I recently ran across a rather disconcerting bit of news about a credit union that changed the terms of their existing CDs. The institution in question is Fort Knox Credit Union, which is based out of Radcliff, KY.
In short, they’ve decided to increase the early withdrawal penalty on all 24 month and longer CDs from 90 days to a full six months. They claim to be able to do this because they’ve reserved the right (in their membership agreement) to make such changes with 30 days notice.
The big concern here is that an increase in the early withdrawal penalty effectively reduces your interest rate if you break your CD early. While I don’t own any Fort Knox Credit Union CDs, I do own some five year CDs from Ally Bank that have a low (60 day) penalty, which means I can easily break them early if rates rise.
Fortunately, Ally has assured customers that they’ll honor the existing penalties at least until their CDs mature. Rather, if they were to make a change, it would be with 30 days notice, and it would only apply to new CDs. Nonetheless, this is just one more thing to keep in mind when comparing CD rates across banks.