Here’s When An Early Withdrawal From A CD Is Worth It

CDs offer a guaranteed return on your savings, but that guarantee comes with a trade-off: withdraw your money before the term ends, and you’ll pay a penalty. The good news? Sometimes paying that penalty is the right financial move. Whether you’re facing an unexpected expense, eyeing a better rate, or need funds for a down payment, there are situations where breaking your CD makes sense.

What is a CD early withdrawal penalty?

A CD early withdrawal penalty is the fee you pay for accessing your money before your CD’s term ends. Banks charge this penalty because they count on having your deposit for the full term, when you break that agreement early, they recoup some of their expected earnings.

Penalties are almost always calculated as a certain number of days or months of interest. For example, if your CD has a 90-day interest penalty and you’ve earned $100 in interest, you’d forfeit $100 (or potentially eat into your principal if you haven’t earned that much yet).

How much will you pay in early withdrawal fees?

Early withdrawal penalties vary significantly by bank and CD term. Generally, longer terms carry steeper penalties. Here’s what major banks currently charge:

How to calculate your penalty: Divide your CD’s annual interest by 365 to get your daily interest, then multiply by the penalty days. For a $10,000 CD at 4% APY with a 90-day penalty, you’d pay approximately $98.63 (($10,000 × 0.04 ÷ 365) × 90).

Looking for competitive CD rates? Compare Bankrate’s best CD rates to find options offering up to 4%+ APY.

When is breaking a CD early worth it?

In most cases, you’ll want to leave your money in a CD until maturity. But there are scenarios where paying the penalty is the smarter financial choice.

When you need cash for an emergency

One example would be when you need the money to cover an emergency expense. If your car breaks down, or you’re facing a medical bill you can’t otherwise pay, it’s often better to use the money in your CD to pay the bill if you don’t have enough money in another savings account. If you’re going to wind up covering that expense with a credit card with a high annual percentage rate (APR), getting the funds from a CD can be a better move that helps you avoid high-cost debt. 

When you need funds for a down payment

A bigger down payment reduces your loan size and the interest you’ll pay over time. If breaking your CD lets you put more down on a house or car, the penalty may be trivial compared to what you save on a smaller mortgage or auto loan.

When rates have risen significantly

If you locked in a CD when rates were lower and they’ve since climbed substantially, do the math. Say breaking your current CD costs a $50 penalty, but opening a new CD at a higher rate will earn you $150 more over the term. You’d come out $100 ahead by paying the penalty and reinvesting.

How to avoid early withdrawal penalties

The best way to avoid penalties is to never need early access in the first place. Here are strategies that give you flexibility without locking up all your money.

Build a CD ladder

Instead of opening just one CD, think about building a CD ladder to diversify your deposits. With a ladder, you can spread out your funds across multiple term lengths, which helps you accomplish two key goals. First, you’ll be able to take advantage of multiple interest rates, and second, you’ll always have a chunk of cash that is relatively close to maturity. 

For example, rather than depositing $15,000 in a 3-year CD, a ladder might spread out five chunks of $3,000 in five term lengths: six months, nine months, one year, two years and three years. Rather than feeling like you need to withdraw all the money and pay a hefty penalty on a 3-year CD, you can use money when the 6-month CD matures.

Consider investing in a no-penalty CD

No-penalty CDs offer the benefits of traditional CDs: locked-in interest rates and higher rates than many savings accounts, but no penalty for early withdrawal. 

Note, however, that no-penalty CDs often earn rates that are lower than traditional CD rates. But the benefit of greater liquidity may outweigh the cost of a slightly lower rate for you.

Bottom line

CD early withdrawal penalties exist to discourage you from breaking your commitment, but they shouldn’t trap you in a bad financial decision. If the cost of the penalty is less than the benefit of having your money — whether that’s avoiding high-interest debt, securing a better rate, or making a larger down payment — breaking your CD early is the right call.

The smarter long-term approach: structure your savings so you never need to break a CD in the first place. Keep emergency funds in savings accounts, build a CD ladder for flexibility, and only lock up money you’re confident you won’t need until maturity.