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CD Penalty

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Question: 
What is the minimum number of days you must charge on a CD penalty?
Answer: 

Regulation D provides that the minimum early withdrawal penalty is 7 days interest on any amount withdrawn within the first 6 days. The popular interpretation is that penalty cannot be waived under any circumstance.

Beyond that, your early withdrawal penalty can be calculated any way you wish as long as it is properly disclosed. Technically, that disclosure is only required on accounts covered by Regulation DD. Penalty waivers are acceptable under a variety of circumstances set out in Regulation D, but waivers are also permissible under any circumstance agreed upon by the bank.

The presence and the amount of the early withdrawal penalty are valid indicia of your bank's understanding of interest rate risk. Early withdrawal penalties are far more of a safety and soundness issue than a compliance issue.

First published on BankersOnline.com 11/27/06

First published on 11/27/2006

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