CD early withdrawal penalties: What they are and how to avoid them

But there is one caveat: A CD isn’t designed to offer easy access to your cash. When you open a CD, you promise to lock that money up for a fixed period, referred to as a term. If you break that promise, your bank is likely to charge an early withdrawal penalty. This will negate some (or all) of your accrued interest. It can even eat away at your principal.

Here’s everything you need to know about CD early withdrawal penalties.

What is a CD?

CDs are deposit accounts that banks offer where you agree to deposit money for a set time—the term. Credit unions also offer these types of accounts, called share deposits.

During your account term, your money earns interest. When the term ends, your CD “matures” and you’ll have the option to either cash out the CD—and collect your initial deposit plus the accrued interest—or roll your money into a new CD with equal or different terms and interest rates.

One of the key terms to be aware of when selecting a CD is the annual percentage yield, or APY. This is a number expressing the interest that you’ll earn on the account. However, it’s not exactly the same as your interest rate. The number for a CD’s APY will usually be slightly higher than the interest rate on the account, as the APY reflects the effect of compound interest.

What is a CD early withdrawal penalty?

A CD early withdrawal penalty, simply put, is a fee that banks typically charge if you withdraw funds before your account matures. You’ll forfeit some of your accrued interest. In the worst cases, an early withdrawal penalty could cost you all your accrued interest plus some of your initial investment.

All to say, you could lose money if you decide to access your deposit before it matures.

Some specialty certificates of deposit, often labeled “flexible CDs,” allow customers to make a withdrawal before the account has fully matured without penalty. You’ll be able to keep the interest you’ve accrued in such cases.

Why do banks charge early withdrawal penalties on CDs?

Banks charge penalties for early withdrawal for a couple reasons:

• Federal law dictates that a minimum penalty must be charged for early withdrawals from a CD. If you withdraw money within the first six days after you deposit, you must be charged at least seven days’ interest.
• A bank uses the money you deposit into a CD for its business, such as funding other loans. Early withdrawal affects those plans.

How to calculate a penalty for early CD withdrawal

Each bank has its own unique penalty for early withdrawal. Before you can calculate what you’ll owe, you need to know your specific CD’s terms. You can typically find this information in the deposit account agreement or on your bank’s website.

Banks charge early withdrawal penalties on the amount you withdraw early. Then, they’ll use that figure to determine the penalty, which is generally a set number of days’ or months’ worth of interest.

Here are two formulas that may help you estimate early withdrawal penalties in different scenarios.

Here’s an example: Let’s assume your bank’s penalty is 180 days’ interest on the amount withdrawn. In this case, withdrawing $1,000 from a CD with a 3.90% APY would incur a penalty of $19.23, calculated as follows:

$1,000 x (0.039/365 days) x 180 days = $19.23

Banks may also set a minimum penalty. For example, a bank may enforce a 30-day loss of interest for all CDs of less than three months. If you haven’t earned enough interest to cover the fee, funds will be taken from the principal.

How much are early withdrawal penalties on CDs? 

Again, each bank determines its own early withdrawal penalties. While there’s no cap on the penalties banks can charge, most banks try to keep early withdrawal fees more or less in line with competitors.

Here are the early withdrawal penalties from banks that often rank on our list of best certificates of deposit.

Bank details checked Aug. 5, 2025.

How to avoid early withdrawal penalties

If you’re looking at these fees and thinking there has to be a way to avoid them, you have a few options.

Request a waiver

Some banks may waive the penalty if you’re withdrawing money due to a crisis, like a death or disability of the CD owner. Reach out to your bank and explain the situation. The worst they can do is say no.

Consider a no-penalty CD

If you want all the benefits of a CD but more flexible access to your funds, look for banks that offer no-penalty CDs. You won’t be stuck with fees if for some reason you need to tap funds. But in exchange for this flexibility, no-penalty CDs tend to offer lower interest rates.

Use a CD ladder

Throwing a huge deposit into a single CD ties your savings up until that certificate matures, but you can create regular opportunities to access your money using a CD ladder.  This strategy involves opening several CDs simultaneously, each with a different term.

For example, instead of investing $10,000 in one CD, you might divide that money up between four CDs of 3-, 6-, 9-, and 12-month terms. This strategy ensures you have a CD maturing every three months in case you need cash. If you need the money, great—withdraw your investment and the interest you’ve earned. If you don’t, roll the money over into a new 12-month CD and keep the ladder going.

CD ladders can also help you increase your returns since they let you capture the best possible rate each time a CD matures. 

Even if interest rates decrease during your CD’s term, you have peace of mind knowing your money remains locked into a higher APY until the current CD reaches maturity.

Explore a CD-secured loan

CD-secured loans use your CDs as collateral for a personal loan. Your CDs remain untouched, but you can use up to the same amount of money for what you need now. Just note that you’ll be charged interest for it.

If you have a substantial sum invested in CDs but don’t want to jeopardize your interest earnings, CD-secured loans can give you cash in a pinch—and typically at lower rates than unsecured personal loans.

Bonus: Turn to your emergency fund

One of the most foundational types of financial accounts we recommend everyone contribute to is an emergency fund you can draw from to pay unexpected bills. Keeping enough for three to six months’ expenses in a high-yield savings account specifically earmarked as your emergency fund is a good rule of thumb. Having this financial cushion can prevent having to tap less liquid savings like CDs or running up expensive credit card debt.

When paying an early withdrawal penalty makes sense

Despite all the drawbacks of CD early withdrawal penalties, there are times when paying them could make sense. You’ll need to assess each situation on a case-by-case basis to determine when paying the penalty puts you ahead.

For example, paying an early withdrawal penalty might make sense if your CD is earning considerably less than current interest rates. Say you’ve got a long-term CD earning a 2.00% APY and you spot a different CD offering 4.50% APY. If you can withdraw the funds while only sacrificing a portion of the interest you’ve earned and no principal, you might decide it makes sense to cash out and lock in the higher rate with a new CD.

The takeaway

CD early withdrawal penalties can put a significant dent in your earnings—and even your initial investment.

Before tapping a CD that hasn’t matured, look for alternative ways to get the funds you need. A solid emergency fund can help you weather a wide variety of financial curveballs, but there are times when breaking a CD can make sense.

Frequently asked questions