CD Early Withdrawal Penalties

Early Withdrawal Penalties at Major Banks
bank	One-year CD penalty	Five-year CD penalty
Ally	60 days of interest	150 days of interest
Bank of America	90 days of interest	365 days of interest
Capital one	Three months of interest	Six months of interest
Chase	180 days of interest	365 days of interest
Discover	six months of interest	18 months of interest
Synchrony	90 days of interest	365 days of interest
TD Bank	six months of interest	24 months of interest
Wells Fargo	six months of interest	12 months of interest

Walking Away With Less Money

When you incur penalties on a CD withdrawal, you can lose money and walk away with less than you deposited, in addition to missing out on interest that you would have earned.

For example, suppose you have a 12-month maturity CD that you cash out in the 11th month. You’ll probably walk away with more than you initially put into the CD—although not as much as it could have been had you held off for one more month.

Continuing with this same example, suppose you were to cash out after two months. You haven’t yet earned the six months’ interest as required by the penalty schedule. However, the bank will still take that amount by deducting it from your initial investment deposit. This action is called “invading the principal.”

How To Avoid CD Early Withdrawal Penalties

If you absolutely must cash out early, look for a way to avoid penalties. First, it never hurts to ask. The staff might waive the penalty for you, particularly if it’s an emergency and if you’re at a friendly institution or a smaller credit union. Otherwise, all they can do is say no.

You can usually qualify for a waiver for death, disability, court-determined incompetence, and other major life events. In those types of cases, speaking directly with a representative is particularly important. Banks are permitted to offer these waivers, but that doesn’t necessarily mean that they will. They’re not required to do so by law.

‘Liquid’ No-Penalty CDs

Liquid CDs are similar to standard CDs, but they work more like traditional savings accounts in that they allow you to pull money out early. Sometimes, liquid CDs have limits as to how early and how much you can withdraw, and you might have to make at least a minimum deposit, but they’re worth investigating.

Your “locked in” period is relatively short with these CDs—less than a week in many cases. Still, no one would invest in traditional CDs if this option were that easy. Since you have more flexibility, you’ll receive a lower interest rate in exchange for this freedom.

Alternative CD Strategies

You can try to use other flexible options to avoid penalties when you’re tucking your money away in the future. CDs aren’t bad options, but there might be better alternatives if you find that you keep having to pay penalties.

CD Ladders

Laddering CDs is a strategy where you’ll periodically have one of several mature CDs, often on a six-month or annual basis, giving you the opportunity to take the money penalty-free at that time.

Step-Up CDs

Step-up CDs offer more flexible interest rates. Your rate will increase to keep pace when interest rates rise. This alternative can be attractive if your concern is being stuck with a paltry rate for the whole CD term. Again, these CDs pay less on average than traditional CDs.

Money Market Accounts

Money market accounts pay more than savings accounts, but generally not as much as CDs. The advantage is that you can do limited spending from a money market account using a debit card or a checkbook.

Credit Cards

Credit cards are an expensive way to borrow, but if you need money quickly and your CD will mature soon, it might cost less to put emergency expenses on a card and pay it off as soon as the CD matures. However, a much better idea is to keep a solid emergency fund.

Frequently Asked Questions (FAQs)