Question:
Is there a regulatory requirement to charge a 7-day early withdrawal penalty on a certificate of deposit (CD)?
Answer:
In the first week after a CD is created, there must be an early withdrawal penalty of at least seven days’ simple interest on amounts withdrawn within the first six days after deposit In Reg. D. And Reg. DD provides that if the bank will charge an early termination penalty, the bank must disclose that in the TISA disclosure. If a withdrawal is permitted without penalty, the account would no longer be classified as a certificate of deposit for Reg D purposes and could be classified as a savings or interest bearing transaction account.
The commentary for § 1030.4(b)(6)(ii) provides two examples of early withdrawals penalties: “$10.00” or “seven days’ interest plus accrued but uncredited interest.
Time deposit means:
(i) A deposit that the depositor does not have a right 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deposit unless the deposit is subject to an early withdrawal penalty of at least seven days’ simple interest on amounts withdrawn within the first six days after deposit.”
204.2(c)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=d9aba29c213758559a7a5f6f659f906a&mc=true&node=se12.2.204_12&rgn=div8
Early withdrawal penalties. A statement that a penalty will or may be imposed for early withdrawal, how it is calculated, and the conditions for its assessment.
1030.4(b)(6)(ii): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1030/4/#4-b-6-ii-Interp-2-i
Examples of early withdrawal penalties are:
- Monetary penalties, such as “$10.00” or “seven days’ interest plus accrued but uncredited interest.”
Comment 2 to 1030.4(b)(6)(ii): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1030/4/#4-b-6-ii-Interp-2-i
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