Looking for some input from other banks. Our CEO would like to increase CD early w/d penalties to prohibit customers cashing in existing CDs when the rates increase. (Of course, this would be for CDs going forward, not ones we already have.) The thought is that at such low rates, a 2-3 month penalty of interest is nothing which allows customers to easily cash and reinvest on a dime. He would like to calculate the penalty based on the amount and how much of the term is left; thereby negating the profit for them to cash it in and turn around and invest in the same CD at a higher rate.

Does anyone have a product like this? Would love to see your disclosure, if so. Also, anyone see any negatives/problems with this scenario? Thank you in advance!!

The simpler method is to calculate the early withdrawal penalty based on the rate you are offering on time deposits with the same term as the one being cashed. When rates go up, penalties go up. When rates go down...

Keep in mind, there is nothing in the U.S. or world economy that suggests interest rates on bank deposits will ever go up significantly.