Time Deposits

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Time Deposits

Time deposits are bank accounts pay depositors a fixed rate of return for a fixed period of time. There are penalties for early withdrawal of funds. The most common form of time deposit is a Certificate of Deposit: a CD.

Federal bank regulations provide that the early withdrawal penalty is waived in the case of a newly appointed guardian. Many bank officers are unaware of this. It usually suffices to tell the bank officer that this is the rule and that most banks have this in their procedure manual adjacent to the rule on death of a depositor. Same rule.

The federal rule itself can be hard to find, here is a link: Title 12, Code of Federal Regulations Part 204. The provision is contained in section 204.2 (c)(1)(i) footnote 1(e). Kind of obscure. Here is a highlighted version of the part of the regulation of interest (the font but not the text is altered for purposes of illustration).

Warning: laws and regulations change. always check for such changes by clicking through to the government site. The following has been in effect for many years and is current as of September, 2004:

12CFR204.2c)(1)(i) footnote 1(e).

(c)(1) Time deposit means:

(i) A deposit that the depositor does not have a right and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit. 1 A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days' simple interest on amounts withdrawn within six days after each partial withdrawal. If such additional early withdrawal penalties are not imposed, the account ceases to be a time deposit. The account may become a savings deposit if it meets the requirements for a saving deposit; otherwise it becomes a transaction account. Time deposit includes funds—

1A time deposit, or a portion thereof, may be paid during the period when an early withdrawal penalty would otherwise be required under this part without imposing an early withdrawal penalty specified by this part:

(a) Where the time deposit is maintained in an individual retirement account established in accordance with 26 U.S.C. 408 and is paid within seven days after establishment of the individual retirement account pursuant to 26 CFR 1.408–6(d)(4), where it is maintained in a Keogh (H.R. 10) plan, or where it is maintained in a 401(k) plan under 26 U.S.C. 401(k); Provided that the depositor forfeits an amount at least equal to the simple interest earned on the amount withdrawn;

(b) Where the depository institution pays all or a portion of a time deposit representing funds contributed to an individual retirement account or a Keogh (H.R.10) plan established pursuant to 26 U.S.C. 408 or 26 U.S.C. 401 or to a 401(k) plan established pursuant to 26 U.S.C. 401(k) when the individual for whose benefit the account is maintained attains age 59 1/2 or is disabled (as defined in 26 U.S.C. 72(m)(7)) or thereafter;

(c) Where the depository institution pays that portion of a time deposit on which federal deposit insurance has been lost as a result of the merger of two or more federally insured banks in which the depositor previously maintained separate time deposits, for a period of one year from the date of the merger;

(d) Upon the death of any owner of the time deposit funds;

(e) When any owner of the time deposit is determined to be legally incompetent by a court or other administrative body of competent jurisdiction; or

(f) Where a time deposit is withdrawn within ten days after a specified maturity date even though the deposit contract provided for automatic renewal at the maturity date.

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