• Banks charge an early withdrawal penalty on CDs if you withdraw money early.
  • The penalty will usually be some of the interest earned on the CD.
  • No-penalty CDs could be a good option if you're not sure if you can let a CD mature.
  • Read more stories from Personal Finance Insider.

Opening a certificate of deposit (CD) is ideal if you have extra money to lock away for a set period of time to earn interest on it. And you'll generally earn a higher interest rate through a CD than you could with a traditional savings account — and won't have to deal with the temptation of spending.

Before you open a CD, though, you'll want to take note of one important caveat — early withdrawal penalties. Understanding how early withdrawal penalties work will be instrumental in avoiding potential fees. 

What are CD early withdrawal penalties? 

Early-withdrawal penalties occur when you take money from a CD before its term ends. For instance, let's say you've opened a 3-year CD. Any money deposited into the CD will have to stay in your account for three years. If you decide to withdraw some money a year early, the bank will charge you a fee.

Fees vary between different financial institutions. However, financial institutions will usually penalize you by having you pay back some of the interest you've earned. As a result, many banks tend to charge more on longer terms since you've accumulated more interest over time.

Daniel Forbes, CFP® and owner of Forbes Financial Planning, says there might be instances where you'll be charged more than interest. "There's a possibility, if a CD has a penalty, that you could actually lose part of their principal depending on how much interest the bank will charge them to get out of the CD early," says Forbes.

CD early withdrawal penalties at different banks 

Below you will find certificate early withdrawal penalties from several of the largest financial institutions.

This may help you better understand early withdrawal penalties and how they vary by term. Some banks and credit unions offer more terms options, so they'll have a greater range of early withdrawal penalties.

Financial Institution

Penalties for one-year terms or shorter

Penalties between one-year terms and five-year terms

Penalties for five-year terms or longer
Alliant Credit Union Seven days to 90 days of interest Up to 90 days to 180 days of interest Up to 180 days of interest
Ally 60 days of interest 60 days to 120 days of interest 150 days of interest
American Express National Bank 90 days of interest 270 days of interest 540 days of interest
America First Credit Union 60 days of interest 180 days of interest 180 days of interest
Axos Bank 1.5 months to 6 months of interest Six to 18 months of interest 24 months of interest
Bank of America Seven days to 90 days of interest  180 days of interest 365 days of interest
Capital One Three months of interest Six months of interest Six months of interest
Chase 90 days to 180 days of interest 180 days of interest to 365 days of interest 365 days of interest
Citibank 90 days of interest 180 days of interest 180 days of interest
Citizens Bank $50 and 90 days of interest on amount withdrawn/50% that would have been earned (whichever is greater) $50 and 180 days of interest on amount withdrawn/50% that would have been earned (whichever is greater) $50 and 180 days of interest on amount withdrawn/50% that would have been earned (whichever is greater)
Connexus Credit Union 90 days of interest 180 days of interest 365 days of interest
Consumers Credit Union 60 days of interest 120 days of interest 120 days of interest
Discover Bank Three months of interest Six months of interest Nine to 24 months of interest
First-Citizens Bank Three months to all interest earned Six months of interest Six months of interest
KeyBank Seven days to six months of interest Six to nine months of interest 365 days of interest
Navy Federal Credit Union 90 days of interest 180 days of interest 180 days to 365 days of interest
Pentagon Federal Credit Union 90 days of interest to all interest earned 30% of all interest you would have earned if your CD matured or all interest earned 30% of all interest you would have earned if your CD matured or all interest earned
PNC Bank  Three months of interest to  all interest earned Six months of interest Six months of interest
Regions Bank 31 days of interest to all interest earned 182 days of interest 182 days of interest
Security Service Credit Union 30 days to 90 days of interest Up to 180 days of interest Up to 360 days of interest
TD Bank Three months interest to all interest earned

Six months interest to 18 months interest

 24 months interest
Truist Bank $25 OR some of the interest earned* (whichever is greater) $25 OR some of the interest earned*(whichever is greater) $25 OR some of the interest earned*(whichever is greater)
VyStar Credit Union  60 days of interest to 180 days of interest 180 days of interest to 365 days of interest 365 days of interest
Wells Fargo One to three months of interest Six months interest to 12 months interest N/A
Wings Financial Six months of interest Two years of interest Two years of interest

*At Truist Bank it will depend on your specific term. If your term is less than three months, your penalty is all the interest you've earned. For longer terms, it varies between 3 months of interest to 12 months of interest.

How to choose the right term and avoid CD penalties

Forbes recommends CDs for anyone looking to save money at a bank and generate more interest than with savings or checking accounts .

"For us, we look for promotional a lot of times. Some financial institutions will offer a rate in order to try to get clients business by offering them higher rates. We're in a really low interest rate environment, so I would say every little bit helps," said Forbes.

When choosing a term or CD, Forbes says you should take some time to consider whether you'll possibly need the money within a particular time frame. Also, keep in mind that while no-penalty CDs are free from early withdrawal penalties, there are still some other potential downsides.

"To get a no-penalty CD, you're going to get a lower interest rate than what otherwise might be available to you," Forbes told Insider. 

Ultimately, you may have to look at several CDs before settling on the term and rate.
Sophia Acevedo
Junior Banking Reporter
Sophia Acevedo is a junior banking reporter at Insider who covers banking and savings for Personal Finance Insider. She joined Insider in July 2021 as a fellow for the Personal Finance Insider Reviews team. Before joining the Insider team, she was a freelancer based in Los Angeles and worked briefly in publishing. She also graduated from California State University Fullerton in 2020. You can reach out to her on Twitter at @sophieacvdo or send a quick email at sacevedo@insider.com. Read more about how Personal Finance Insider chooses, rates, and covers financial products and services >>

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