Can You Withdraw Money From a CD Before It Matures?

A Certificate of Deposit (CD) is a savings account offered by financial institutions. It functions as a time-deposit account, where funds are deposited for a specific, predetermined period, known as the term. In exchange for keeping money for this fixed term, CDs offer a fixed interest rate, often higher than traditional savings accounts. This structure provides a predictable return on savings.

Understanding Early Withdrawal from CDs

It is possible to withdraw money from a Certificate of Deposit before its maturity date, but this involves specific conditions. CDs are designed for funds to remain untouched for the entire specified term. This commitment allows financial institutions to offer higher interest rates than more liquid accounts. Accessing funds before the agreed-upon maturity date is an “early withdrawal,” which has financial consequences.

Common Early Withdrawal Penalties

Financial institutions impose penalties for early withdrawals from Certificates of Deposit. These penalties are calculated as a forfeiture of accrued interest. The exact penalty varies by institution, the CD’s term length, and the interest rate. For instance, a CD with a term of six months or less might incur a penalty equivalent to three months’ interest. Longer-term CDs, such as a five-year CD, could have penalties ranging from six to twelve months’ worth of interest.

If the accrued interest is not enough to cover the penalty, the remaining amount may be deducted from the principal balance. For example, if a penalty is $200 but only $150 in interest has been earned, the additional $50 comes directly from the deposited principal. Federal law mandates a minimum penalty of at least seven days’ simple interest if funds are withdrawn within the first six days after deposit. There is no federal maximum penalty, allowing institutions to set higher rates. CD holders should review their account agreement for detailed penalty policies.

Circumstances for Penalty-Free Withdrawal

While early withdrawals from Certificates of Deposit incur penalties, some situations and CD products allow for penalty-free access. Some financial institutions may waive early withdrawal penalties for the CD holder’s death or qualifying disability. These are outlined in the CD agreement and are not offered by all institutions.

Specialized CD products offer more flexibility. “No-penalty CDs,” also known as “liquid CDs,” permit withdrawals without penalty after a short initial waiting period, often seven days from funding. These CDs provide a fixed interest rate with liquidity, allowing access to funds for unexpected needs or to capitalize on rising interest rates. However, no-penalty CDs may offer slightly lower interest rates than traditional CDs with similar terms, reflecting the trade-off for flexibility. Most no-penalty CDs require the withdrawal of the entire balance rather than allowing partial withdrawals.

Steps to Initiate an Early CD Withdrawal

Initiating an early withdrawal from a Certificate of Deposit involves a process. First, contact the financial institution where the CD is held, whether a bank or credit union. This can be done by phone, online banking, or by visiting a local branch. During this contact, identify the specific CD account from which to withdraw funds.

The institution will confirm the CD terms and calculate any applicable early withdrawal penalties based on the account agreement. This calculation determines the net amount the account holder will receive after penalties. The financial institution will guide the account holder through any required paperwork to process the withdrawal. Funds are typically disbursed directly to a linked checking or savings account, or by check.