Be Wary of Surrender Charges

A surrender charge is a financial penalty you pay if you withdraw more money from a restricted account than you are allowed. They are common among annuities and even some mutual funds. The fee is usually a percentage of the amount that exceeds what you are allowed to withdraw within a given time frame, such as each year. With most financial products, the surrender charge decreases each year and eventually disappears altogether.1

One of the purposes of this charge is to prevent you from making excess withdrawals from an account that you opened with a long-term timeline in mind. Taking funds out early can prevent the account from working the way it’s designed in order to reach your long- term goals. If you’re in a crisis situation, paying the surrender fee may be necessary. But as a general rule, look elsewhere for short-term funding needs so that you continue to stay on track to meet long-term goals.

Back to Articles 2016. “Surrender Charges Explained.” Accessed Feb. 4, 2016.

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