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CD Early Withdrawal Penalty: What to Know and How to Avoid It

Matthew Levy Updated: October 1, 2023 • 4 min read
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Key Points:

  • Early withdrawal from a CD usually comes with a penalty.

  • Penalties vary among banks but often relate to the amount of interest earned.

  • There are strategies, like no-penalty CDs and CD ladders, to help minimize or avoid these fees.

Sometimes, life happens, and if you’ve invested in a Certificate of Deposit (CD), you may need to access it before its maturity date. Before doing so, though, you should understand the implications. Withdrawing early often results in a penalty, affecting your overall earnings, often significantly. Below, we will look into the specifics of the CD early withdrawal penalty, detailing the costs and suggesting ways to get around it.

CDs are time-bound savings instruments with higher interest rates in exchange for your commitment

What Is a CD Early Withdrawal Penalty?

A CD early withdrawal penalty is a fee imposed by banks or credit unions when you access funds from a CD before its maturity date. CDs are time-bound savings instruments with higher interest rates in exchange for your commitment to keep funds untouched for a specified period. If you change your mind and breach that agreement, there is a penalty for doing so in most cases. 

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What Does a CD Early Withdrawal Penalty Cost?

The penalty cost for early CD withdrawal can vary based on the bank, the CD’s terms, and how long before maturity you make the withdrawal. Typically, the penalty is calculated using a portion of the interest earned or set to be earned on the CD. For example, if you withdraw funds from a 2-year CD after only being invested for 1 year, you would likely give up several months’ interest. Some banks charge a flat fee, but others deduct a set number of months or a percentage of the principal. Ensure you review all terms of your CD before investing to understand the potential penalties. 

How to Calculate Early Withdrawal Penalty for a CD

Calculating the early withdrawal penalty for a CD will mean you need to understand the terms set by the provider of the investment. The penalty is usually based on the interest your CD would have earned over certain days or months. For instance, if the penalty is three months of interest and you earn $100 in interest each month, the penalty would be $300 to withdraw early. 

As an example, let’s say you have a CD with a principal of $5,000, an annual interest rate of 2%, and a penalty term of six months of interest. If we calculate the monthly interest at $5,000 x 0.02 = $100 annually, or about $8.33 monthly, we can compute the penalty of 6 months of interest as $8.33 x 6 = $49.98. If you withdraw early from this CD, you will face a penalty of roughly $50. 

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Penalties at Major Banks

When considering investing in a CD, understanding the fees for an early withdrawal can save you unexpected costs. Different banks will set their own penalty amounts. Below is a snapshot of some of the early withdrawal penalties for 1-year and 3-year CDs from some major banks for a quick comparison. For further information, though, review each bank’s official resources as they are subject to change. 

Bank 1-Year CD Penalty 3-Year CD Penalty 
Capital One 3 Months Interest 6 Months Interest
Marcus by Goldman Sachs  6 Months Interest 6 Months Interest
Discover 6 Months Interest 6 Months Interest
Synchrony 3 Months Interest 6 Months Interest
Quontic Bank 1 Year of Interest 1 Year of Interest
Ally Bank 2 Months Interest 3 Months Interest
First National Bank of America  6 Months Interest 360 days of interest

Avoiding CD Early Withdrawal Penalties

Life happens, and sometimes you need funds unexpectedly. However, it’s always best to explore all of your options, as dipping into your CD funds before maturity can mean losing out on potential earnings and usually incurring penalties. There are a few strategies to look into to provide more flexibility with your funds to ensure you have access when you need it. 

Look For Flexible Policies

Not all banks are as rigid with their CD terms. Some institutions are more lenient with early withdrawals than others. Carefully shop and compare policies to find banks with minimal penalties or longer grace periods for accessing your funds. In addition, some banks offer withdrawal of interest amounts or other custom terms, so it pays to do your due diligence. 

Open a No-Penalty CD

No-penalty CDs exist as a way for those wary of lock-in periods to gain some interest while maintaining liquidity. With this type of CD, you can withdraw money without facing penalties, but the trade-off is that they usually offer you lower interest rates than traditional CDs. 

Create a CD Ladder

A CD ladder involves opening multiple CDs with different maturity dates, usually by stacking 1, 2, 3, 4, etc., years in a row with your money in equal amounts. This lets you access a portion of your investments regularly as each CD matures. So if you need funds, you can wait for the next CD in your ladder to mature instead of breaking a long-term CD. 

Considering these three options will let you find the balance between earning the most interest and having flexibility with your funds. 


Certificates of Deposits (CDs) can be excellent saving instruments, with higher returns than standard savings accounts. However, the penalty for early withdrawal can reduce your benefits if you need access to the funds early. Suppose you understand the implications of these penalties and consider other options like flexible policies, no-penalty CDs, and CD ladders. In that case, you may be able to get the best of both worlds. Always assess your financial needs and research thoroughly before committing your funds to a CD, and find the best option for you. 



How much is a CD penalty?

The early withdrawal penalty for a CD varies between banks and the term length of the CD. Typically, penalties are expressed as a number of months' worth of interest, ranging from a few months to a year or more.

Can I get a no-penalty CD?

Yes, some banks offer no-penalty CDs, allowing you to withdraw your funds before maturity without any charges. However, they may come with slightly lower interest rates compared to traditional CDs.

Can I withdraw interest from a CD without penalty?

It depends, but often this is available. Many banks allow you to withdraw the interest earned on your CD without incurring a penalty. However, the principal amount remains locked until maturity. It's always advisable to check with your bank about their specific policies regarding interest withdrawals.

Written by Matthew Levy

Matthew is a freelance financial copywriter with 14+ years in financial services. He holds a Bachelor of Science degree in Economics with business and finance options and is a CFA Charterholder. He is from Vancouver, Canada, but writes from all over the world.