Former banker comes up with a patented CD that rewards early cash-out

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Posted: Wednesday, October 23, 2013 12:00 am

Nebraska native Neil Stanley's invention might not be as visible as other great Cornhusker State innovations, such as Kool-Aid or CliffsNotes.

But it is of great note nonetheless: The former bank executive is the owner of a valid 2013 U.S. patent for a new type of certificate of deposit.

Such patents are known as “business-method patents.” This one is based on a series of calculations that allow a bank to offer CDs with the prospect of zero early-withdrawal penalty. Such penalties are a common feature of CDs, a popular but very low-yielding stashing spot for consumers with cash not required for immediate use. According to the Federal Deposit Insurance Corp., CDs account for 18 percent of U.S. bank deposits, or $1.6 trillion.

The penalties for cashing out early sometimes surprise people who need to tap still-maturing CDs for unexpected expenses, or because they want to invest the money elsewhere.

Such levies last year averaged three months of interest for CDs with maturities of less than one year, and six months of interest for CDs with maturities of one year and longer, according to That can work out to about $50 on a 1 percent, $10,000 CD with a maturity of more than one year.

Not so with Stanley's patented CD. With it, the bank and the depositor agree to a series of conditions that specify, based on interest-rate fluctuations, that the bank will pay a bonus to the customer for cashing out early, as long as the institution can replace the deposit with a cheaper one.

“Look at it this way,” Stanley said. “Would you rather have a CD that will always cost you for earlier withdrawal and never pay you, or one that sometimes costs you and sometimes pays you?”

So while you can't “see” his CD as easily as the 1920s powdered beverage mix invented in Hastings or the study guides first produced in Lincoln in the 1950s, Stanley does have claims to fame that most mousetrap tinkerers and perpetual-motion bootstrappers never achieve: not only a valid and defensible patent, but also a paying customer.

“Right now, we only have one client, Iowa's TS Bank,” said Stanley, owner of Bank Performance Strategies, an Omaha-based firm that has lots of paying customers for its other products and services that help banks attract and retain deposits.

And while it must also be disclosed that Stanley is on Treynor State Bank's board of directors and that the bank's holding company is a minority investor in the patent, he says it is a start all the same.

And it is still more than most inventors ever achieve, according to Connecticut patent agent Mark Notowarski, who has assisted hundreds of inventors as president of Marks and Patents Inc.

Notowarski said business-method patents such as Stanley's are not unheard of, but most are rejected. That's because you cannot patent an idea. It never would have flown had Stanley simply attempted to patent the notion of a CD that behaves as his.

Instead, Notowarski said, such patents typically require a method of accomplishing some objective, and the description of how some machine or technology of some sort, in this case, computer software, will get it done.

“Think of it this way,” Notowarski said. “You couldn't get a patent on the idea of offering insurance for inflatable airships. If you develop a system of how to calculate that risk, you might have a chance at a patent.”

With Stanley's CD, one key aspect is the replacement fee. That is what it would cost the bank to replace an early withdrawal with another deposit of a similar maturity. Here is how TS Bank describes the product, which it has dubbed CDtwo:

“If interest rates have risen, then the cost of the new deposit will be higher,” the bank's description reads. “If interest rates have fallen, then the cost of the new deposit will be lower.”

A low enough interest rate would garner the early-withdrawer a bonus, not a penalty, said Kevin Forristall, TS Bank's vice president of analytics. He said the bank has sold a few dozen of the CDs since 2011, when it became available before Stanley's patent was finalized.

“It is an innovative product,” Forristall said. “It has been popular with baby boomers, people with some familiarity with bonds. We have had deposits of between $50,000 and $100,000 with the CDtwo product.”

CDtwo, he said, is very well-suited to expectations of falling interest rates. Someone could buy a five-year version, and if rates fell, cash in, take the bonus and reinvest elsewhere, which is exactly the way the bank views it.

“It is a symmetrical proposition,” Forristall said.

Stanley is a banking industry lifer. A native of the Auburn-Falls City area, he spent 22 years rising up the ranks to executive posts with First National Bank of Omaha, the largest bank based in Nebraska, ending there in 2006. A graduate of the University of Nebraska, he later served as chief executive of Iowa-based Northwest Bank, an 18-branch operation with $1 billion of assets.

Somewhere along the line, it all occurred to him: No one had applied the simple calculations of basic bond math, which have been around probably about as long as money, to CDs. Like many inventors, Stanley said he was amazed that no one thought of it sooner.

“I have spent decades on this,” Stanley said. “But we are dealing with an industry that, for the most part, has closed its eyes to innovation.”

David Milligan, Stanley's Omaha patent attorney, said the ex-banker first came to him with the idea in 2010.

“I was intrigued,” Milligan said. “I have worked with patenting many instruments and technologies for the financial industry, but I had not seen anything like what Neil was presenting.”

Milligan said Stanley's patent claims were negotiated to distinguish Stanley's idea from any prior references to similar ones, and the patent claims were kept broad.

If it is solid enough, Stanley said, it should prevent mega-banks from tweaking minor details and rolling out their own version. The whole idea is that they should come to Stanley and license his patent, paying him a royalty for each CD sold, as TS Bank does.

“As far as the financial industry goes, yes, it does present some threat to them,” Stanley said.

And he already knows what some people are thinking. Don't bother trying to get the patent on a CD that sometimes pays an early withdrawal bonus during rising interest rates. He already thought of it, and owns that one, too.

Correction: A previous version of this story described Neil Stanley as a former Nebraskan.

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