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#1974376 - 11/05/14 05:31 PM 13-month CD special, renew at 12-month rate or 24?
Big Blue Banker Offline
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Big Blue Banker
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We offer 12-month and 24-month CDs. If we were to offer a 13-month special, when it renews, can it be renewed at the 12-month rate since that's closest to it? Can we move the term to 12-month or does it have to stay at 13-month?

Any reg citations would be a great help!

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#1974406 - 11/05/14 06:26 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Milby Offline
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Tejas
I've typically seen renewal disclosures state a range of terms with their rates...
12-23 months: 1.00% APY
24-35 months: 1.10% APY
etc.

If you do that for yours (and I would bet that your system is set up this way) then the system will auto-renew with the 12-23 month rate with a 13-month term.

Or, if you created a brand new product code for your 13-month CD, just maintain a new rate on your core and make it whatever you want it to be - you don't have to use either rate as long as you disclose what the renewal rate to the customer in pre-renewal required notices.

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#1974492 - 11/05/14 08:16 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Big Blue Banker Offline
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Our CD renewal notice states, "This certificate of deposit automatically renews at the best available rate of interest as posted by ____ bank for similarly issued certificates of like term."

If we no longer offer a 13-month CD, then the most "similarly issued certificate" is the 12-month CD. Does anyone see an problem renewing at the 12-month term with the 12-month rate?

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#1974501 - 11/05/14 08:25 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
rlcarey Online
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rlcarey
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Galveston, TX
You can renew it into anything your original contract allows as long as the renewal notice makes the proper TISA disclosures.
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#1974580 - 11/05/14 10:12 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Milby Offline
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Tejas
I think I would just state in the TISA that it will renew as a 12-month CD. "Similarly issued certificate of like term" sounds weird to me.

For what it's worth, years ago we had promo CDs with funky terms (15 month CD at 1.50% comes to mind) that when they matured they stayed at 15-months but the rate dropped to the then-current Savings/Money Market rate. Most people converted to a different term for a higher rate, but we also got to keep a lot of $$ at a MMDA rate. In another case, we had a 7-day CD (CRAZY!) that we dropped to .01% APY... we figured if they were fine with .01% we were fine with the insane amount of mailing we had to do.

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#1974733 - 11/06/14 03:32 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
StevenD Offline
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StevenD
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KY
The "similarly issued certificate" language applies to Kentucky banks and comes from KRS 367.393.

This requirement has been around for 10 years.

Edited to add
Here is the text.
http://www.lrc.ky.gov/Statutes/statute.aspx?id=34950
Last edited by StevenD; 11/06/14 03:37 PM.
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#1974897 - 11/06/14 07:51 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Big Blue Banker Offline
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Big Blue Banker
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Thanks StevenD! So, our verbiage on the renewal states, "A 'CD Special' will renew for the exact term originally purchased. If the original maturity term of the CD is one year or less, it will renew at the current interest rate for the one year CD. If the original maturity term of the CD is more than one year, it will renew at the current interest rate for the next highest maturity term unless the original term is disclosed on the rate sheet."

So, if we run a 13-month special, the next highest maturity term is 24-months, but of course we don't want to renew a 13-month CD at the 24-month rate. Saying something like it will renew at the "closest" maturity term seems dangerous. Any thoughts on how to word the disclosure so that the 13-month CD Special can be renewed for 13 months at the 12 month rate? These disclosures are used for all CDs, so I would prefer not to get specific...but we may have to. Thoughts?

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#1974906 - 11/06/14 08:18 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Milby Offline
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Tejas
What is your Deposit Origination System / new account platform?

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#1975293 - 11/07/14 07:57 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
rlcarey Online
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rlcarey
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Galveston, TX
A financial institution that issues a certificate of deposit that is subject to automatic renewal at maturity shall, upon automatic renewal, renew the certificate of deposit for a like term...........

Sounds to me that if you offer a 13 month CD - renewing it for anything other than 13 months is a violation of KY law.

If you are going to have 13 month CDs - then just set a price for them. It could be the same price as your 12 month product.
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#1989779 - 01/20/15 08:34 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Megan R Offline
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Our 13-month CDs renew at the same term. I'm not following why you would need a "go-to" term.

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#1989915 - 01/21/15 02:12 PM Re: 13-month CD special, renew at 12-month rate or 24? Big Blue Banker
Andy_Z Offline
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I understand the need to comply with state laws, but "best available rate" and the best terms for a depositor depends on that depositors circumstances. It would seem to be less painful to have consistent terms and if a special is offered, an exit strategy as the deposits mature. No sense in making it hard for the bank.
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