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#2775 - 07/09/01 05:33 PM Withdrawing Interest on CD Accounts
cervesa Offline
Joined: Jun 2001
Posts: 56
Santa Fe, NM
In their testing, our auditor stumbled across a customer with a CD account where the customer is making premature withdrawals of funds, up to 8 a month. In looking at Reg D, it appears as though there might be an additional penalty imposed for withdrawals within 6 days of each other. Also, the account may have to be reclassified. It is not quite clear to me, any guidance?

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General Discussion
#2776 - 07/09/01 05:57 PM Re: Withdrawing Interest on CD Accounts
deppfan Offline
Power Poster
Joined: Dec 2000
Posts: 5,184
All over the map.
If I understand this situation, a penalty must be charged if funds are withdrawn prior to maturity. The amount of the penalty will vary depending on what type of account the customer has. The minimum penalty is 7 days simple interest on funds withdrawn within 6 days of an earlier withdrawal or deposit. Check your deposit agreement to see what your bank policy is.
On the road again.....I just can't wait to get on the road again.

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#2777 - 07/09/01 07:37 PM Re: Withdrawing Interest on CD Accounts
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Here is how we state this in a Deposit Operations Manual we have produced:

If funds are withdrawn prior to maturity, the depositor may face early withdrawal penalties. The presence (or absence) of an early withdrawal penalty is used to differentiate between time and demand accounts for reserve requirement purposes (which are much higher for demand accounts). For all time accounts, the early withdrawal penalty equals the loss of seven daysí interest on funds withdrawn within the first six days of deposit or within six days of a previous partial withdrawal. If funds are withdrawn after the first six days, or after six days of a previous partial withdrawal, there is no federally required interest penalty. Penalties listed under Regulation D represent the minimum federal penalties required.

David Dickinson

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#2778 - 07/10/01 03:24 AM Re: Withdrawing Interest on CD Accounts
Ann Offline
Platinum Poster
Joined: Jul 2001
Posts: 556
South Carolina
An additional question on penalties.
I know about waiver on death/incompetency/but
what about waiver for paying off loan whether
the cd is pledged or not? Also if a partial
withdrawal and remainer is put back into a CD
with the original remaining term. Does a penaly on the withdrawn portion only OK if the cd is put back for the remainder of the
original term or does that matter.

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#2779 - 07/10/01 05:37 PM Re: Withdrawing Interest on CD Accounts
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,684
Cape Cod
There is no regulatory blessing for a waiver in the event of loan payoffs. A bank, however, can waive its own stiffer penalty if the 6 day period has lapsed. You need to have some consistent guidelines for doing so, and it would help if they track "good business sense."
So, for example, you could waive a penalty after 6 days if the customer wants to move the funds into a trust (or out of it), or wants to buy a home, and you're writing the loan, etc.
And the minimum penalty is based on the amount that is withdrawn early.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8

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