Early Withdrawal Penalty Calculator
If you're closing a Certificate of Deposit (CD) prior to its maturity, or early withdrawing some of the principal, there's typically a penalty for doing so, often in the form of multiple months of compounded interest. This calculator estimates what the early withdrawal penalty will be. Optionally, you can compare to a new CD you are evaluating.
Entry Fields
Principal - This can be the initial deposit into the CD, the balance at last maturity if you renewed the CD, or the amount you are withdrawing assuming your financial institution allows partial withdrawals from a CD.
APY (%) - The annual percentage yield (APY).
CD Term - The length of time your principal was to stay in the CD account, earning interest at the APY rate.
Penalty In Months - Specify how many months of interest your bank will deduct for early withdrawal of the CD. This calculator assumes penalty interest is compounded. If your bank uses simple interest, you may find our Simple Interest Calculator helpful. Or, use this calculator for an estimate, but keep in mind that simple interest is typically less.
Months to Maturity - How many months until your CD reaches maturity. This is the term length minus the number of months you've had the CD. See examples below. While this field is optional, it is helpful to more precisely estimate the penalty as well as to calculate if the penalty will be deducted from principal, accrued interest, or a combination of both. Therefore, we recommend filling in this field.
Months to Maturity Examples - It is the value in the rightmost column that would be entered onto the form
| CD Term (months) | Months Since Opening CD | Months to Maturity (Term - Months Since Opening) |
| 18 | 3 | 15 |
| 12 | 0 | 12 (within first month) |
| 24 | 6 | 18 |
| 24 | 10 | 14 |
Compare to New CD (Optional)
If you are considering breaking a CD because you have found a CD which appears to have more favorable terms, you can enter information about that new CD into this section of the form to see how much interest it will generate. Side by side with the current CD and the penalty that will be incurred for breaking it, you can evaluate if the new CD is, indeed, a better investment vehicle.
New CD APY (%) - The annual percentage yield of the new CD
New CD Term (%) - The term length of the new CD
Starting Balance - Select what the starting balance of the new CD will be. Often when a CD is broken, a new one is opened with the balance, after the penalty is deducted. If that's how you'd fund the new CD, select End Balance of Early Withdraw CD. Alternatively, for this calculator, you can select to use the same starting balance as the current CD, via the option Same Start Balance as Above CD.
What is a CD early withdrawal penalty?
Certificate of Depoits (CDs) are fixed income investments provided by financial institutions (banks, credit unions) that generally pay a fixed amount amount of interest for a fixed duration of time.
That fixed amount of interest, usually compounded, is called the Annual Percentage Rate (APY), and the fixed time period is called the CD's term.
From the bank's point of view, they know they will have access to the money on deposit for a fixed amount of time, paying you a fixed amount of interest. From your perspective, your money is locked into the APY rate for the term.
Under this setup, if you want or need to close the CD early or withdraw some of the principal before the term is reached, and the bank's CD agreement allows it, a penalty is charged, usually in the form of interest at the same APY as your CD.
What is the Interest Penalty for CD Early Widthdrawal ?
There is a minimum penalty fee, set by the Federal Government, which is 7 days of Simple Interest.
Beyond that, it is completely at each finanacial institution's discretion: there is no maximum defined early withdrawal penalty.
For this reason, before opening a CD or renewing one at maturity, one should read the agreement to understand the bank's policy on early withdrawal.
Often, the penalty for early withdrawal is a specific number of months (or days) interest, at the CD's APY rate. Usually compounded, but it can be simple interest; And, the longer the term, the more months of interest penalty.
Note: This calculator estimates the early withdrawal penalty based on daily compounded interest. If you indicate how many months are left in the CD term, it can compound interest up to that point, and determine where the penalty will likely be deducted from:
- completely from interest;
- partly from interest, partly from principal;
- completely from principal;
Is Early Withdrawal Always Possible?
In general, many financial institutions allow closing a CD early, and some also allow withdrawal of part of the principal, both with penalty. However, since each bank or credit union sets the policies for the certificates of deposit it offers, it's up to the customer to fully understand those rules prior to opening the CD, particularly with regard to the early withdrawal rules.
What are Reasons for CD Early Withdrawal?
Two of the most common reason CD are broken early are:
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The money is needed for an emergency, and the penalty for breaking the CD is less than the interest on a loan or credit card.
Financial institutions make significantly more money on the interest paid on loans and credit cards than they pay consumers on savings and CD accounts.
