 | Newton Male
is Chairman of the Board of Prairie State Bank of Augusta, KS, with 12 branches in the Wichita area, a position he has held since 1983. He also currently serves as a Director for Western National Bank of Lenexa, KS and the First National Bank of Medicine Lodge, KS and Overland Park, KS. Previous positions held include two terms as Kansas State Bank Commissioner, President of Prairie State Bank, and Assistant Examiner for FDIC. Professional and community involvement comes second nature to Newton. Currently he is on Federal Affairs Committee of the Kansas Bankers Association, Director of Augusta Progress, Inc., and a member of the Augusta Historical Society and the Augusta Chamber of Commerce. In the past he has been very active with the Wichita Area Girl Scouts, Augusta School Board, Mayor of Augusta, Kansas House of Representatives, various positions with the Kansas Bankers Association, American Bankers Association, Butler County Community College Endowment Association, as well as Director positions with several other area banks. Newton has also done extensive work in Russia teaching Russian bankers how to deal with their banking crisis. This endeavor was sanctioned and performed in tandem with the Financial Services Volunteer Corps of New York and the US Agency for International Development. Newton can be contacted at the Prairie State Bank, 512 State Street, Augusta, KS 67010, by phone at (316) 775-5434, by fax at (316) 775-1790, or by e-mail at nmale@prairiestatebank.co |
Banking & Finance
2002-03-01 16:32:00
What are the rules for paying interest on CDs?
Question: My uncle died in September of 2000. I was named Executor of his estate. Now it is 2002. I just became aware of a CD he had with a bank in another state. The CD matured in August of 2001. The Bank told me that they were going to pay a substantially lower amount of interest on the funds than what the CD was earning since the maturity date as the CD was not renewed. Is this proper? Do all banks do this?
Answer: The scenario that is posed is a classic example of why people need safe deposit boxes. If your uncle had placed his valuables in such a box and you had known about it, you would not have been taken by surprise months later to learn of the existence of this certificate of deposit.It is surprising the bank issuing the certificate did not attempt to notify their depositor and, finding him deceased, get in touch with you, the executor. But, taking the facts as you have given them and realizing the bank and you had no communications until recently, we will try to answer your question.Your situation raises all kinds of issues, such as…if your uncle died in September, 2000, is the estate still open? The fact the bank told you they were going to pay a substantially lower amount of interest on your uncle's certificate of deposit (than what it had formerly been earning), indicates to this writer they are trying to be fair. They are under no legal obligation to pay any interest. However, most banks would not stand on this legal ground if they were doing their best to help people and gain the trust of their customers. More than likely, the lower amount of interest on the funds could have been caused by a rapid drop in the certificate of deposit interest rates. A 12-month certificate of deposit, issued about a year ago at 5.75% or 6.00%, would now be drawing less than 3.00%. It is possible the bank is not penalizing you, but instead merely paying their current rate on the certificate of deposit. One would think the bank would be willing to pay you a reasonable amount since August, 2001, which in this writer's opinion would have been the then current rate of interest. They have had the use of the funds, hopefully loaned the money at the prime rate or higher, or invested in Federal funds or U.S. Treasury obligations at somewhere just under 2.00%Most banks issue certificates of deposit that are automatically renewable. In other words, if a certificate of deposit is a one-year certificate, it will be automatically renewed and continue for one year increments (that is, if the bank hears nothing from the depositor). Had your uncle invested in an automatically renewable certificate of deposit, your current problem would not exist. The rate of interest normally paid on the automatic renewal of a certificate of deposit is the prevailing rate at the maturity date. In August, 2001, on a 1-year certificate of deposit this would have been approximately 4.15%. This process could go on indefinitely. However, with the single maturity on your uncle's certificate of deposit, interest would have legally ceased. In your case, the bank is willing to pay some interest.Is this proper banking procedure and do most banks do this? Yes. However, getting back to your question… if, in fact, your uncle's bank is penalizing you, they could justifiably lose your business. But, if the amount the bank is offering reflects rapidly dropping interest rates, you have no reasonable complaint.
