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Does an online bank have a legal right to delay withdrawal?
Old 10-20-2008, 12:13 AM   #1
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Does an online bank have a legal right to delay withdrawal?

I have a number of online accounts and was planning to add more money in Dollar Direct since it is currently at 4%, when I just read this disturbing information in FatWallet

The clause I am quite concerned about is

Refusal to Permit Withdrawal
The Bank may refuse to permit withdrawals in cases such as, but not limited to, the following:
1. The Bank chooses to exercise its legal rights to require up to 60 days advance written notice of any intended withdrawal (!!!) from this Account and the 60 days have not passed since we received the required notice from you;

Unless I am reading this wrong, this clause has got to be ridiculous for an online bank, if the money is legally available for withdrawal, unless the bank was taken over by FDIC. Even if this clause is written down, is it even legal?

I will now need to read the fine print of my other online accounts. In today's financial uncertainty, we don't need to find that some fine print will delay withdrawal of our money.

Has anyone else read a similar clause on their bank's account disclosure?

Any comments would be appreciated.
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Old 10-20-2008, 01:27 AM   #2
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FDIC Regulation D says
Quote:
Banks must reserve the right to require at least seven days’ notice of a customer’s intent to withdraw funds from savings accounts, NOW accounts, and ATS accounts. Banks have the option of enforcing this notice requirement, and in practice it is rarely, if ever, enforced.
Looking around at other banks I see similar agreements, but I noticed that most of them use the Reg D wording of "not less than seven days." Not sure why Dollar Savings Direct's wording is different, but it seems to be in compliance.
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Old 10-20-2008, 02:25 AM   #3
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All banks have an obligation to protect your money against possible fraud or irregularities. I live in Indonesia, and my bank will frequently ask if I approved a certain transaction. All transactions are scanned scanned by computers to check if it fits your regular spending patterns.

I think it is boilerplate - nothing to panic about. Just make sure your account is insured by the FDIC.

PS, 4% is a pretty crappy return.
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Old 10-20-2008, 08:43 AM   #4
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I have not seen that wording, but recently changed the distribution of ready cash.

I started off a year or so ago moving about $10,000 at a time to my local credit union from my online brokerage money market for roughly 3 months of living expenses. I found the local CU was holding my funds for a week to 10 days which started being a problem when I didn't transfer soon enough. So I started bring down smaller amounts $2-4000 more often with no hold. With all the talk of banks closing and such I decided it could put a bind on us if our funds were frozen for a month or so. I now keep about 6 months worth of funds in the local CU and automatically transfer about a months worth of funds on the 1st of each month and will adjust a couple of times per year if either account gets out of balance to far. It was interesting when I transfered $20,000 down to make this change it went in with no hold.

I like my eggs in a couple of baskets these days. The fact that a 60 day freeze may be buried in the fine print makes my new method even better.

Jeb
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Old 10-20-2008, 01:58 PM   #5
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Quote:
Originally Posted by Hobo View Post
PS, 4% is a pretty crappy return.
Where exactly are you getting (or seeing) a significantly better return than this on FDIC insured savings? There are a lot of teaser rates from various banks out there on checking/savings accts that require "x" number of debit card transactions, etc. But those are mostly limited to pretty low balances and I don't know how long they'll last.

Do tell if you've got better intel!
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Old 10-20-2008, 02:03 PM   #6
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Quote:
Originally Posted by Hobo View Post
PS, 4% is a pretty crappy return.
Inquiring minds want to know...
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Old 10-20-2008, 04:01 PM   #7
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Quote:
Originally Posted by Jeb-NY View Post
...I started off a year or so ago moving about $10,000 at a time to my local credit union from my online brokerage money market for roughly 3 months of living expenses. I found the local CU was holding my funds for a week to 10 days which started being a problem when I didn't transfer soon enough. So I started bring down smaller amounts $2-4000 more often with no hold....Jeb
I'm pretty sure there are federal regulations now requiring banks to hold your funds for a long period of time if you transfer $5,000 or more.

