DEFINITION of 'Withdrawal Penalty'

Refers to any penalty incurred by an individual for early withdrawal from an account that is either "locked in" for a stated period, as in a time deposit at a financial institution, or where such withdrawals are subject to penalties by law, such as from an IRA. The penalty can be either in the form of forfeiture of interest or an actual dollar amount.

BREAKING DOWN 'Withdrawal Penalty'

For example, an early withdrawal from a certificate of deposit at most financial institutions would result in the customer forfeiting interest for a period ranging from one month to several months. Generally speaking, the longer the term of the initial certificate of deposit, the longer the interest forfeiture period. In the case of IRAs, withdrawals before the age of 59.5 are subject to a penalty of 10%.

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