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📂 Category: Certificates of Deposit News,Personal Finance News,News
💡 Main takeaway:
Key takeaways
- If you need to cash a CD early, you’ll likely pay a penalty — but the cost can vary widely, so check your bank’s policy before committing.
- Even if you stick with CDs with light penalties for early withdrawal, you can still earn solid interest rates of up to 4.40% on an annual basis right now.
- While no-penalty CDs offer flexibility, they typically offer much lower payouts, reducing what you can earn.
How much does it cost to cash out a CD early?
If you’re lucky enough to have cash you won’t need right away, a certificate of deposit (CD) can be a smart place to park it. In exchange for agreeing to leave your savings untouched for a specified period, your bank or credit union will guarantee a fixed rate for the duration. Unlike a high-yield savings account, the APY of a CD won’t change, so you’ll know exactly how much you’ll earn by the time it matures.
However, it’s understandable that you might feel hesitant about putting your money on hold. What if you need it sooner than expected? If this happens, you can cash out the CD early, but you will pay an early withdrawal penalty. These penalties are determined by each bank or credit union and can vary greatly. So it’s important to know before you open an account what you will be charged if you break a CD before the due date.
Penalties are usually expressed as a number of months – or in some cases, years – of loss of interest. The longer the CD, the greater the penalty. For example, a bank may charge three months’ interest on a one-year CD but charge six months’ interest on its two-year CD.
For example: Let’s say you have a one-year CD with a three-month fine. If you cash out after four months, you’ll lose three-quarters of your earnings and keep only one month of interest. If you wait even six months, you will lose half. The smaller the penalty, the less the total return is diminished.
Why is this important?
Breaking a CD early isn’t the end of the world, but the penalty can affect your returns. Understanding potential costs in advance can help you choose a CD that maintains flexibility while still paying a great rate.
The best CDs offer high returns and light penalties
Fortunately, if the idea of garnishing your money makes you uncomfortable, you can find CDs that are kinder with their penalties. By doing a little comparison shopping, it’s possible to achieve strong returns and Stay flexible. We’ve made this easier by highlighting today’s highest paying CDs with what we consider to be light penalties for early withdrawal. All of them appear in our daily ranking of the best CD rates across the terms, and none of them charge more than six months of interest. Some short-term CDs even limit penalties to just one to three months.
warning
If you cash out a CD before you earn enough interest to cover the penalty, your bank may take a portion of the principal to make up the difference. So, if possible, hold the CD long enough to avoid that hit.
Penalty-free CDs offer flexibility, but lower returns
If you’re new to CDs — or nervous about garnishing your money — a no-penalty CD may be safer. These accounts allow you to withdraw your funds at any time without paying any fees, providing flexibility that traditional CDs do not provide. But they are less common and usually only available for short-term periods.
The trade-off is the amount you stand to gain. No-penalty CDs typically pay a significantly lower APY, especially over longer terms. While some shorter, no-penalty CDs earn rates similar to the standard versions, longer CDs can fall behind by a full percentage point or more. This difference can accumulate over time.
However, if you value access to your money and want the certainty of a guaranteed rate, a no-penalty CD can provide peace of mind — even if it costs a little in overall earnings.
Here are five CDs currently available without penalty:
How to Find the Best Savings and CD Rates
Investopedia tracks rates from more than 200 banks and credit unions across the country to determine the highest-grossing accounts each business day. All institutions are federally insured, and only accounts opened for clients nationwide with reasonable minimum deposits qualify. Read our full methodology here.
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