How to Calculate the Penalty on an Early-Withdrawal of a CD

Your early-withdrawal penalty depends on the term length of your CD, your interest rate, and how much you choose to withdraw.

Dec 31, 2015 at 4:05PM

A certificate of deposit (CD) account can be an appealing option for people who want a risk-free place to put their cash while earning more interest than a savings or money-market account can offer. However, CDs (also known as time accounts) require a commitment to leave the money deposited for a certain length of time. If you need to withdraw money from a CD before the agreed-upon date, then you'll most likely face a penalty.

Different banks have different policies, so here's a guide to help you calculate your early-withdrawal penalty.

First, check your bank's policy on early withdrawals
Generally, early withdrawals on a CD are penalized as a certain amount of interest, depending on the term length of the CD account.

For example, Wells Fargo (NYSE: WFC) uses the following penalty schedule:

CD Term

Early-Withdrawal Penalty

Less than 3 months

1 month interest

3-12 months

3 months interest

12-24 months

6 months interest

More than 24 months

12 months interest

Minimum penalty amount


On the other hand, Ally Bank (NYSE: ALLY) uses a slightly different schedule:

CD Term

Early-Withdrawal Penalty

2 years or less

60 days interest

3 years

90 days interest

4 years

120 days interest

5 or more years

150 days interest

The first thing you need to do is check your bank's policy on early withdrawals. Also be sure to check whether the penalty is calculated based on the amount of money you withdraw early or on the total balance of the account.

Calculating the early-withdrawal penalty
Because financial institutions compute interest and assess penalties in different ways, it's tough to use a set formula to determine an early-withdrawal penalty. With that in mind, here are a few scenarios and the formula to use with each one.

Scenario 1: If your bank assesses the penalty only on the money you withdraw and calculates the penalty on a monthly basis (like Wells Fargo), then use this formula:

Cd Wd Formula

For example, if you withdraw $5,000 early from an 18-month CD with a 1.00% interest rate, the penalty would be:

Cd Wd Formula

Keep in mind that many banks have a minimum penalty amount. In Wells Fargo's case, it happens to be $25, so if the calculated penalty is less than this amount, you'll still be assessed a $25 penalty.

Scenario 2: If your bank calculates the penalty as months of interest, but on the account's entire balance, then modify the formula as follows:

Cd Wd Formula

Scenario 3: If your bank calculates the penalty on a daily (not monthly) interest basis, then the above formulas can be modified accordingly:

Cd Wd Formula

As another example, Ally doesn't allow partial withdrawals, and it calculates penalties based on daily interest, as you can see in the chart above. If you have a five-year, $10,000 CD at 1.50% interest and choose to redeem the CD early, then your penalty will be:

Cd Wd Formula

It's also worth noting that any accumulated interest on the account will be used to offset the penalty. If the penalty is greater than the interest your account has earned, then the remainder will be deducted from the principal.

Why do CDs have early-withdrawal penalties?
CDs generally pay higher interest rates than savings and money-market accounts offered by a particular bank. The penalty is in place to protect the bank so that deposits that the bank is counting on for a long period of time don't suddenly become short-term deposits -- and to compensate the bank if they do.

While it can certainly be annoying to pay a penalty, the fact of the matter is that, with the current low interest rates, it's relatively cheap to withdraw money from a CD early if you need it, especially compared to other types of accounts with early-withdrawal penalties (such as retirement savings).

The $15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors based in the Foolsaurus. Pop on over there to learn more about our Wiki and how you can be involved in helping the world invest, better! If you see any issues with this page, please email us at Thanks -- and Fool on!

The Motley Fool has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Wells Fargo. The Motley Fool has the following options: short January 2016 $52 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers