Answer:
Answer by David Dickinson: The following is taken from our Advanced Deposit Operations Manual (which can be purchased at the BOL Store):
Early Withdrawal Penalties:
If funds are withdrawn prior to maturity, the depositor may face early withdrawal penalties.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For all time accounts, the early withdrawal penalty equals the loss of seven days’ interest on funds withdrawn within the first six days of deposit or within six days of a previous partial withdrawal. If funds are withdrawn after the first six days, or after six days of a previous partial withdrawal, there is no federally required interest penalty.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.
Answer:
Answer by John Burnett: There are a number of exceptions to the mandatory penalties. One allows penalty-free withdrawals during a grace period of not more than 10 days from an account that automatically renews at each maturity.
Some institutions create an (almost) penalty-free CD by writing a 7-day account with a 7-day grace period. But because money in such accounts is typically very volatile, these accounts often pay comparatively lower rates.
First published on BankersOnline.com 8/15/05
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