Early withdrawal penalty is the amount that is charged to the investor by the investee for withdrawing the investment before the actual term of investment ends. This is similar to the bonds that are called before the maturity date in which case the issuer has a right to repay the principal amount after adjusting any penalty for calling the bonds early.
The penalty can be varied depending on the type of the instrument. In the case of fixed deposit accounts, the bank may have the right to forfeit the interest payments in the event of cancellation of the term deposit investment. The penalty is applied as a punishment for disturbing the bank that will have to arrange money from another source.
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