Early Withdrawal Penalty

An early withdrawal penalty is a penalty charge which applies when you withdraw assets from a bank account without observing the specified notice period.

The terms and conditions of a bank account specify what amount of assets can be withdrawn without notice. Withdrawals in excess of that limit can only be performed at the end of a notice period, or an early withdrawal penalty may apply.

Typically, an early withdrawal penalty is only levied on the portion of the withdrawal which exceeds the notice-free limit. This penalty charge is normally charged as a percentage of the amount and can be relatively high.

Penalty charges of 0.5% are common. However, many banks have raised their early withdrawal penalties to 2% over recent years. Banks justify these high charges by citing the tighter liquidity regulations imposed by the Swiss financial supervisory authority FINMA. These regulations aim to prevent the rapid outflow of assets from Swiss banks, and subsequent illiquidity, in the event of a financial crisis.

Example: The terms and conditions of a savings account specify that you can freely withdraw up to 10,000 francs per month. Larger withdrawals are subject to a notice period of 3 months, with a 2% early withdrawal penalty if this notice period is breached. If you want to withdraw 40,000 francs in one month, you must pay an early withdrawal penalty of 600 francs (2% of 30,000 francs).

Depending on the bank and account type, there may be some exceptions. Some banks do not charge an early withdrawal penalty when assets are withdrawn for the purpose of investment in other products (mortgages or securities, for example) provided by the same bank.

Swiss checking accounts generally do not place tight limitations on withdrawals. However, penalty fees are very prominent on Swiss savings accounts. The rule of thumb for savings accounts is: The higher the interest earnings, the more restrictive the withdrawal terms and conditions will be, and the higher the likeliness that an early withdrawal penalty will apply. For this reason, you should look at all terms and conditions when choosing a savings account, in addition to the yield rates offered.

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Expert Benjamin Manz
Benjamin Manz is CEO of moneyland.ch and an independent expert on banking and finance.