Q: Can you provide an example of mandated early withdrawal penalties?
If all or a portion of the funds in a time deposit account are withdrawn within six days of the date of deposit or within six days of the date of the most recent partial withdrawal, the account must be subject to an early withdrawal penalty. This penalty, which is the minimum penalty that must be imposed, is at least seven days’ simple interest on the amount withdrawn.
If an institution allows customers to make partial withdrawals from time deposits, the institution must impose the early withdrawal penalty on amounts withdrawn.
For example, suppose a customer deposits $1,000 into a new time deposit on the 1st of the month, withdraws $100 on the 4th, and another $100 on the 9th. The customer would be subject to an early withdrawal penalty for the first $100 withdrawal in the amount of seven days’ simple interest on $100, and another early withdrawal penalty for the second $100 withdrawal in the amount of seven days’ simple interest on $100 because the second withdrawal occurred within six days of the first withdrawal. If the bank does not impose the minimum early withdrawal penalties on either withdrawal, the account ceases to be a ‘‘time deposit’’ and must be reclassified as either a savings account (provided the account meets the characteristics of a savings account) or a transaction account.