Most people think of certificates of deposit (CDs) as “set it and forget it” savings vehicles. You park your cash for a set time, earn a guaranteed return, and let it grow without touching it.
But life doesn’t always go according to plan. According to Bankrate, 37% of U.S. adults needed to tap their emergency savings in the past year. Cashing out a CD early could be necessary if you need the cash.
Let’s break down when it makes sense, what it’ll cost you, and even how to cash out just a portion of your CD instead of the whole thing.
How early withdrawal penalties work
When you first buy a CD, you agree to leave your money deposited for a specific term — like 6 months, 1 year, 5 years, etc. In most cases, if you withdraw your funds before the maturity date, the bank charges you a penalty.
The penalty varies depending on your CD term and your bank. But here is typically what you might expect for early withdrawals.
CD Term | Typical Penalty |
|---|---|
12 months or less | 3 months’ worth of interest |
1 to 5 years | 6 months’ worth of interest |
5+ years | Up to 12 months’ worth of interest |
Data source: Author research.
Most of the time, early withdrawal penalties come out of the interest you’ve earned, not your original deposit. But in some cases, if you cancel very early in the term, your fee might eat into your principal.
Example: Say you put $10,000 into a 12-month CD paying 4.00% APY. If you cash out after six months, you might lose three months of interest. That would cost you about $100 in penalties, which is deducted from the $200 in interest you have already earned (give or take, depending on how interest is calculated.)
Worried about needing your money back early? A short-term CD could be the safer play. Check out the best CD rates available now.
When cashing out early makes sense
Cashing out a CD early isn’t ideal, but it’s not necessarily a mistake, either. In fact, it could be a smart financial move if:
- You need the cash for an emergency.
- You found a much higher interest rate elsewhere and the math favors switching.
- You’re consolidating accounts or simplifying your finances.
- A major life event (like buying a house) changes your financial priorities.
If rates have shot up since you opened your CD, you might feel stuck. But depending on the penalty and the new rate available, cashing out the old CD and reinvesting in a higher-rate CD could actually leave you better off.
Pro tip: If you’re facing financial hardship, ask your bank if they can waive the penalty fee. Depending on your relationship, some banks can (and sometimes do) waive fees. They might say no, but it never hurts to ask!
You may not have to cash out the whole CD
If your bank allows it, partial cash-outs can be a way to have your cake and eat it too.
Instead of cashing out your entire deposit, some banks let you withdraw only the amount you need. The penalty is proportional to the amount you withdraw, and the rest of your money stays locked in and earning interest.
Of course, you need to double-check the terms with your bank before making withdrawals.
Another solid option for short-term cash storage is a high-yield savings account. They offer competitive interest rates and easy access to your cash whenever you need it — and some pay around 4.00% APY or even more.
