If a person dies and has CDs, will a penalty be assessed for early withdrawal by heirs?
There are two types of early withdrawal penalties on CDs -- those required by regulation, and those provided for in the CD deposit contract. The contractual penalty includes the regulatory penalty.
The regulatory requirement only applies to withdrawals made within six days of either a deposit to the CD or a withdrawal from it. Even during that short six-day window, however, the penalty can be waived if an owner of the account has died, so if the heirs wanted to withdraw funds and the CD had just been automatically renewed, the penalty could be waived.
The contractual penalty can always be waived by the bank (except for any portion that represents the regulatory penalty). In our experience, most institutions are willing to waive this penalty in the event of the death of an owner. However, the personal representative of the decedent's estate should contact the depository institution to confirm that a waiver is available. If the account was jointly owned, with right of survivorship, it will be owned by the survivor(s), and the survivor(s) should contact the depository for a definite answer.
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There are two types of early 