{"id":21017,"date":"2025-12-03T17:05:28","date_gmt":"2025-12-03T23:05:28","guid":{"rendered":"https:\/\/www.discover.com\/online-banking\/banking-topics\/?p=21017"},"modified":"2026-02-03T17:07:52","modified_gmt":"2026-02-03T23:07:52","slug":"cd-early-withdrawal-penalty","status":"publish","type":"post","link":"https:\/\/www.discover.com\/online-banking\/banking-topics\/cd-early-withdrawal-penalty\/","title":{"rendered":"What is a CD early withdrawal penalty?"},"content":{"rendered":"\n

A certificate of deposit (CD) can offer a sweet spot between investing (which can be riskier) and typical savings vehicles (which might not offer as high a return on your money). Locking in higher interest rates with a CD might feel like an easy financial win\u2014until life throws a curveball and you need that cash early. If you withdraw your funds before the CD term ends, you might be charged a CD early withdrawal penalty. And these penalties can significantly reduce the interest earned.<\/p>\n\n\n\n

To help you avoid losing out on interest earnings, let\u2019s look at how financial institutions calculate early withdrawal penalties for CDs\u2014and how you can avoid (or at least minimize) their impact.<\/p>\n\n\n\n

<\/a>What is a CD account?<\/h2>\n\n\n\n

First, how does a certificate of deposit work<\/a>? A CD is a type of savings product that pays account holders a guaranteed amount of interest, assuming funds remain in the account until the CD term is over. Most banks and credit unions offer a range of CD terms. This flexibility makes it easy to find a CD that works for your savings situation.<\/p>\n\n\n\n

For example, if you want to buy a home in 12 months, you might put the money you\u2019ve saved for a down payment in a CD with a 9-month term. CDs are insured by the FDIC\u2014standard FDIC insurance amount is $250,000 per depositor, per insured bank, and per account ownership category (e.g., CD, checking, or savings accounts).<\/p>\n\n\n\n

The interest rates on CDs are typically higher than traditional savings accounts and, unlike savings accounts, they will not change from the time you invest in them. There is, however, a tradeoff to these predictable and potentially higher rates. While you can access your savings account whenever you want, the money in a CD is essentially off-limits for the term length. You typically can\u2019t withdraw funds from a CD without paying a penalty fee. Many consumers find the benefits of a CD<\/a> outweigh this temporary lack of access. In fact, some CD users see restricted access as a pro, as it reduces spending temptation and can keep savings goals on track.  <\/p>\n\n\n\n

 How a CD early withdrawal penalty works<\/h2>\n\n\n\n

A CD early withdrawal penalty helps encourage savers to keep their money in the CD, making it possible for financial institutions to use those funds for things like loans (which is why they can guarantee the interest rate). Because CD term lengths vary so broadly, knowing what\u2019s best for you can be challenging.<\/p>\n\n\n\n

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To better understand how a CD early withdrawal penalty works, let\u2019s address some frequently asked questions:<\/p>\n\n\n\n