Early withdrawal penalty

What it costs to take money out of a term or notice account before the agreed date - commonly a stated number of days of interest forfeited, a fixed charge, or outright refusal.

Example

It is set out in the account terms at opening and appears on no comparison table.

Important

This is the price of the liquidity you gave up, and it is fixed long before you ever need the money. A term you might have to break was chosen on the wrong question.

Related terms

• Fixed-term deposit — A deposit at a rate agreed for a stated period, in exchange for giving up access to the money for that period.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Forced selling — Selling because you have to rather than because you chose to - triggered by a lender, a redemption request, or an unrelated need for cash.

Lessons that explain it

• Appraising one account: rate, access, cover and the expiry date — Six checks on one specific account. The headline rate is the one everybody runs and the only one that can be withdrawn without warning - so it belongs fourth, not first. (12 min)
• The account is a wrapper; what you hold inside it is a separate decision — A retirement account is a legal container with tax rules and access limits. It is not an investment itself, and the choice of wrapper and the choice of holdings are two different decisions. (9 min)
• Is this account right for you: match, fees, choices and when you can touch the money — Evaluating a retirement account means checking five things: employer money, the fees inside it, the investments available, the access rules, and what happens if you change jobs. (11 min)
• Early access is expensive, fees compound, and the rules can change — The main costs of retirement accounts are taxes and penalties on early withdrawal, fees inside the plan, and the risk that governments change contribution, withdrawal or tax rules. (11 min)

All 578 terms in the Investing glossary