Everything you need to know about CD early withdrawal penalties

A certificate of deposit (CD), like other savings products, can be a win-win: savers earn a fixed-rate yield on their cash, while banks get to lend that cash to businesses and individuals at higher interest rates than what your CD pays. 

For the arrangement to work, though, the bank needs to know it’ll actually get to hold onto your funds for the agreed upon CD term. That’s why CD early withdrawal penalties exist: the bank wants to discourage you from taking back your money earlier than expected. 

This penalty can be severe; you’ll not only miss the interest you would have earned, but you also say goodbye to some (or most) of the interest you’ve already accumulated. Understanding how much you’ll owe if you make an early withdrawal is key before opening a CD. 

What is a CD withdrawal penalty?

A CD withdrawal penalty is a fee you pay for taking money out of your CD account before its maturity date. 

The fee is typically calculated as a set period’s worth of interest (known as “dividends” if you have a CD at a credit union). The exact penalty depends on the financial institution, the CD term, how much you’re withdrawing and how long the CD has been open.

For example, you may forfeit 90 days interest on the whole CD amount when you close a one-year CD four months early. 

“The penalty is designed to protect the bank or credit union,” said Michael Collins, CFA and CEO of WinCap Financial. 

If you haven’t earned enough interest to pay the penalty, the financial institution may take the difference from your CD principal.

How to calculate early withdrawal penalties

If you already have a CD account open, you can likely get your CD provider to calculate the early withdrawal penalty for you by calling them or logging into your account. 

If you’d like to calculate it yourself, you’ll need to know:

• The CD APY.
• The amount you’re withdrawing.
• Your financial institution’s penalty.

To illustrate, let’s say you have $10,000 in a six-month CD earning an interest rate of 4.00%. The early withdrawal penalty is three months’ interest and the bank doesn’t allow partial withdrawals, so you’ll need to take out the full amount. Here’s the formula for calculating your withdrawal penalty:

Withdrawal amount x (annual interest rate / 12) x number of months’ interest = penalty amount.

$10,000 x (0.04 / 12) x 3 months’ interest = $100.

Check whether your financial institution has a minimum early withdrawal penalty. If the interest you’ve accrued falls below the threshold, you may have to pay the higher minimum instead. 

For example, for a one-year CD term, Truist certificates of deposit charge three months worth of interest earned on the amount withdrawn or $25, whichever is greater.

You can use our CD calculator to check out what your earnings might be.

Early withdrawal penalties by bank

Every bank and credit union has a different way of setting CD early withdrawal penalties. Here’s a sampling of what some of the most popular institutions charge.

Ally Bank has the lowest penalty on both one- and five-year CDs and PenFed has the highest. All of the others play musical chairs: Alliant Credit Union, Bank of America, Capital One, Truist Bank and Wells Fargo have lower early withdrawal penalties on shorter terms; Chase, Discover® Bank and Marcus by Goldman Sachs have lower penalties on longer terms.

EARLY WITHDRAWAL PENALTIES
Bank	1-year CD	5-year CD
Alliant Credit Union	Up to 90 days’ dividends	Up to 180 days’ dividends
Ally	60 days’ interest	150 days’ interest
Bank of America	90 days’ interest	365 days’ interest
Capital One 360	3 months’ interest	6 months’ interest
Chase	180 days’ interest	365 days’ interest
Discover	6 months’ simple interest	18 months’ simple interest
Marcus by Goldman Sachs	180 days’ interest	180 days’ interest
Pentagon Federal Credit Union (PenFed)	365 days’ dividends	30% of the gross amount of dividends
Truist	3 months’ interest	12 months’ interest
Wells Fargo	3 months’ interest	12 months’ interest

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^{All information is accurate as of November 27, 2023.}

How to avoid or reduce an early withdrawal penalty

Early CD withdrawal penalties are common, but there are ways to reduce or avoid them.

Look for flexible policies

CDs aren’t meant to be liquid like checking accounts are. But some banking institutions have flexible policies, allowing you to withdraw the interest or a portion of your principal before the term ends. 

On partial withdrawals, you’ll only forfeit interest on the amount you withdraw. You can leave the remaining balance invested in the CD. 

Open a no-penalty CD

A no-penalty CD allows you to withdraw your money without fees. There’s usually only a short waiting period after the initial investment when your funds are locked (seven days is common). 

In exchange for flexibility, no-penalty CDs almost always come with lower APRs and partial withdrawals often aren’t allowed.

Create a CD ladder

In a CD ladder, you open several CDs with different maturities. When each matures, you can reinvest it into a longer-term CD. This strategy allows you to take advantage of the best APYs (which are typically on longer-term CDs) while maintaining your flexibility. 

If you need to withdraw cash early, you’ll only pay a penalty on the one CD instead of all of them. 

When it may be best to pay the penalty

While losing interest on your CD is never ideal, there are a few situations in which it could make sense to pay an early withdrawal penalty. 

You have a financial emergency

Financial emergencies like losing your job and having an unexpected car repair can wipe out your savings account. If you do, then taking funds from your CD “may be the only viable option,” Collins said. 

Paying the early withdrawal penalty is typically a better option than going into debt. 

To figure out which is the best option, check how much you’d pay if you withdraw your CD funds. Compare the amount to the interest you might pay on a credit card or personal loan, and consider how each option might impact your credit.

You found another CD with a better rate

Because you lock up your money for a certain time frame, opening a CD comes with a risk that you’ll miss out on better rates elsewhere. In some cases, it may be worthwhile to withdraw your CD funds, pay the penalty, and move your money to a higher-earning account.

Here’s how to figure out if this is the right move for you:

• Calculate the potential interest you’ll earn if you keep the CD open for the entire term.
• Figure out the amount of your CD early withdrawal penalty.
• Calculate the interest you’d earn on the higher-earning account, and subtract the amount of your penalty on the first account.

Then compare the numbers. If you earn significantly more on the new account, even when subtracting the penalty, it makes sense to break your current CD.

Frequently asked questions (FAQs)