The banks have no choice. So if you're transferring money to pay bills or get out cash to close on a property, etc., you need to allow more time. The 7-10 days sounds right, maybe the rule is 5 business days or something like that. Ask your bank - they can explain it to you.
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Old 10-20-2008, 04:09 PM   #8
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Quote:
Originally Posted by Jeb-NY View Post
I found the local CU was holding my funds for a week to 10 days which started being a problem when I didn't transfer soon enough.
I wouldn't have put up with that. Did you get an explanation from the CU? Banks can have reasonable holds on deposited items, but 7-10 days is ridiculous. They can do it legally, but I thought they were required to give you a written explanation for lengthy holds. I haven't had anyone put a hold on deposited funds in years, but when it happened in the past I found a little complaining usually got it canceled. It helps if you're a long time customer and have made the same/similar deposit in the past.

Edit to add this from the OCC:
Quote:
A friend says that her bank never places a hold on her deposited checks. My bank always puts a hold on my checks. Aren't all banks supposed to use the same availability schedule?

While all national banks are subject to the same maximum hold periods established by law, each bank may make deposits available sooner. A bank can make the deposit available immediately or delay availability up to the maximum. If you need funds from your deposit quickly, talk with the bank manager.
And this:
Quote:
Are there exceptions to the funds availability (hold) schedule?

Yes. The regulation provides six exceptions that allow banks to exceed the maximum hold periods in the availability schedules. The exceptions are considered safeguards against the risk associated with each. These are the exceptions:

* checks deposited to new accounts
* large deposits ($5,000 or more in checks)
* redeposited checks
* deposits made by check to accounts that are repeatedly overdrawn
* deposits of checks for which the bank doubts collectibility
* deposits made under certain emergency conditions

In the case of exceptions, the regulation provides that banks may extend the availability schedule by a reasonable period of time. Here are some examples:

* An extension of one business day for next-day availability items
* An extension of up to five business days for local checks
* An extension of up to six business days for non-local checks

Therefore, a local check that had an exception hold would generally have seventh business day availability. A nonlocal check that had an exception hold would generally have eleventh business day availability.
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Old 10-21-2008, 09:23 AM   #9
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Quote:
Originally Posted by Westernskies View Post
Inquiring minds want to know...
Sorry, I hadn't checked US banks recently... I see mine is in the same range (USAA Bank). I live in Indonesia and the banks here pay 8.5%. It's guaranteed by the government, and I know that is not as strong as the US government. I guess everybody has their won level of risk tolerance. We all know that 4% is barely keeping up with inflation - so the money is sleeping in these US accounts. Personally, I would rather take a little risk and make some money on my cash.

Since I actually live here and can read the news and witness the circumstances on the ground, I can sleep better than someone who is sending money overseas via FOREX.
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Old 10-21-2008, 10:16 AM   #10
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Quote:
Originally Posted by Leonidas View Post
I wouldn't have put up with that. Did you get an explanation from the CU? Banks can have reasonable holds on deposited items, but 7-10 days is ridiculous. They can do it legally, but I thought they were required to give you a written explanation for lengthy holds. I haven't had anyone put a hold on deposited funds in years, but when it happened in the past I found a little complaining usually got it canceled. It helps if you're a long time customer and have made the same/similar deposit in the past.

Edit to add this from the OCC: And this:
I did complain and they just said it was a rule for large transfers. They did release part of it after a week (maybe 5 business days). I have been with the CU for a long time, 20+ years, and use to keep fairly large amounts of money in my account in CDs, MM, and Checking but after I got tired of their interest rates falling way below what I could get in my online account, I spent it down and started only keeping a 3 month supply with them. That was probably the first large (by their definition) transfer I had made. Maybe they are use to my transactions now, so they didn't hold the $20,000 transfer.

At the time I stopped keeping a year+ of living expense money with them I could get more interest in my online MM that I could get from their CDs so it didn't make much sense. I got them to go up an extra .5% one time when I complained on a CD renewal since I was a "Long Time Customer" but it still was marginally better than my online MM.

Jeb
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