Topic: Certificates of Deposit (CDs)
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Do we have to report abandoned certificates of deposit to the State Treasurer? If so, when should they be reported?
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Yes, certificates of deposit (CDs) must be reported to the State Treasurer once they are deemed abandoned. Subsection 2(c) of the Uniform Disposition of Unclaimed Property Act [Repealed effective 1/1/18] covers “[a]ny sum payable on checks or on written instruments on which a banking or financial organization or business association is directly liable including, by…
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One of our customers died, leaving one CD held in joint tenancy and one CD with a payable on death beneficiary. The joint tenant and POD beneficiary want us to pay the CD funds out to a family business instead of paying the beneficiaries directly. Is that permissible?
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We believe that it would be a best practice to pay the certificate of deposit (CD) funds directly to the beneficiaries of the accounts, instead of distributing the funds to a business entity that is not a beneficiary or owner of the accounts. Distributing CD funds directly to the account beneficiaries will create a clean…
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To encourage customers to renew their CDs, we would like to offer some customers a CD that will not impose a withdrawal penalty on one withdrawal during the CD’s term. Do you see any compliance issues?
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We do not see any problem with offering a CD with the option to withdraw one time without a penalty, provided that it would not be an option until six days have passed since opening the account (which would ensure that it fits under the definition of “time deposit” under Regulation D, 12 CFR 204.2(c)).…
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If a certificate of deposit has matured, but the customer has not decided whether to renew, do we have any obligations as to the account?
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We are not aware of any obligations that the bank has as to the matured CDs. If the customer has not chosen to renew, and the original agreement did not provide for automatic renewals, then the bank has no obligation to renew or pay interest on the deposits. Note that under Regulation D, the bank…
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Are you aware of any term limits associated with public fund certificates of deposit (CDs)?
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We are not aware of any term limits under Illinois law, but the answer may depend on the individual public agency’s investment policy. As we have discussed, there are no Illinois rules or regulations adopted at the state level that are directly on point regarding the investment policies and collateral requirements of local government units.…
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Does a certificate of deposit (CD) that automatically renews ever become dormant or abandoned?
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Yes. Under the Uniform Disposition of Unclaimed Property Act [Repealed effective 1/1/18] (and the regulations promulgated under that law), any certificate of deposit accounts would not be presumed abandoned until five years after the maturity date of the first renewal or rollover of the account. For example, if a customer opens a five-year certificate of deposit…
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Are there any caps on the penalties we can charge on certificates of deposit (CDs)?
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Regulation D sets a minimum withdrawal penalty for accounts that can be considered “time deposits” for reserve requirement purposes: “A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days’ simple interest on amounts withdrawn within six days after each partial withdrawal.” 12 CFR 204.2(c)(1)(i).…
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If a customer chooses to open an “interest bearing time deposit” account in lieu of an escrow account, does that have to be a certificate of deposit or could it be a regular savings account (without any premature withdrawal penalties)?
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The Act does not define the term “interest bearing time deposit.” Therefore, we must interpret the term by its plain language, keeping in mind that the purpose of that section is to allow borrowers to benefit from the interest earned on the money held for payment of taxes. Stern v. Norwest Mortgage, Inc., 179 Ill.2d…
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Does Illinois have a statute of limitation for enforcing certificates of deposit?
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Illinois has retained the UCC limitations period. UCC Section 3-118, subsection (e), states: An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within 6 years after demand for payment is made to the maker, but if the instrument states a due date and the…
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If a predecessor bank offered CDs on terms that we do not offer, how should we notify customers of the change?
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We believe that a change in terms notice would be required to inform customers that they will be losing the deposit option after the next automatic renewal. Specific rules in Regulation DD address change in terms notices for time accounts that renew automatically and that have a term of one year or less (but more…