How to Withdraw from a CD and Avoid Early Penalties

Shawn Plummer

CEO, The Annuity Expert

Certificates of Deposit, commonly known as CDs, are low-risk investments that offer higher returns than a traditional savings account. CD investors earn interest on their deposit for a specified period, known as the term of the CD. However, withdrawing money from a CD before the term ends can lead to an early withdrawal penalty, eating away any earnings. This guide will discuss how to withdraw from a CD and avoid early penalties.

Understanding The Early Withdrawal Penalty for a CD

When you open a CD, you agree to leave your money in the account for a specific term, typically six months to five years, regardless of your need for it, even if it’s for something as important as social security. Withdrawing funds from the CD before the end of the term can result in an early withdrawal penalty. The penalty varies depending on the bank; the amount withdrawn, and the term of the CD. Early withdrawal penalties can be a flat fee, a percentage of the amount withdrawn, or a combination.

Flat Fee Penalty

Some banks charge a flat fee penalty for early withdrawal, regardless of the amount withdrawn. So, for example, if you have a CD with a $10,000 balance and a $25 early withdrawal fee, you would pay that fee no matter how much money you withdraw. Flat fee penalties are typically more common for shorter-term CDs.

Percentage Penalty

Other banks charge a percentage penalty based on the amount withdrawn. For example, if you have a CD with a $10,000 balance and a 2% early withdrawal penalty, you would pay $200 for withdrawing $10,000 before the end of the term. The percentage penalty usually increases the longer the CD term.

Withdraw From A Cd And Avoid Early Penalties

Factors that Affect Early Withdrawal Penalty for a CD

Several factors can affect the early withdrawal penalty for a CD, including the bank’s policies, the amount withdrawn, and the CD term. Understanding these factors can help you minimize the penalty and avoid unnecessary fees.

Bank Policies

Different banks have different policies regarding early withdrawal penalties for CDs. Some banks may waive the penalty under certain circumstances, such as if the account holder dies, becomes disabled, or is called to active military duty. Others may have more stringent policies and charge high penalties for early withdrawals.

Amount Withdrawn and CD Term

The amount withdrawn and the CD term can also affect the early withdrawal penalty. Generally, the longer the CD term, the higher the penalty. Similarly, the more money you withdraw, the higher the penalty. Some banks may have a minimum amount that triggers a penalty, such as $1,000 or $5,000.

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Fixed annuities are almost identical to Certificates of Deposit (CDs) accounts and provide higher interest rates and penalty-free withdrawals for income.

TermInsurance CompanyAPY
N/AMoney Market Account – Optimum Bank5.26%
N/AMoney Market Account – FVC Bank5.26%
N/ASavings Account – CloudBank 24/7 5.26%
12 MonthsBread Savings CD5.50%
48 MonthsClear Spring Fixed Annuity5.15%
5 YearsAthene Fixed Annuity5.30%
10 YearsEquitrust Fixed Annuity6.00%
*Fixed annuities are only for saving money to use in retirement.

Disclaimer: This is a review. The Annuity Expert is not associated with a bank or credit union. However, fixed annuities are sold at most financial institutions. We aim to help you find the highest interest rates for your retirement savings. We may receive a small referral fee if you purchase something using a link in this guide.

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How To Withdraw Money From A Cd Properly

How to Withdraw Money from a CD Properly

While it’s best to avoid early withdrawals from a CD, there are times when it may be necessary. Here are some tips to minimize the penalty and withdraw money properly.

Know the Terms of the CD

Before opening a CD, understand the terms and the early withdrawal penalty. Some CDs may have more flexible terms, such as a one-time penalty waiver or a lower penalty if you withdraw after a specific time.

Plan Ahead

If you know, you will need to withdraw money from a CD before the end of the term plan. Consider opening a shorter-term CD or a CD ladder, a series of CDs that mature at different times. This can help minimize the impact of an early withdrawal penalty by allowing you to withdraw money from a maturing CD without penalty.

Consider Other Options

Before withdrawing money from a CD, consider other options. For example, consider taking out a loan instead of withdrawing money from a CD if you have a pressing financial need. The interest rate on loan may be lower than the early withdrawal penalty for a CD. Additionally, you may be able to borrow against the CD without penalty.

Speak to a Bank Representative

If you are unsure about the terms of your CD or the early withdrawal penalty, speak to a bank representative. They can provide the information you need to withdraw money from a CD.

How To Withdraw Money From A Cd Account

Next Steps

Certificates of Deposit can be a great investment option for low-risk returns. However, withdrawing money from a CD before the end of the term can result in an early withdrawal penalty. Understanding the penalty and the factors that affect it can help you minimize the impact of the penalty. By planning and considering other options, you can withdraw money from a CD without penalty and achieve your financial goals. As always, speak to a bank representative if you have any questions or concerns about withdrawing money from a CD.

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Frequently Asked Questions

How can I avoid an early withdrawal penalty on CD?

To avoid the penalty of early withdrawal on a CD, you can request a waiver, qualify to receive one, or look elsewhere for cash. Liquid Certificates of Deposit (CD) are beneficial as they allow more flexibility when withdrawing money without incurring penalties.

How do I waive the 10% early withdrawal penalty?

If you can wait until you reach 59 1/2 years of age, you won’t have to worry about the 10% early withdrawal penalty. Once that birthday arrives, withdrawing any amount from your IRA is entirely doable without penalty!

What happens if you pull money out of a CD early?

It will violate your agreement with the bank if you withdraw funds from the CD before its maturity date. Due to breaking this promise, most financial institutions will levy an early withdrawal penalty on you as punishment.

How much does it cost to break a CD early?

How much could you be charged for withdrawing from a Certificate of Deposit early? Rates differ between each financial institution, but the penalty typically equates to one period’s worth of interest. This could mean 90 days’ worth or 18 months, depending on your situation.

What is no penalty CD?

A no-penalty CD offers easy, penalty-free access to funds. You can withdraw the money six days after establishing your account without paying any fees or penalties. Once you’ve removed your funds, they cannot be returned to the CD.

Is it worth paying an early withdrawal penalty to break my CD?

If you’re considering breaking your current CD for a higher interest rate, comparing the new rate and fees associated with early withdrawal before making any decisions is essential. Make sure to only evaluate the rates of the proposed CD over what would have been remaining on your initial one, as this can help determine if it is worth sacrificing potential penalty fees.

How much is early withdrawal penalty for CD?

The early withdrawal penalty for a Certificate of Deposit (CD) typically ranges from several months to a year’s interest, depending on the term length of the CD and the bank’s policy.

What happens if I cash out a CD early?

If you cash out a CD early, you typically incur an early withdrawal penalty. This penalty often equates to a portion of the interest earned, effectively reducing your overall return.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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