You can take money out of a CD early, but unless you qualify for a narrow exception, the bank will charge an early withdrawal penalty calculated as a set number of days or months of interest on the amount you pull out. Shorter terms carry lighter penalties; longer terms carry heavier ones. And if you withdraw soon enough after opening the CD, the penalty can be larger than the interest you’ve earned, which means the shortfall comes out of your original deposit.
What the Early Withdrawal Penalty Costs
When you opened your CD, you agreed to leave the money on deposit for a fixed term in exchange for a guaranteed rate. Break that agreement and the bank charges a penalty measured in interest, not a flat fee. The exact amount is in your deposit agreement, and it’s worth pulling out before you decide anything.
As a rough guide based on current bank offerings:
- Terms of one year or less: 60 to 180 days of interest
- Terms of two to three years: 90 to 180 days of interest
- Terms of four to five years: 150 to 365 days of interest
Federal banking rules set a floor beneath all of this. For any withdrawal made within the first six days after you fund a CD, the bank must charge at least seven days of simple interest on the amount withdrawn. If the bank allows partial withdrawals, that same seven-day minimum applies to each partial withdrawal made within six days of the previous one. Above that floor, banks set penalties as high as they choose.1eCFR. 12 CFR 204.2 – Definitions
When the Penalty Is Bigger Than Your Interest
The math gets uncomfortable if you withdraw early in the term. Say you opened a one-year CD six weeks ago and the penalty is 180 days of interest. You’ve earned about six weeks of interest, but you owe six months. The bank takes the difference out of your principal, and you walk away with less than you deposited.
Partial Withdrawals Are Usually Off the Table
Most banks do not allow partial withdrawals. If you need any of the money before maturity, you typically have to close the entire CD, pay the penalty on the full balance, and open a new account for whatever you don’t need. A few institutions do permit partial withdrawals, but they’re the exception. Confirm with your bank before assuming you can take out just a portion.
When You Can Withdraw Without a Penalty
Two situations let you get your money out clean: waiting for maturity, or qualifying for a hardship exception written into federal law.
The Maturity Date and Grace Period
Your maturity date is when the term ends and full access returns. After maturity, most banks give you a grace period of 7 to 10 calendar days to withdraw your principal and earned interest without any charge.2Citi.com. What Happens When a Certificate of Deposit (CD) Matures? Do nothing during the grace period and the bank automatically rolls your balance into a new CD of the same term at whatever rate is then available, locking the money up again under a fresh set of penalties. Set a reminder a few weeks out so the window doesn’t close on you.
Hardship Exceptions Built Into Federal Law
Federal regulations require banks to waive the early withdrawal penalty in two situations, regardless of which bank holds your CD:1eCFR. 12 CFR 204.2 – Definitions
- Death of an account owner. The estate or beneficiaries can withdraw the funds without penalty, and the bank will require a certified death certificate.
- Legal incompetency. If a court or administrative body determines that an account owner is legally incompetent, the appointed guardian or conservator can access the funds penalty-free with a certified court order.
Some banks go further and waive penalties for things like job loss or medical emergencies, but those are individual bank policies rather than federal requirements. Ask.
If the CD Is Inside an IRA
A CD held in a traditional IRA, SEP IRA, or SIMPLE IRA layers a second penalty on top of the bank’s. The IRS imposes a 10 percent additional tax on distributions taken before you reach age 59½, and the withdrawn amount also counts as taxable income for the year. For SIMPLE IRAs, that additional tax jumps to 25 percent if you withdraw within your first two years of participation.3Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The IRS waives its 10 percent tax in a number of situations, including:
- Total and permanent disability of the account owner
- Up to $10,000 for a qualified first-time home purchase
- Qualified higher education expenses
- Unreimbursed medical expenses exceeding 7.5 percent of your adjusted gross income
- Health insurance premiums paid after receiving unemployment compensation for at least 12 weeks
- Up to $5,000 per child for a qualified birth or adoption
- Up to $22,000 for economic losses from a federally declared disaster
- A series of substantially equal periodic payments calculated under IRS-approved methods
Even when the IRS waives its penalty, the bank’s own early withdrawal penalty still applies unless the CD has already matured.3Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Brokered CDs Work Differently
If you bought your CD through a brokerage firm rather than directly from a bank, there is no fixed penalty to pay. Instead, you sell the CD on a secondary market, much like selling a bond. What you get back depends on current interest rates and buyer demand.4Investor.gov. Brokered CDs: Investor Bulletin
If interest rates have risen since you bought the CD, yours is less attractive to buyers and will likely sell at a discount, meaning you get back less than you deposited. If rates have fallen, your higher-yielding CD is more desirable and you could sell at a profit. Your broker may also charge a transaction fee.
One risk to know about: not every brokered CD has an active secondary market. If no buyers show up, you may have to hold to maturity regardless of what you need. If you haven’t yet bought a brokered CD, confirm with the broker whether a secondary market exists and what selling would cost.
You Can Deduct the Penalty on Your Taxes
The penalty softens a little at tax time. Early withdrawal penalties on CDs are an above-the-line deduction, so you can claim them even if you don’t itemize. Report the penalty on Schedule 1 of your federal return (Line 18, “Penalty on early withdrawal of savings”).5Internal Revenue Service. Schedule 1 (Form 1040)
Your bank reports the penalty in Box 2 of the Form 1099-INT you receive after year-end. The interest income in Box 1 is the full gross amount and is not reduced by the penalty, so you report the full interest as income and separately deduct the penalty as an adjustment.6Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID The deduction sits in the federal tax code’s definition of adjusted gross income, which specifically includes forfeitures paid to a bank for premature withdrawal from a time savings account or certificate of deposit.7Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined
How to Actually Request the Withdrawal
You’ll need your CD account number and a valid government-issued photo ID like a driver’s license or passport. Keep your original deposit agreement handy so you can confirm the penalty and any restrictions on partial withdrawals.
Most banks offer two ways to submit the request:
- Online. Log in to the bank’s website or app, go to account services, and follow the prompts to request a withdrawal or closure. You may need to upload identification or complete a digital signature.
- In person. Visit a branch with your ID and account information. A representative processes the request on the spot and confirms your payout after penalties and any tax withholdings.
Specify where the funds should go: a checking or savings account at the same bank, an external account (you’ll need the routing and account numbers), or a mailed check. Processing usually takes one to a few business days, depending on the bank and whether the withdrawal is at maturity or early. The bank sends a confirmation by mail or secure message once the funds are released, and that confirmation serves as your record of the transaction and the total interest earned during the CD’s life.