System and method facilitating competitive advantage in issuing financial paper

Abstract

Financial instruments, particularly time certificates of deposit issued primarily by banks in the form of a contract between the depositor and the financial depository to typically pay an fixed interest rate for a fixed period of time at which redemption may occur. In the U.S. these contracts are required by Truth in Savings Regulation DD to state at the time of account opening the penalty for early withdrawal. These penalties can not be revised by the depository prior to maturity. The penalty for early withdrawal is the deterrent to allowing depositors to take advantage of subsequent enhanced investment opportunities during the term of the instrument. The withdrawal penalty is usually stated as a number of days/months of lost interest. In certain interest rate environments, this penalty may be Insufficient to discourage depositors from redeeming their deposit despite the penalty. At present, if a depositor does redeem, they must purchase a new CD for a fixed term which will tend to lengthen the term of deposit. The present invention overcomes this handicap by formulating a shorter term CD to make up the remainder of the term of the original CD.

1 . A method of re-issuing CDs by: 
 a. Determining the total current account value of a first CD as of a predetermined date    b. Determining the contractual penalty for early withdrawal on said predetermined date;    c. Calculating the net accrued value of the first CD on the predetermined calculation day by determining its accrued value and subtracting the penalty from said value;    d. Creating a customized second CD, using the net accrued value as initial investment, having an expiration date generally equal to the expiration of the first CD and an interest rate which will yield more than the unaccrued value of the first CD even accounting for the early withdrawal penalty of the first CD; and    e. Issuing said second CD to the owner of the first CD using said initial investment.    
     
     
         2 . The method of claim when wherein; 
 said second CD has an interest rate above the prevailing market rate for CDs and has a penalty for early withdrawal which is more punitive than the penalty of the first CD, so that the holder of the second CD will be less likely to seek to re-issue the second CD if interest rates increase.    
     
     
         3 . The method of  claim 1  wherein the purchaser of the second CD may select from a plurality of early withdrawal penalties.  
     
     
         4 . The method of  claim 1  wherein said maturity date of said second CD is exactly equal to said first CD's original expiration date.  
     
     
         5 . The method of  claim 1  further including the step of permitting the purchaser of the second CD to alter the initial investment amount thereof.  
     
     
         6 . The method of  claim 5  wherein the initial investment is greater than the original CD.  
     
     
         7 . The method of  claim 5  wherein the initial investment is less than the original CD.  
     
     
         8 . The method of  claim 1  wherein the issuer of the first and second CDs are the same or related parties and wherein the issuer waives the penalty for early withdrawal in lieu of issuance of the second CD.  
     
     
         9 . The method of  claim 8  wherein the second CD has a greater term than the normal maturity date of the first CD.  
     
     
         10 . The method of  claim 1  wherein said initial investment is reduced to an amount sufficient to produce a second CD with generally the same value at maturity as the unaccrued value of the first CD.  
     
     
         11 . A method of attracting potential purchaser who have existing CDs to redeem their CD in favor of a new CD, comprising the steps of: 
 a. soliciting and accepting a consent and authorization from the potential purchaser of the CD to retrieve such data from said purchaser's current CD sufficient to calculate the value of that CD and cost of redemption    b. based on said data determining the total current account value of said CD as of a predetermined date    c. based on said data, determining the contractual penalty for early withdrawal on said predetermined date;    d. calculating the net accrued value of the first CD on the predetermined calculation day by determining its accrued value and subtracting the penalty from said value;    e. offering said customer a new CD created using the net accrued value as initial investment, having an expiration date generally equal to the expiration of the first CD and an interest rate which will yield more than the unaccrued value of the first CD even accounting for the early withdrawal penalty of the first CD.    
     
     
         12 . The method of  claim 11  further including the steps of 
 a. receiving authorization from said customer and;    b. redeeming said CD, paying the early withdrawal penalty and transferring the account funds to a new CD.    
     
     
         13 . The method of  claim 11  further including the steps of: 
 a. storing in a data base, financial parameters of the offered CD; and    b. reserving the customer's to purchase the offered CD for a predetermined period of time from date of quotation.    
     
     
         14 . A method of retaining CD customers during periods of rising interest rates; 
 a. At periodic intervals, calculating the total account value on the calculation date and the remaining unaccrued value of a first CD from the calculation date to the date of maturity;    b. Calculating the contractual penalty for early withdrawal on said calculation date;    c. Calculating the net cash value proceeds of the CD on the calculation date by subtracting the penalty from the current account value;    d. Comparing said unaccrued net value of the first CD with a second CD issueable on calculation date from net proceeds of the first CD at an interest rate selected by the issuer having a term expiring generally equal to the term of the first CD;    e. If the value of the second CD at maturity is greater than the sum of: the net value of first CD plus the penalty for early withdrawal of the first CD, then notify holder of the first CD that a second CD is available which will outperform the first CD despite the penalty for early withdrawal; and    f. Offering the customer said second CD having an expiration date generally equal to the first CD.    
     
