FBLA Banking and Financial Systems Practice Test

When a depositor withdraws funds from a certificate of deposit (CD) before it matures, the standard consequence is the loss of all interest earned on that amount. This is because CDs are time-based investment vehicles that offer higher interest rates in exchange for the depositor agreeing to leave their money untouched for a set period. If the funds are withdrawn early, the agreement is broken, which is why penalties are in place.

Typically, the bank will impose a penalty that can involve forfeiting some or all of the interest accrued thus far. This discourages early withdrawals and reinforces the savings goal the CD was designed to support. As a result, the answer that indicates the loss of all interest earned accurately reflects the common terms associated with early withdrawal from a CD.