Can You Take Money Out of a CD Early?

A Certificate of Deposit (CD) functions as a time deposit account offered by banks and credit unions, where a fixed sum of money is held for a predetermined period at a specific interest rate. These accounts generally provide higher interest rates compared to standard savings accounts in exchange for the commitment to keep funds untouched until a specified maturity date. While it is generally possible to access money from a CD before its maturity, doing so typically involves financial consequences.

Understanding Early Withdrawal Penalties

Withdrawing funds from a Certificate of Deposit before its maturity date usually triggers an early withdrawal penalty, a fee imposed by the financial institution for breaking the agreement. The specific amount of the penalty can vary significantly between institutions and often depends on the CD’s term length.

Penalties are commonly calculated as a forfeiture of a certain number of months’ worth of interest. For example, shorter-term CDs (less than one year) might incur a penalty of three months’ interest. Longer-term CDs (five years) could have penalties ranging from six to twelve months’ interest or more. If accrued interest is insufficient to cover the penalty, the difference may be deducted from the principal, potentially resulting in less money back than originally invested.

Circumstances for Penalty-Free Access

Some Certificates of Deposit offer penalty-free withdrawals under specific conditions. “No-penalty CDs,” also known as “liquid CDs,” permit early withdrawals without a fee after an initial waiting period, typically seven days from funding. While these CDs provide greater liquidity, they often come with slightly lower interest rates compared to traditional CDs, balancing convenience with earnings.

Beyond specific CD types, some financial institutions may waive early withdrawal penalties in extenuating circumstances. Common exceptions include the death or permanent disability of the account holder, allowing penalty-free withdrawal. Some institutions might also consider waiving penalties for documented financial hardships, such as job loss or significant medical expenses, though these are reviewed case-by-case and are not guaranteed.

Process for Early Withdrawal

Early withdrawal from a Certificate of Deposit typically involves direct communication with the financial institution. Account holders can usually contact their bank or credit union through customer service, a local branch, or online banking portals. Have the CD account number and proper identification ready to verify ownership and process the request.

Before processing the withdrawal, the financial institution will calculate any applicable early withdrawal penalties based on the CD’s terms and conditions. They will inform the account holder of the penalty amount that will be deducted. Once the penalty is applied, the remaining funds can be disbursed according to the account holder’s preference, such as a transfer to another account or a check. The processing time for an early withdrawal can vary, ranging from one to several business days, depending on the institution’s policies and the method of disbursement.