How CD early withdrawal penalties work
CD early withdrawal penalties are set by each bank and written into the account disclosures, which must say whether a penalty applies, how it is calculated and when it is charged.[2] Most are stated as days or months of interest, and longer terms usually carry larger penalties. Federal rules set only the minimum: at least seven days' simple interest on money withdrawn within six days of deposit.[1][3]
On $10,000 at 4.40% APY (about 4.306% as a rate), a 12-month penalty is about $430.62, whenever you withdraw. Some banks compute it on the amount withdrawn rather than the whole deposit, or use interest actually earned; check your agreement and enter its terms.
Can you lose money breaking a CD?
Yes. Early in the term the penalty can exceed the interest earned so far, and the difference comes out of your deposit. With a 12-month penalty on a 5-year CD at 4.40% APY:
| Withdraw after | Interest earned | Penalty | You receive | Result |
|---|---|---|---|---|
| 1 month | $35.95 | $430.62 | $9,605.33 | $394.67 below deposit |
| 3 months | $108.23 | $430.62 | $9,677.61 | $322.39 below deposit |
| 6 months | $217.63 | $430.62 | $9,787.01 | $212.99 below deposit |
| 12 months | $440.00 | $430.62 | $10,009.38 | $9.38 gain |
| 24 months | $899.36 | $430.62 | $10,468.74 | $468.74 gain |
| 36 months | $1,378.93 | $430.62 | $10,948.31 | $948.31 gain |
Once the CD has earned more than the penalty, breaking it no longer touches principal. The SEC and the CFPB both advise checking the penalty before you buy a CD.[5][4]
Should I break my CD for a higher rate?
Break a CD only if the new rate earns back the penalty before the old CD would have matured. The calculator compares two paths for the remaining months: keep the CD, or take the payout and reinvest it at the new APY. In the example, after 18 months with 42 months left, the break-even is 5.64% APY; at 5% you end $259.54 behind by breaking.
- The bigger the rate gap and the more time left, the more likely breaking pays.
- Near maturity, breaking rarely pays: the penalty is fixed but little time is left to make it back.
- Compare against the rate you can actually get for the same remaining term, not a teaser rate.
Alternatives to breakingSome CDs allow a partial withdrawal or have no penalty (no-penalty CDs). Withdrawing interest only may be penalty-free. A CD ladder keeps part of your money maturing regularly so you rarely need to break one.
For maturity values and APY conversions, use the CD calculator; to compare a CD with a variable-rate account, the high yield savings account calculator.
Related calculators
- CD calculatorValue at maturity from APY or rate, any term
- CD ladder calculatorRungs, blended APY and the ladder against a single CD
- High yield savings account calculatorYour APY against the FDIC national average, in dollars
Frequently asked questions
How is a CD early withdrawal penalty calculated?
Usually as a number of days or months of simple interest at the CD's rate: deposit × rate × (days ÷ 365). Your account agreement gives the exact method.
What is the typical penalty for breaking a CD?
It varies by bank and term, and longer CDs usually carry larger penalties; your account disclosure states it. The federal minimum is seven days' interest for withdrawals within six days of deposit.
Can a CD penalty take my principal?
Yes, if you withdraw before the CD has earned as much interest as the penalty. The table above shows when that stops.
Is it worth breaking a CD for a higher rate?
Only if the new rate beats the break-even rate for the time left. For the example 5-year CD broken after 18 months, that is 5.64% APY.