Terms and conditions
There are many variations in the terms and conditions for CDs.
The federally required “Truth in Savings” booklet, or other disclosure document that gives the terms of the CD, must be made available before the purchase. Employees of the institution are generally not familiar with this information; only the written document carries legal weight. If the original issuing institution has merged with another institution, or if the CD is closed early by the purchaser, or there is some other issue, the purchaser will need to refer to the terms and conditions document to ensure that the withdrawal is processed following the original terms of the contract.
- The terms and conditions may be changeable. They may contain language such as “We can add to, delete or make any other changes (“Changes”) we want to these Terms at any time.”
- The CD may be callable. The terms may state that the bank or credit union can close the CD before the term ends.
- Payment of interest. Interest may be paid out as it is accrued or it may accumulate in the CD.
- Interest calculation. The CD may start earning interest from the date of deposit or from the start of the next month or quarter.
- Right to delay withdrawals. Institutions generally have the right to delay withdrawals for a specified period to stop a bank run.
- Withdrawal of principal. May be at the discretion of the financial institution. Withdrawal of principal below a certain minimum—or any withdrawal of principal at all—may require closure of the entire CD. A US Individual Retirement Account CD may allow withdrawal of IRA Required Minimum Distributions without a withdrawal penalty.
- Withdrawal of interest. May be limited to the most recent interest payment or allow for withdrawal of accumulated total interest since the CD was opened. Interest may be calculated to date of withdrawal or through the end of the last month or last quarter.
- Penalty for early withdrawal. May be measured in months of interest, may be calculated to be equal to the institution’s current cost of replacing the money, or may use another formula. May or may not reduce the principal—for example, if principal is withdrawn three months after opening a CD with a six-month penalty.
- Fees. A fee may be specified for withdrawal or closure or for providing a certified check.
- Automatic renewal. The institution may or may not commit to sending a notice before automatic rollover at CD maturity. The institution may specify a grace period before automatically rolling over the CD to a new CD at maturity. Some banks have been known to renew at rates lower than that of the original CD.