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Penalty For Early Withdrawal From CD
by Ken Golliher, BOL Guru
BIO AND CONTACT INFO
Question: Is there a regulation that states how much a customer can be charged as a penalty for early withdrawal on a certificate of deposit? If so, what reg is it and what are the penalties?
Answer: Regulation D (12 CFR 204) establishes minimum early withdrawal penalties:
(c)(1) Time deposit means:
(i) A deposit that the depositor does not have a right to and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit.
There are no maximum penalties. Regulation DD (12 CFR 230) merely requires that any applicable penalty and the method of its calculation be disclosed.
Most banks use penalty calculations based on language that was removed from Regulation D in 1986. They could adjust to methods more in keeping with the realities of banking today, but few have. (Wait until interest rates begin to go up and customers don't even flinch at early withdrawal penalties calculated on 2% interest -- the Threads will be flooded with discussions on how we can avoid this!)
First published on BankersOnline.com 8/18/03
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