     
         15 . The method of  claim 14  wherein the periodic intervals of calculating is daily.  
     
     
         16 . The method of  claim 14  wherein the interest rate on the second CD is at the current market rate offered by the CD issuer.  
     
     
         17 . The method of  claim 14  wherein the interest rate on the second CD is above the current market rate offered by the CD issuer and the penalty for early withdrawal on the second CD is greater than that of the first CD.  
     
     
         18 . A computer program for re-issuing a CD by 
 a. Computer code for calculating the unaccrued value of a first CD from a predetermined calculation date to its normal maturity;    b. Computer code for calculating the contractual penalty for early withdrawal on said predetermined date;    c. Computer code for calculating the net accrued value of the first CD on the predetermined calculation day by determining its accrued value and subtracting the penalty from said value;    d. Computer code for creating a customized second CD, using the net accrued value as initial investment, having an expiration date generally equal to the expiration of the first CD and a interest rate which will yield more than the unaccrued value of the first CD even accounting for the early withdrawal penalty of the first CD; and    e. Computer code for issuing said second CD to the owner of the first CD using said initial investment.    
     
     
         19 . A customized certificate of deposit (CD) comprising 
 a. A new CD being configured to replace an original CD before the normal maturity date of the original; knowing the unaccrued value of a original CD from a predetermined calculation date to its normal maturity;    b. Knowing the contractual penalty for early withdrawal on said predetermined date;    c. Knowing the net accrued value of the original CD on the predetermined calculation day by determining its accrued value and subtracting the penalty from said value;    d. The new CD, using the net accrued value as initial investment, having an expiration date generally equal to the expiration of the original CD and a interest rate which will yield more than the unaccrued value of the original CD even accounting for the early withdrawal penalty of the original CD.    
     
     
         20 . The CD of  claim 19  wherein said new CD has a early redemption penalty greater that the penalty of the original CD.  
     
     
         21 . A method of re-issuing CDs comprising the steps of: 
 a. Determining the total current account value of a first CD as of a predetermined date    b. Determining the contractual penalty for early withdrawal on said predetermined date;    c. Calculating the net accrued value of the first CD on the predetermined calculation day by determining its accrued value and subtracting the penalty from said value;    d. Creating a customized second CD, using the net accrued value as initial investment, having an expiration date generally equal to the expiration of the first CD and an interest rate which will yield more than the unaccrued value of the first CD even accounting for the early withdrawal penalty of the first CD; and    e. Issuing said second CD to the owner of the first CD using said initial investment    f. Including the option for the issuer to call or convert a CD prior to maturity if market interest rates fall.    
     
     
         22 . The CD of  claim 21  wherein said call or conversion option compensates the depositor with an interest rate on said second deposit account which is above the prevailing interest rate for CDs without such options. It may be possible for the depositor to select from a plurality of call or conversion options.  
     
     
         23 . In a proposed financial transaction involving re-issuance of a fixed time depository instrument to a depositor candidate, a method of demonstrating to re-issuance depositor candidate the potential impact of time and rate change on their net benefit to transfer comprising the steps of: 
 a. calculating the financial outcome of a plurality of time fixed depository instruments each having different remaining time periods and interest rates;    b. calculating the total value to the depositor candidate; and    c. calculating the net benefit to depositor candidate taking into account redemption costs of the candidates current depository instrument.    d. Offering, to the candidate, a CD whose expiration date is substantially coterminous with the maturity date of the candidates current depository instrument.    
     
     
         24 . A method of optimizing the point at which a CD issuer should contact a prospective customer to offer a replacement CD comprising the steps of: 
 a. storing the customer's current CD maturity date and interest rate and early withdrawal penalty into a data base;    b. calculating the value of the current CD on a particular date taking into account a preexisting early withdrawal penalty;    c. calculating, for the same date as in step b, the value of a new CD at the issuer's predetermined interest rate for the value determined in step b, and    d. if said value in step c is greater than in step b, contacting said prospective customer to offer a new CD based on the interest rate in step c, and if said value in step c is less that step b, incrementing to a next predetermined time to calculate the value according to step b and repeat said method.