How to Close a CD Account and Access Your Funds Safely

Closing a Certificate of Deposit (CD) account requires careful planning to avoid fees and ensure you receive your funds without complications. Whether your CD is reaching maturity or you need to withdraw early, understanding the process helps prevent costly mistakes.

Reviewing Account Terms

Before closing a CD, review your account agreement. Each financial institution has different policies on withdrawals.

Check if your CD has an automatic renewal feature. Many banks roll over maturing CDs into a new term unless you provide instructions to withdraw or modify the account. If your CD renews automatically, you usually have a 7- to 10-day grace period to make changes without penalties. Missing this window could lock your funds into a new term.

Also, review your interest rate structure. Fixed-rate CDs maintain the same rate, while variable-rate CDs fluctuate with market conditions. Some CDs offer step-up or bump-up features, allowing you to increase your rate during the term. Understanding how your interest was calculated ensures your final payout aligns with expectations.

Checking Maturity Dates

Knowing your CD’s maturity date ensures timely withdrawals. Banks usually notify account holders before maturity, but outdated contact information can lead to missed notices. Checking your online banking account or calling your bank confirms the maturity date and deadlines for withdrawal or renewal.

Plan ahead, as some banks only process withdrawals on business days. If your CD matures on a weekend or holiday, funds may not be available until the next business day. Transfers to another account may take time—wire transfers are usually immediate but may involve fees, while ACH transfers take one to three business days.

Penalties for Early Closure

Withdrawing from a CD before maturity usually results in penalties, which vary by institution and term length. Banks impose these penalties to discourage early withdrawals.

Penalties typically involve forfeiting a portion of accrued interest. A 12-month CD might have a penalty of 90 days’ interest, while a five-year CD could require forfeiting 12 months’ interest. If the interest earned isn’t enough to cover the penalty, some banks deduct from the principal.

If your CD is in an Individual Retirement Account (IRA), early withdrawals before age 59½ may trigger a 10% IRS tax penalty in addition to regular income taxes. Exceptions exist for first-time home purchases and higher education expenses, but they must meet IRS criteria. While non-IRA CDs don’t have federal tax penalties, losing earned interest can impact savings.

Closing Procedures

Closing a CD requires following your bank’s specific procedures. Most banks allow closures in person, over the phone, or online, but some require a written request or signed authorization, especially for large balances or joint accounts. If the CD is jointly held, all account holders may need to provide consent.

Banks require identity verification before processing a closure. You’ll typically need a government-issued ID and account details. If the CD is linked to a trust, business, or estate, additional documents—such as a trust agreement, business resolution, or executor authorization—may be required. Confirming these requirements in advance prevents delays.

Accessing Your Funds

After closing a CD, you can receive your funds through direct deposit, a cashier’s check, or a wire transfer. Each method has different processing times and potential fees. Some banks limit daily transfer amounts for online transactions, which could delay access if your balance is large.

If reinvesting, coordinating the transfer in advance prevents gaps in earnings. Some banks offer promotional rates for rolling over maturing CDs. Interest earned is taxable and will be reported on a Form 1099-INT, so setting aside funds for potential tax liabilities can prevent surprises.

Maintaining Documentation

Keep records of your CD closure and fund disbursement for financial tracking and tax reporting. Banks provide a final account statement or closure confirmation, which should be retained for reference. This document details total interest earned, any penalties deducted, and the final payout amount.

For tax purposes, banks issue a Form 1099-INT if interest income exceeds $10 in a year. Reviewing this form against your records ensures accuracy before filing taxes. If there’s an error, contact your bank promptly for corrections. Keeping organized records also helps with future financial planning, especially if reinvesting in other interest-bearing accounts.