U.S. Bank fee hike puts CD investors on notice

Mason jar with pennies spilling out

A bank raising fees is hardly news, particularly if it’s a big bank.

But a recent fee hike by U.S. Bank stands outs.

Last month, the bank raised its annual fee for IRA accounts (including CDs) from $10 to $30. It also raised the deposit balance at which this fee is waived from $5,000 to $25,000.

And, according to myriad complaints voiced online by disgruntled customers, it’s applying these changes to existing IRA CDs.

Ordinarily, what U.S. Bank did would have escaped my attention. I no longer have accounts there. My IRAs are either at banks that don’t charge maintenance fees or that have waived them because of the size of my balances.

It doesn’t affect me -- right?

Well, lurking behind the fee increase is a disturbing trend that could negatively impact all investors, including yours truly.

U.S. Bank’s IRA fee tinkering is emblematic of just how focused banks are on earning money through the imposition of ever-increasing fees, rather than the traditional method of attracting deposits and lending them out at a slightly higher rate.

Current bank thinking treats fees as critical, even if they make deposit accounts financially unattractive to customers.

Prior to this change, a U.S. Bank depositor in California investing a maximum annual IRA contribution of $5,000 in a 1.15% APY 21-month IRA certificate of deposit could earn $57.50 the first year. Under the new regime, those earnings would be $27.50.

In other words, more than half the interest will go to paying for the "privilege" of earning an otherwise pathetic return. (The bank must consider this reasonable compensation for the "service" it provides.)

Imposing the new fee structure on outstanding CDs makes this all the more disturbing.

It appears an existing U.S. Bank customer with the same $5,000 IRA would be faced with paying the $30 maintenance fee or incurring $205 in a combination early-withdrawal penalty and an IRA closing fee.

This bank’s IRA certificates are now about as enticing as a package of ground round 30 days past its "sell by" date.

Slapping fees on existing accounts is serious business not only for U.S. Bank’s IRA customers but for investors everywhere.

I’ve previously written that standard deposit contract language seems to place no limits on a bank’s ability to change existing CD terms, including piling on fees.

The U.S. Bank fee change is a warning shot for investors.

We’re on notice.

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