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CD Rates have gone up, and the CD you locked into has a low APY rate, with many months or years to maturity. In other words, you can make far more on the new CD, even with the penalty you'd pay to early withdraw.
For the first time in years, CD rates started to climb in 2022 due, in large part, to the Fed's increases to the Funds Rate. There were 7 Fed Funds increases in 2022, for a total of 4.25 percentage points, the largest increase in decades. In turn, CD rates at many banks and credit unions increased rates on some of their CD terms. Some of these increases were significant - sometimes 50 to 100 times more than the previous rate.
The Feds Funds rate continued to rise in 2023, when there were 4 increases, for a total of 1.0 percentage points. That made the aggregate increase 5.25% from March 2022, when the Federal Funds Rate was 0.25%, to July 2023 when the Rate was 5.5%. As in 2022, with each of the 2023 increases, many financial institutions likewise increased their CD rates.
When evaluating a new CD with higher rates against an existing one, it's helpful to find out approximately what the early withdrawal penalty will be, and how much the new CD will yield. This calculator is designed specifically to do this! It will show you approximately: how much interest you have made at this point in the old CD's term and if you hold it to full term, how much the penalty for early closure would be, and how much you would make on the new CD.
When does the Federal Reserve Meet in 2024?
There are eight scheduled Federal Open Market Committee (FOMC) meetings in 2024:
- January 30-31, 2024
- March 19-20, 2024
- April 30 - May 1, 2024
- June 11-12, 2024
- July 30-31, 2024
- September 17-18, 2024
- November 6-7, 2024
- December 17-18, 2024
Will the Federal Reserve Decrease Rates in 2024?
Based on statements made by the FOMC at the last 2023 meeting (December 13-14, 2023), it is projected that the Federal Reserve will start to decrease rates in 2024. The Feds Fund Rate at the end of 2023 was 5.50%, with some projecting rates will decrease to about 4.6% in 2024, though others forecast a steeper decline.
September 18, 2024: the Fed cut interest rates by 50 basis points, bringing the target base interest rate in the range of 4.75% to 5.0%. This was the first cut since March 2020 and largest since 2008. With 2 meetings left in 2024, many project up to an additional 50 basis points cut by year's end, and more in 2025 and 2026.
For consumers, the September 2024 rate cut is good news, especially for those looking to buy/sell a house, as mortgage rates should fall, especially by the time the Spring 2025 home buying season starts. CD Rates will decline, and continue doing so, if the predicted rate cuts for 2024 into 2025 and beyond occur. Those who locked into long term CDs while rates were high will continue to benefit if holding to term.
How will 2024 Fed Rate Decreases Impact CD Rates?
When the Fed Rate increased from March 2022 through July 2023, CD rates likewise increased, such that by the end of the third quarter in 2023, CD Rates were the highest they'd been in decades, CD raets at 5.5% or higher, depending on the term. If the Fed Rate drops, as is projected in 2024, CD rates will likely correspondingly decline.
Even if the rates were to fall to the projected 4.6% - or below, CD rates would still be much higher than they were prior to March, 2022, which can be beneficial for those investing in new CDs. Moreover, for long term CDs invested in prior to March 2022, which likely had significantly lower rates, breaking that CD in 2024 (where rates may be lower than 2022-2023), could still provide a much higher yield even with the penalty! As an examle, a 5 Year CD at 1% purchased in late 2021 versus a 3 Year CD at 4% purchased in 2024. This calculator is helpful to work out scenarios such as this.
Would one consider closing a CD with a higher rate for a new CD with a lower rate? In general, not if it's the same (or near same) term as the old CD because not only is the new CD paying less, there's also the early withdrawal penalty. However, if a new CD with a lower rate has a substantially longer term than the current CD with the higher rate, then maybe. Using this early withdrawal calculator can help evaluate if it makes sense to close the existing CD with the higher rate.
Days to Months Chart
This calculator uses months to calculate penalty interest. For example, a bank may charge 3 months of interest if you break a 1 year CD. If your bank specifies penalty in days, the chart below correlates the most common days of penalty to months.
| Days | Months |
|---|---|
| 30 | 1 |
| 60 | 2 |
| 90 | 3 |
| 120 | 4 |
| 150 | 5 |
| 180 | 6 |
| 210 | 7 |
| 240 | 8 |
| 270 | 9 |
| 365 | 12 |
Related: CD Compounding Calculator