A certificate of deposit (CD) is a type of savings account offering higher interest rates than traditional savings in exchange for depositing your money for a fixed period, called a CD term. Terms can range from three months to five years or longer. Generally, the longer the CD term, the higher the annual percentage yield (APY) you'll receive.
Be aware, if you withdraw money before the term ends, you'll likely incur an early withdrawal penalty, often equivalent to several months of interest. While it's best to keep your funds in a CD to earn higher returns, a situation may arise where you might need to withdraw the money early, even with the risk of penalties.
How to Withdraw Money From a CD Account
A certificate of deposit is designed for long-term growth, but if you need to pull the cash in your CD account, rest assured the process is relatively straightforward. Here's how to withdraw money from a CD account in five simple steps.
1. Review the CD Terms
Before you proceed, make sure you understand the terms of your CD contract, including the maturity date and what penalties you may incur for making an early withdrawal. This information should have been disclosed when you opened your CD.
Federal law sets a baseline for early disbursements from a CD, but it doesn't cap the penalty.
Withdrawal fees vary but are often equivalent to several months' worth of interest. For example, depending on the issuer, a five-year CD could charge anywhere from six to 18 months' worth of interest.
Review your contract to determine if your CD agreement includes any exceptions for early withdrawal penalties. For example, some institutions may waive the penalty for situations like unemployment or emergency medical expenses.
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2. Consider Your Options
It's worth taking a moment to consider all your options before pulling money from your CD account. On one hand, withdrawing funds early may be worth it if you're facing a financial emergency. Or perhaps you want to invest in a different CD or another investment product with a higher return that would offset the early withdrawal penalty. Additionally, using your CD money to pay off higher-interest debt may be wise if your earnings from the CD—minus the withdrawal fee—are less than the interest charges on your debt.
On the other hand, if your financial need isn't urgent and the penalty will take a huge bite out of your interest earnings, leaving your money in your CD and allowing it to grow might be your best bet. Similarly, if you're close to the maturity date, it may make more sense to wait until your CD matures before withdrawing. A no-penalty CD, also known as a liquid CD, can be a good option if you anticipate making an early withdrawal.
3. Speak to a Bank Representative to Initiate Your CD Withdrawal
You can make a withdrawal by speaking with a representative from your bank or credit union, either by phone or in person at a local branch office. The process of withdrawing funds from a CD varies by institution, and some may allow you to handle the withdrawal online.
Speaking with a representative directly is a good idea so you can ask questions about their specific procedures. For example, you could ask about the impact of a withdrawal on the interest your CD is currently earning. If you only want to make a partial withdrawal, you'll want to verify if your CD allows for it.
4. Pay Any Early Withdrawal Penalties You Incur
The process of withdrawing money from a CD account varies depending on the specific policies of your financial institution. If you're withdrawing all the funds, the CD will be closed. If you must pay an early withdrawal penalty, it is generally deducted directly from your CD balance.
For example, if you're withdrawing $4,000 from your account and the penalty is $75, you'd receive $3,925. As mentioned, the specifics of this penalty should be defined in the terms and conditions of your CD account.
5. Receive Your Funds
Once the withdrawal is processed, you'll receive your funds through one of several possible methods, which could depend on your situation. For example, if you have a bank account with your CD issuer, they may deposit the funds directly into your account. Alternatively, you might receive a direct deposit to a linked bank account or a paper check in the mail. If you're making the withdrawal at a branch office in person, you might receive the funds as cash on the spot.
Here are some answers to commonly asked questions to help you better understand how CD withdrawals work.
You can close a CD before its maturity date, but you'll likely have to pay a penalty. Alternatively, you can leave the money in a CD for its full term to earn the most interest.
Federal law dictates a minimum early withdrawal penalty of seven days' simple interest if you withdraw funds from your CD within six days of deposit. There is no maximum penalty, however. Early withdrawal penalties vary by financial institution, but they can run as high as 18 months or longer.
Once your CD term concludes, you enter a grace period—a window of time during which you can roll over your funds into a new CD or withdraw them without facing a penalty.
The grace period varies by financial institution but typically lasts seven to 10 days. The grace period provides you with time to decide whether to reinvest your funds in another certificate of deposit or withdraw them penalty-free.
Whether or not CDs are worth it depends on your financial goals and risk tolerance. If you're looking for a low-risk investment with guaranteed returns, CDs can be a solid option. CDs typically offer higher interest rates than traditional savings accounts, so they can help you reach your long-term savings goals. However, they're less flexible due to penalties for early withdrawal. If you're looking for more liquid options, CDs may not be your best option.
As a deposit account, not a credit account, CDs typically have no impact on your credit. Your credit scores are calculated based on factors such as payment history, credit utilization and the age of your credit accounts.
The Bottom Line
With higher interest rates than traditional savings accounts, a certificate of deposit can be a valuable tool to help you advance your savings goals and grow your wealth. This is especially true if you leave the money in your account for the full CD term. If you need to access your CD funds early, you typically must pay an early withdrawal penalty. Consider a no-penalty CD or a high-yield savings account if you still want higher yields without the risk of a withdrawal penalty.
Maintaining good credit is one way to expand your options if an emergency arises and you need immediate access to cash. Review your credit report and credit score for free with Experian to better understand your credit status and identify areas for improvement.