What Is A Withdrawal of Interest?

When you open a Certificate of Deposit account, there is a certain amount of money that you put into the bank on a time deposit for a specified term. During that term, the amount you have on deposit at the bank will be accumulating interest. This is how you make money on a CD: by generating interest from the amount on deposit, which is called the “principal.”

Most banks allow you to have a choice of what you do with your interest. If you allow your interest to compound, it is added to the principal and becomes part of the “nest egg” that will continue to grow and generate more interest for you. Another thing that some banks allow you to do is choose to withdraw your interest on an account. This withdrawal may be subject to certain restrictions, based on the rules inherent at your bank or financial institution. For example, you may only be allowed to withdraw the most recent interest payment, or be limited to one payment of the total interest that has accrued since you first opened the CD. Depending on how your financial institution calculates your interest, your interest may be compounded monthly, quarterly, or calculated through to the date of withdrawal. The terms and conditions are documented, which you signed when you opened the account, should clearly state what the interest rate is and how it is determined.

For people with very large amounts of money on deposit, it is possible to set up a monthly schedule on certain types of accounts in which your interest is paid out to you on a monthly basis as income. That way, you can depend on getting a steady income, since the bank will cut you a check on the same day every month. Check your schedule and your terms and conditions to see if this type of arrangement would work for you.