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Can You Lose Money in a CD?

Published June 18, 2024
Steven Porrello
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures that our product ratings are not influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

On a scale of least to most risky places to save or invest your money, stocks would fall on one end of the spectrum, while savings accounts would fall on the opposite end. Somewhere in the middle, nestled close to bonds, are certificates of deposit (CDs), a savings product that has FDIC insurance but carries some risks.

Excluding no-penalty CDs, most CDs have an early withdrawal penalty. The penalty is designed to discourage you from withdrawing money before your term is up. Often, you'll forfeit some interest if you do.

But in some scenarios, you could even lose some of your initial deposit. Here's how.

Early withdrawal penalties are equal to several months of interest

The most common way you can lose money is by breaking a CD contract before you earn enough interest to pay the penalty.

Most short-term CDs, like those with six- to 12-month terms, impose an early withdrawal penalty that's equal to several months of earned interest, while long-term CDs may have a penalty equal to 12 months or more. If you have a 12-month CD that charges a penalty worth three months of interest, breaking your contract before the three month mark would result in a loss.

Don't miss that. It doesn't matter if you've earned that interest; your CD provider will expect you to pay the penalty. That means it could take some money from your principal if you don't have enough to cover the fee. Depending on how long you've had the CD before breaking the contract, this could be a sizable amount.

Rates as of Nov. 21, 2024
Bank & CD Offer APY Term Min. Deposit Next Steps
APY: 4.10% Term: 1 Year Min. Deposit:  $0
Open Account for Discover® Bank CD

On Discover Bank's Secure Website.

Member FDIC.
APY: 4.00% Term: 10 Months Min. Deposit:  $2,500
Open Account for

On Secure Website.

Member FDIC.
APY: 4.25% Term: 6 Months Min. Deposit:  $500
Open Account for

On Secure Website.

Brokered CDs come with their own risks

Brokered CDs are offered through brokerage accounts, like Fidelity. They often boast high APYs with a variety of terms. To buy one, you must have a brokerage account with the broker, and you typically buy them in set amounts (like $1,000). But the higher APYs are appealing and could help you earn the most interest on your savings.

These CDs don't have early withdrawal penalties. In fact, the only way you can break your term is by selling the brokered CD on a secondary market. This would involve finding a buyer who wants to take the CD off your hands.

Sometimes, this works in your favor. For instance, if you have a CD with a 6.00% APY at a time when the ongoing CD rate is 3.00%, you won't have trouble finding a buyer. But if the opposite was true, and you had a 3.00% CD while CD rates were as high as 6.00%, you might have to take a loss to attract buyers at all.

You won't lose money if you don't break your terms

Finally, rest assured that your money is safe if you stay within your CD contract. As long as your CD provider has FDIC insurance, your CD deposit will be safe up to $250,000.

If you have savings you won't need in the near term, an early withdrawal penalty shouldn't scare you. Today's CD rates are high in comparison to years past. Stashing cash in a CD could help you keep pace with inflation (assuming CD rates are above the inflationary rate), not to mention prevent you from spending money in a checking account.

Of course, don't be tempted by CD rates if you don't have much savings in your bank account. Earning high interest means nothing if you have to forfeit it or your principal to access your money. A high-yield savings account or money market account would be better for your money.

In sum, yes, you can lose money on a CD. But as long as you don't withdraw too early, you'll be left with at least your principal. Keep your money in for the entire term, and you won't lose anything at all -- you'll have your principal, plus money earned on today's high APYs.

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