What happens if a depositor wants to withdraw their money from a CD sooner than their specified period of time?  

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pohnpei397 eNotes educator| Certified Educator

A CD is a Certificate of Deposit.  Typically, a depositor puts money in a bank and promises to leave it there for a given amount of time.  If the depositor does so, the bank repays the money plus a given amount of interest.  The general rule is that a depositor who withdraws their money before the specified period of time will be forced to pay a penalty for early withdrawal.

The reason for this is that a CD pays a higher rate of interest than a regular savings account.  The bank gives the higher rate in return for the knowledge that it can hold on to that money for a set period.  This allows it to lend that money out for a longer period itself and get more money for doing so.