CD Early Withdrawal Penalty

Certificates of deposit, or CDs, have become far more popular in recent years. Rising interest rates have made them attractive alternatives to investing in the stock market or leaving money in savings accounts. CDs are designed to be places to keep money for a certain length of time and are also known as time deposits.

While CDs have a certain maturity term, you can still take your money out if you need it. However, if you withdraw money from a CD early, it can result in a penalty. Here's what you need to know about CD early withdrawal penalties, how they work, and how to avoid them.

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Alarm clock sitting atop a pile of cash. — Image source: Getty Images.

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Certificate of Deposit (CD)

A low-risk, time-bound savings account offering higher interest rates in exchange for locking in funds.

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One key takeaway is that you wouldn't take too hard of a hit for withdrawing the money early. After all, your $5,000 has been sitting in the account, earning 5% interest for a year, so there should be about $5,250 at the time of the withdrawal (before the penalty). So, you'd still leave with more money than you had when you bought the CD.

The point is that although financial penalties are never fun, CD early withdrawal penalties aren't as harsh as many people think.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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