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.
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)
|12||0||12 (within first month)|
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:
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.
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 are starting to climb in 2022 due, in large part, due to the Fed's increases to the Funds Rate, with more planned in 2022. CD rates at many banks and credit unions have already increased; Predictions abound as to how high CD APY will go in 2023.
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!
Days to Months Chart
This calculator uses months to calculates 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.
Related: CD Compounding Calculator