Conclusion: Early-withdrawal Penalties on Time Deposits

Regulation D is the only regulation that now requires that financial institutions impose minimum early-withdrawal penalties. These required penalties are minimums— institutions are free to impose higher penalties than the required minimums, and most do so. Most institutions impose either one-month and three-month or three-month and six-month interest penalties for time deposits of a year or less and over a year in maturity, respectively. These are holdover penalties from the minimums that used to be required under regulations of the DIDC.

Many institutions also continue to use one of the methods formerly required by the DIDC to be used to calculate the penalty on variable interest rate time deposits.

In certain circumstances, financial institutions are allowed to permit early withdrawal of a time deposit without imposing even the minimum penalty required by Regulation D. Institutions are not required to allow penalty-free withdrawal in these circumstances.

All institutions are required by Truth-in-Savings regulations to disclose their early withdrawal penalties at the time of account opening.

The Regulation D provision establishing the required minimum early-withdrawal provisions can be found at 12 CFR 204.2(c)(1)(i).