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- Banks usually charge an early withdrawal penalty on CDs if you take out money before it matures.
- The penalty will be some of the interest earned, but the amount you pay is tax-deductible.
- No-penalty CDs could be a good option if you're not sure if you can let a CD mature.
Opening a certificate of deposit (CD) is a great option if you have extra money to lock away for a set period of time. You'll generally earn a higher interest rate on a CD than you could with a traditional savings account — and won't have to deal with the temptation of spending.
Before you open a CD, though, you'll want to take note of one important limitation — early withdrawal penalties.
Understanding CD early withdrawal penalties
What are CD early withdrawal penalties?
An early withdrawal penalty occurs when you take money out of a CD before its maturity date.
For example, let's say you opened a 3-year CD. Any money deposited into the CD will have to stay in your account for three years. If you decide to withdraw some money at the 2-year mark, the bank will charge you a fee (and may require you to cash out the entire balance).
Luckily, early withdrawal penalties from time-bound accounts like CDs are deductible on your federal tax return. The deduction reduces your adjusted gross income, which helps determine eligibility for tax credits and is the first step in calculating your tax bill.
How are penalties calculated?
The minimum early withdrawal penalty, as outlined by federal regulations, is seven days' worth of interest. Otherwise, fees are largely dependent upon CD term length and the individual financial institution.
Interest on traditional bank CDs is compounded daily, so penalties are commonly equal to a number of days of interest earned. Many banks tend to charge more on longer terms since you've accumulated more interest over time.
CD early withdrawal penalties at different banks
Below you will find CD early withdrawal penalties from several of the largest financial institutions. This may help you better understand early withdrawal penalties and how they vary by term. Some banks and credit unions offer more terms options, so they'll have a greater range of early withdrawal penalties.
Financial Institution | Penalties for one-year terms or shorter | Penalties for terms longer than one year but shorter than five years | Penalties for five-year terms or longer |
| Alliant Credit Union | 7 to 90 days of interest | Up to 90 days to 180 days of interest | Up to 180 days of interest |
| Ally | 60 days of interest | 60 days to 120 days of interest | 150 days of interest |
| American Express National Bank | 90 days of interest to 270 days of interest | 270 days of interest to 365 days of interest | 540 days of interest |
| America First Credit Union | 60 days of interest | 180 days of interest | 180 days of interest |
| Axos Bank | 1.5 months to 6 months of interest | 6 to 24 months of interest | 24 months of interest |
| Bank of America | 7 days to 180 days of interest | 180 days of interest | 365 days of interest |
| Capital One | 3 months of interest | 6 months of interest | 6 months of interest |
| Chase | 90 days to 180 days of interest | 180 days of interest to 365 days of interest | 365 days of interest |
| Citi | 90 days of interest | 180 days of interest | 180 days of interest |
| Citizens Bank | $50 and 90 days of interest on amount withdrawn/50% that would have been earned (whichever is greater) | $50 and 180 days of interest on amount withdrawn/50% that would have been earned (whichever is greater) | $50 and 180 days of interest on amount withdrawn/50% that would have been earned (whichever is greater) |
| Connexus Credit Union | 90 days of interest | 180 days of interest | 365 days of interest |
| Consumers Credit Union | 60 days of interest | 120 days of interest | 120 days of interest |
| Discover Bank | 3 months to 6 months of interest | 6 months to 9 months of interest | 18 months to 24 months of interest |
| First Citizens Bank | 3 months to all interest earned | 6 months of interest | 6 months of interest |
| Navy Federal Credit Union | 90 days of interest | 180 days of interest | 180 days to 365 days of interest |
| Pentagon Federal Credit Union | 90 days of interest to all interest earned | 30% of all interest you would have earned if your CD matured or all interest earned | 30% of all interest you would have earned if your CD matured or all interest earned |
| PNC Bank | 3 months of interest to all interest earned | 6 months of interest | 6 months of interest |
| Regions Bank | 31 days of interest to all interest earned | 182 days of interest | 182 days of interest |
| TD Bank | 3 months interest to all interest earned | 6 months interest to 18 months interest | 24 months interest |
| Truist Bank | $25 OR some of the interest earned* (whichever is greater) | $25 OR some of the interest earned*(whichever is greater) | $25 OR some of the interest earned*(whichever is greater) |
| VyStar Credit Union | 60 days of interest to 180 days of interest | 180 days of interest to 365 days of interest | 365 days of interest |
| Wells Fargo | 1 to 3 months of interest | 6 months interest to 12 months interest | 12 months of interest |
| Wings Financial | 6 months of interest | 6 months to 2 years of interest | 2 years of interest |
*At Truist Bank, it will depend on your specific term. If your term is less than three months, your penalty is all the interest you've earned. For longer terms, it varies between 3 months of interest to 12 months of interest.
How to avoid or minimize early withdrawal penalties
Choose the right CD term
Carefully consider when you will need the money. If you're not confident you can part ways with your cash for an extended period of time, choose a shorter term or opt for a no-penalty CD.
Create a CD ladder
If you think you may be tempted to dip into your CD early, consider building a CD ladder. This strategy involves spreading your cash among several CDs with varying maturity dates, from a few months to several years. This will give you access to some of your funds at regular intervals and help you hedge against interest rate volatility.
Alternatives to early withdrawal
CD loans
CD loans are an option at some banks. This involves applying for a secured loan and using your CD as collateral. As long as you make loan repayments on time, your CD will continue growing and earning interest. However, this option is only worth it if the APY on your CD is greater than the APR on your loan.
Sell your CD on the secondary market
Brokered CDs are CDs you buy through a brokerage firm. They offer a fixed rate of return, like bank CDs, but provide more flexibility if you need to cash out before your CD's maturity date.
You can sell a brokered CD through your investment account at any time, though you may pay a small transaction fee. If interest rates are higher than when you purchased the CD, you may lose money on the sale, since your CD is less valuable to a buyer. But if interest rates have decreased, you may be able to sell the CD for a greater value.
When is it worth paying the penalty?
Emergency situations
If you need the money you have in a CD for a financial emergency, the fee for early withdrawal may be worth it — especially if the alternative is charging your credit card. Remember that early withdrawal penalties are deductible on your federal tax return, regardless of the amount of interest earned.
Higher interest rates
You might also consider cashing out your CD early and paying the penalty if interest rates have increased significantly on newly issued CDs. Compare the early withdrawal fee to what you would earn in interest on a new CD. If the loss is offset by better returns, it's worth it.
CD early withdrawal penalty FAQs
Whether or not you can withdraw from your CD early depends on the specific terms of your CD, but typically any amount of money withdrawn early will incur a penalty.
Most CDs have early withdrawal penalties. The exception is no-penalty CDs, which do not have early withdrawal fees. However, they typically pay a lower interest rate than regular CDs.
It's not common for a bank to waive a CD early withdrawal penalty, but your bank may be able to make accommodations if you're in a financial emergency.
Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards.
Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.
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