How CD Early Withdrawal Penalties Work
When you cash out a CD before its maturity date, the bank charges a penalty, almost always expressed as a number of months of interest. Common penalties are 3 months of interest on CDs under 12 months, 6 months on 1–3 year CDs, and 12 months on longer terms. The penalty is calculated on the amount withdrawn, not on the interest you happen to have earned.
Can a Penalty Eat Into My Principal?
Yes. If you withdraw very early — say 2 months into a CD with a 6-month penalty — you haven't earned enough interest to cover the penalty, and the difference comes out of your deposit. This calculator warns you when that happens.
When Breaking a CD Makes Sense
- Rates have risen so much that a new CD would out-earn the penalty cost.
- You need the cash for an emergency and the alternative is high-interest debt.
- Consider a no-penalty CD next time if you value flexibility.