The teller explained the new penalties, which took effect in February.

“My jaw dropped when I heard how much it would cost,” said McNelly, 54, of Los Angeles’ Westchester neighborhood. “I couldn’t believe it. I wouldn’t just be losing interest. I’d be losing principal.”

The bank’s new CD policy is part of an ongoing trend throughout the banking industry to milk profit from additional sources amid a crackdown on what lawmakers say were unfair credit card and checking account practices.

Banks are scrambling to make up for lost revenue they could once count on from high interest rates, late fees and overdraft charges.

Don Vecchiarello, a Bank of America spokesman, said the new early withdrawal policy for CDs was intended to simplify things for customers. Many people, he said, had trouble calculating a penalty of 90 days’ interest from an annual percentage yield.

Vecchiarello also said the bank wanted to implement a consistent policy nationwide and, most importantly, to discourage customers from making early withdrawals.

“A CD is a contract between a bank and a customer,” he said. “If the contract is broken by an early withdrawal, the bank needs to replace those funds. There’s a cost to that.”