Q: Can all early withdrawal penalties be waived for a “time deposit?”
A: No. Reg. D outlines mandatory early withdrawal penalties for “time deposits.”
As mandated by the regulation, the early withdrawal penalty must be at least seven days’ simple interest on amounts withdrawn within the first six days after deposit (or within six days after the most recent partial withdrawal). Such Reg. D penalties are the “minimum” penalties that are required; banks are free to impose greater penalties by contract with the depositor.
However, if funds are withdrawn more than six days after the date of deposit or more than six days after the most recent partial withdrawal, no interest penalty is required under Regulation D.
Penalties listed under Regulation D are the minimum federal penalties required by Regulation D and the Federal Reserve Act. Banks are free to impose greater penalties by contract with the depositor.
If a bank fails to impose early withdrawal penalties when they are required by Regulation D, the account may not be classified as a time deposit. If the account meets all the necessary requirements for a savings deposit account, the bank may reclassify it as such. Otherwise, the account must be reclassified as a transaction account.