Definition
An early withdrawal penalty is a disclosed reduction, fee, or reward forfeiture applied when funds leave a locked product before its scheduled maturity.
In market context
The penalty may be charged against earned interest, accrued rewards, or principal, depending on the product contract and applicable law. Some products prohibit early exit entirely or require an unbonding period before assets become available. Users should review the calculation method, exceptions, timing, and resulting return before committing funds, because an attractive APY can be outweighed by an unexpected need for liquidity.
Risk context
A penalty that can reduce principal creates a larger downside than merely giving up projected interest or rewards.
Source
Use the primary source for fuller regulatory or market context.