No, we do not believe that Illinois law limits the maximum early withdrawal penalty that banks can charge consumers or businesses for new CDs. The Illinois Banking Act generally provides that “[t]he establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards.”

Note that Regulation D’s definition of “time deposit” sets a minimum early withdrawal penalty that must be met to avoid being considered a “savings deposit” or a “transaction account” for reserve requirement purposes. However, reserve requirements were reduced to zero under an interim final rule effective March 26, 2020, eliminating the need to distinguish between these types of accounts for the purposes of Regulation D.

For resources related to our guidance, please see:

• Illinois Banking Act, 205 ILCS 5/5e(b) (“The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards. In establishing account service charges, the bank may consider, but is not limited to considering, the costs incurred by the bank, plus a profit margin, for providing the service, the deterrence of misuse of the bank’s services, the establishment of the competitive position of the bank in accordance with the bank’s marketing strategy, and the maintenance of the safety and soundness of the bank.”)

• Regulation D, 12 CFR 204.2(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deposit unless the deposit is subject to an early withdrawal penalty of at least seven days’ simple interest on amounts withdrawn within the first six days after deposit. 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are permitted must impose additional early withdrawal penalties of at least seven days’ simple interest on amounts withdrawn within six days after each partial withdrawal.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. . . .”)

• Regulation D: Reserve Requirements of Depository Institutions, 85 Fed. Reg. 16525, 16525 (March 24, 2020) (“In light of the shift to an ample reserves regime, the Board has determined to reduce the reserve requirement ratios to zero percent effective March 26, 2020.”)