Can I Withdraw the Interest on a CD Before Maturity?

Can I Withdraw Money From a CD Before Maturity?

While most CDs require you to keep your funds in the account for a specific term, you can typically withdraw money from the account before its maturity date. Some CDs allow you to withdraw a portion of the funds early, while others require you to take the whole balance.

Either way, you'll usually pay an early withdrawal penalty that eats into your earnings. The specific penalty you pay depends on your CD's terms. You also lose out on any interest you would have earned over the remaining period when you close the account early.

Learn more: How Much Money Should I Put in a CD?

What Is a CD Early Withdrawal Penalty?

A CD early withdrawal penalty is a fee you pay for taking money out of your CD account before its maturity date. Early withdrawal penalties vary by financial institution, but they're typically calculated as a set period's amount of interest.

For example, let's say you put $5,000 in a five-year CD with a 4% APY, and you stand to lose 150 days' interest if you take out your money and close the account early. You decide to withdraw all your funds after three years, which means you'll owe a penalty of $82.19. You also lose out on the amount you would have earned in the final two years of the term.

The exact penalty you pay depends on the financial institution, the CD term and how long the CD has been open. If you haven't earned enough interest to pay the penalty, the financial institution may take the difference from your principal.

Learn more: Are CDs Worth It?

How Much Is a CD Early Withdrawal Penalty?

CD early withdrawal penalties depend on the bank, CD term and yield in question.

Here are some examples of penalty amounts among some of the top financial institutions.

When to Consider Making an Early CD Withdrawal

Leaving funds in your CD for its entire term is usually best, since you'll earn the most interest that way. But in some situations, an early CD withdrawal may be necessary or preferable. For example, you might tap the CD early if:

• You need to pay for an emergency expense. If you're facing a large medical bill, unexpected car repair or another financial emergency, it may be better to tap your CD than use a high-interest credit card.
• Interest rates have risen significantly. CDs usually come with a fixed interest rate for the entire term, but that means losing out on higher earnings if rates rise. It may be worth breaking your CD ahead of schedule if you can secure a significantly higher rate. Check current rates and do the math to see if you'd earn more with the new CD even after paying the penalty.
• You're planning a major life event. While you may try to choose a CD term that aligns with the date of an upcoming purchase, that's not always possible. You may need to withdraw from your CD early to cover major needs, like a college tuition bill that's due before your CD's maturity date.
• Another investment earns a higher return. Your money might get a higher return in another investment, even when you account for the early withdrawal penalty. For example, you could use the money toward the down payment on a home, which shrinks your interest costs.

How to Avoid CD Early Withdrawal Penalties

You may be able to avoid CD early withdrawal penalties by using one of these strategies:

• Choose a no-penalty CD. A no-penalty CD allows you to withdraw funds before maturity without incurring a penalty. There's a short waiting period—which is a minimum of six days after funding the account—before you can withdraw the funds. While these accounts offer flexibility, some of them come with lower rates than standard CDs.
• Build a CD ladder. A CD ladder is a strategy where you deposit money into several CDs with staggered maturities. This allows you to take advantage of high rates while still having the option to access your money at set intervals.
• Use a brokered CD. A brokered CD is a type of CD you can buy at a brokerage or investment firm. You'll typically get a higher APY than with a standard account, and you can avoid the early withdrawal penalty by selling the CD on the secondary market.

Learn more: When Is the Best Time to Open a CD?

The Bottom Line

It's possible to withdraw interest from your CD before maturity. But when you do this, you may have to pay an early withdrawal penalty, and you forfeit future interest earnings. Exploring all your options can help you find the best place to park your savings without incurring losses.