"Interest Penalty for Early Withdrawal" - Explain?
Answer:
You are actually penalized. Some interest you've already earned is taken back.
This happens for really good reasons. The bank you have the account with has taken your money and invested it in non-liquid instruments because they expect you to leave the money in the account until it matures. Those instruments have risk and/or expenses if liquidated prior to maturity. It's not like the bank is getting a free ride when they take back interest. They're just covering unexpected expenses or risk.
If you withdraw it early you are penalized some of the interest and they can not penalize the pricipal .
due to the early withdrawal the finance institute take less advange in term of their own investment and thus they probably penalise u....
You are penalized in addition. Some interest that you have earned is taken away. Foregoing the future interest isn't any kind of a penalty, that's the same as just closing anything that earns interest.
Many banks will charge one quarter's interest. For example if you have $1000 at 4% you earn $10 per quarter. The penalty is $10 even if you have not earned it yet.
You pay a penalty based on the amount you are withdrawing from the account. I recently closed a certificate of deposit early to take advantage of a higher return. They calculated 6 months of future interest on that amount, and then subtracted it from the money they issued to me. So, to answer your question more precisely, it is interest you already earned. However, since you didn't fulfill your end of the bargain, ie keeping money on deposit for a set number of months, then the bank wants to keep what it considers its fair share.
The answers post by the user, for information only, BAnswer.com does not guarantee the right.
Other Questions and Answers: