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Early Withdrawal Penalty

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An early withdrawal penalty is a fine levied on funds removed from an investment before they are allowed to be removed, according to the agreement signed. For example, cashing in a one-year certificate of deposit after six months will result in an early withdrawal penalty equivalent to a few month's interest. The purpose of an early withdrawal penalty is to punish an investor for withdrawing funds that the investor agreed to let an institution use for a stated period of time. Retirement accounts typically come with an early withdrawal penalty. For example, most accounts will levy an early withdrawal penalty on funds removed before age 59. This early withdrawal penalty may be as much as 10% of the withdrawn amount.



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