CD Early Withdrawal Penalties

cd-early-withdrawal-penaltiesWhen you invest in a certificate of deposit be sure you don't need access to your money for the duration of the certificate of deposit term.

Certificate of deposit early withdrawal penalties will cause you to lose most of the interest you have earned, sometimes all of the CD interest depending on the bank.  Banks will charge either interest or simple interest, simple interest being interest earned that hasn't been compounded, earning interest on the interest you have earned.

The early withdrawal penalties are usually determined by the certificate of deposit term. Withdrawal penalties for certificate of deposits with terms of less than one year are usually charged a penalty of 90 days of interest or simple interest. Penalties for certificate of deposits of over one year and over are usually charged six months of interest or simple interest.

Brokered certificate of deposits are an entirely different animal when it comes to early withdrawal penalties. With a brokered certificate of deposit, you purchase a CD from an investment bank, you don't pay an early withdrawal penalty but if you want your funds before the CD matures you have to sell it at the current market rate by requesting bids on your CD. If you sell, you’ll receive the bid price plus any accrued interest but there are no guarantees that you’ll get what you originally paid for the CD.

Again, be sure you don't need access to your funds before opening a certificate of deposit account. If you are unsure when you will need the money stick with shorter term certificate of deposits offered directly from banks.

Author: Brian McKay
May 8th, 2009