A Certificate of Deposit (CD) is a savings account with a fixed deposit amount and interest rate when the account is opened, and a set length of time to maturity. In most cases, the longer the period of time (term) of the CD, the higher the annual percentage yield (APY) will be on the deposit. Owen County State Bank currently offers several different lengths of maturity ranging from the short term of three months to a long term of five years. CDs of one year or longer can be opened for a minimum deposit of $500, and shorter terms require a $1,000 opening deposit. A CD may be opened for any amount over the minimum. A single CD of $25,000 or more in any given term may pay an even higher rate of interest. Special term and rate CDs may also be available. Certificates also qualify as investments in an IRA plan.
At Maturity
Most of our CDs are automatically renewable, which means that at the end of the term the payee will receive notice from the bank that the deposit will renew for another like term. The new interest rate is quoted in the renewal notice. From that date of maturity, the owner has 10 calendar days to make any desired changes in the CD such as changing the amount, term, payee, or cashing without penalty. If no changes are desired, the CD will automatically renew for the same term at the new rate.
Payee
The ownership of a CD, which is the person or persons who may close or make changes to the account, is determined by the person(s) opening the account, and is written on the payee line of the CD. Interest income is reported to the IRS under the taxpayer identification number (social security number) of the first name listed as payee. Payees may designate payable on death (POD) to other persons whom they wish as beneficiaries after the death of all payees. After the death of any payee, the CD may be cashed without an interest penalty.
Interest Penalty
The loss of interest on a CD, because of cashing in prior to the maturity date, is a factor to be considered when choosing the term of the CD. Interest penalties are set by individual financial institutions and may vary from one institution to another. Owen County State Bank penalties for early withdrawal are determined by the CD term. CDs of one year or less are penalized with three month's interest forfeiture. CDs with terms longer than one year forfeit six month's interest when cashed in before the maturity date. It is possible to make a partial withdrawal before maturity and the interest penalty is only applicable to the amount withdrawn.
Interest
Interest may be automatically deposited into any checking or savings account monthly, quarterly or at maturity on CDs with terms of 3 months or more. Quarterly compounding of interest, where interest earned is added to the balance of the CD, is also available on CDs with a term of 6 months or longer. Compounding of interest will result in a higher APY and more total interest earned during the term of the CD.
Use as Collateral
An Owen County State Bank CD may be pledged as collateral on a loan. If the loan does not exceed the CD balance, the loan rate will be set at 1.5% over the CD rate (2.0% when interest is compounded) with a minimum loan rate of 3.0% annual percentage rate (APR) (subject to change). The CD is held by the bank in the loan file while the loan is active, but interest is paid or compounded as usual.
Insured for Safety
Each depositor's funds are insured by the Federal Deposit Insurance Corporation (FDIC). A depositor may be insured on all accounts owned individually for a total of $250,000. A depositor may also be insured for an additional $250,000 on accounts held jointly with other persons or where Payees on Death are named. All self-directed retirement accounts (IRAs) owned by the same person in the same FDIC-insured bank are added together and the total is insured up to $250,000, separate and in addition to other accounts. Please see a customer service representative for additional FDIC coverage information.