Tuesday, July 23, 2019

How do you charge Early Withdrawal Fees on Time Deposits?

Posted by Sharon December 16, 2013 4:25pm

Photo Credit: ctoocheck

One thing I have suggested to bankers in a low interest rate environment is to review their early withdrawal penalty on time deposits. Most institutions calculate the early withdrawal penalty as a number of days of interest.


The purpose of an early withdrawal penalty is to deter the customer from making an early withdrawal, and if such occurs, to compensate the institution for losing the deposit. There are no rules on how an early withdrawal penalty should be calculated.


Let's say you have a customer with a $1,000 time deposit bearing interest at 1% and the early withdrawal penalty is three months interest. If the customer makes an early withdrawal, the penalty is $2.50. Wow, hardly a detriment or compensation! How about charging a percentage of the amount withdrawn? In this case, let’s say 5%. Now, the penalty would be a more reasonable $50. Also, three months interest sounds like a lot where 5% doesn't sound too bad. 


Think about it and review with management to see if you need to update your practices.  If you do, don’t forget to update your disclosures!


Add a comment

  • Required fields are marked with *.

If you have trouble reading the code, click on the code itself to generate a new random code.


Sharon Geiger

Senior Quality Control and Review Specialist

Sharon Geiger has 27 years banking experience, 21 of which have been involved in internal audit. She has extensive knowledge of all aspects of the banking industry, with a particular emphasis on regulatory compliance and identifying risks and controls. As QCR Specialist, she performs Quality Control Reviews to ensure all workpapers and reports are completed in compliance with the firm's standards.

Sharon's Posts Subscribe to RSS Feed

Flood Coverage – Still a Hot Regulatory Issue
Regulation E and Business Account Errors
Controls over Employee and Officer T&E Expenses
Is Regulation CC Put on the Back Burner?
Keep an Eye On Your Chip!
Top Compliance Topics Discussed at the NJ Bankers Compliance University
Some tips and tricks for dealing with Regulatory Examinations
Updated Regulation E Booklet from the OCC!
Is Flood Disaster Still on the Heat Map?
Have You Implemented Your Plan yet?
FDIC Consumer Newsletter
More Flood Insurance Changes...
Same Sex Married Couples - Ensuring Equal Treatment – Announcement from Consumer Financial Protection Bureau
Truth in Lending (Regulation Z) Annual Threshold Adjustments (CARD ACT, HOEPA and ATR/QM)
ABA Survey on Impact of Dodd Frank Compliance
ABA Mortgage Origination Deskbook
Who handles Your Dormant Accounts?
How do you charge Early Withdrawal Fees on Time Deposits?
Do you still offer NOW Accounts?
Policy Changes Required – Do you Wait until Annual Approval?
ACAMS to provide Free Webinar
ACBB Changes its Name
Who Do You Give Cash to?
ABA Briefing to Help Banks Address Cyber-security Threats
The OCC Issues Booklet: “A Common Sense Approach to Community Banking”
Safe Deposit Box Contents are not insured – But They COULD Be!
FDIC Can Review New Products
Let’s Talk About Overdrafts!
Regulation E and NACHA Rules: When you Want to Stop Payment on a Recurring Debit
CFPB Stands Up Against Poor Debt Collection Practices
Don’t Forget the Small Stuff
Double Endorsed Checks: What is the Risk?
Social Media – Will the Regulators Do Spot Checks?
Solutions to Reducing Dormant Accounts at Your Institution
Regulation E Foreign Remittance Rules
Expiration of Unlimited Deposit Insurance for NIBTAs
Regulation O – 5 Easy ways to avoid violations