You have to keep money in a CD for the full term you agreed to when you opened it, which can run anywhere from a few months to several years. Take it out before that maturity date and you almost always pay an early withdrawal penalty that eats into your interest, and sometimes into your original deposit. The one hard federal rule sits at the very start: for the first six days after you fund the account, withdrawals are not allowed at all.1eCFR. 12 CFR 204.2 – Definitions Everything else — how long you commit, how much a break costs, and what happens when the term ends — depends on the CD you chose and the bank’s own rules.
How Long CD Terms Usually Run
The term is locked in the moment you open the account, and the rate is locked with it. Whatever the market does over the next months or years, your CD pays what the paperwork says it pays.
- Short-term CDs run 3 to 9 months and suit money you expect to need soon but want earning more than a savings account would pay.
- Medium-term CDs run 12 to 18 months and sit in the middle on both rate and commitment.
- Long-term CDs run 2 to 5 years, sometimes as long as 10, and usually pay the highest rates in exchange for the longest lock-up.
Promotional terms like 7 or 13 months show up too, often with a rate premium. Whatever you pick, plan to leave the money alone until maturity.
The First Six Days: No Withdrawals At All
Under 12 CFR 204.2, a time deposit cannot permit any withdrawal within six days of the deposit date unless the bank charges at least seven days’ simple interest on the amount withdrawn.1eCFR. 12 CFR 204.2 – Definitions So the earliest you can practically touch the money is day seven, and pulling it that early still costs you a week’s interest. The rule exists to keep the account classified as a time deposit; without it, the CD would be treated as a savings or transaction account.
Beyond that six-day floor, everything about penalties comes from your account agreement. Regulation DD requires the bank to disclose the penalty formula before you open the CD, including whether it can reach into your principal.2eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD) Read that section carefully. Seven days is a floor, and most banks charge far more.
What Early Withdrawal Actually Costs
Banks set their own penalties above the federal floor, and the penalty generally scales with the length of the CD:
- Short-term CDs under 12 months: commonly around 90 days of simple interest.
- CDs of 1 to 3 years: roughly 6 months of interest.
- CDs of 4 to 5 years or longer: 12 months of interest or more.
These are common ranges, not rules. The number that matters is the one in your own agreement.
When the Penalty Cuts Into Your Deposit
If the CD has not earned enough interest yet to cover the penalty — a real risk if you break a long-term CD soon after opening it — the bank can take the rest from your original deposit. You would walk away with less than you put in. Regulation DD requires the bank to disclose upfront whether that can happen.2eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
You Can Deduct the Penalty on Your Taxes
If you do pay an early withdrawal penalty, it is deductible on your federal return. The amount shows up in Box 2 of the Form 1099-INT your bank issues.3Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID You claim it as an adjustment to gross income, which means you get the deduction whether or not you itemize.4Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined It covers both forfeited interest and any amount taken from your principal.
When the Term Ends
The maturity date is when you can access the full balance, principal plus earned interest, without a penalty. Your bank has to warn you it is coming. Under Regulation DD, banks must send a maturity notice at least 30 calendar days before maturity for any automatically renewing CD with a term longer than one month, or at least 20 calendar days before the end of the grace period as long as that grace period runs at least five days.5eCFR. 12 CFR 1030.5 – Subsequent Disclosures Credit unions follow parallel rules.6eCFR. 12 CFR Part 707 – Truth in Savings
The Grace Period
After maturity, you get a short window to decide what to do. The federal minimum is five calendar days, and many banks offer seven to ten.5eCFR. 12 CFR 1030.5 – Subsequent Disclosures During that window you can withdraw penalty-free, move the money elsewhere, or pick a new term.
Automatic Renewal
Do nothing before the grace period ends and most banks roll your money into a new CD of the same length at whatever rate they are currently offering, which may be higher or lower than what you had. The maturity notice should tell you the new rate or give you a number to call.5eCFR. 12 CFR 1030.5 – Subsequent Disclosures Once the renewal takes effect, you are committed for another full term, and the early withdrawal penalty applies again. Put the maturity date on your calendar well ahead.
If You Want Flexibility
Two approaches soften the lock-up problem.
No-Penalty CDs
A no-penalty CD keeps a stated term, often 11 to 14 months, but after the initial six-to-seven-day holding period required for time deposits, you can withdraw the entire balance and accrued interest without a penalty.1eCFR. 12 CFR 204.2 – Definitions The catch: most banks require you to take the full balance and close the account. Partial withdrawals are not allowed. The rate is typically lower than a standard CD of the same length.
CD Laddering
Instead of one long CD, split the money across several with staggered maturities — say 6, 12, and 18 months. As each matures, reinvest it into a new longer-term CD at the back of the ladder. Something matures on a predictable schedule, and the money you do lock up longer earns the higher long-term rates.
An Extra Lock Inside an IRA
A CD held inside an Individual Retirement Account works the same way at the bank level: you pick a term, earn a fixed rate, and pay the bank’s penalty if you break it early. But an IRA adds its own layer. Take a distribution from a traditional IRA before age 59½ and you owe a 10 percent additional tax on the amount withdrawn, on top of ordinary income tax.7Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions That is separate from the bank’s CD penalty, and you can end up paying both.
For a SIMPLE IRA, withdrawals within the first two years of participation carry a 25 percent additional tax instead of 10 percent.7Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Some exceptions — disability, a first home purchase, substantially equal periodic payments — can waive the IRA-level penalty, but the bank’s CD penalty still applies.
Before you commit any money to a CD, match the term to when you realistically expect to need the funds, and read the early withdrawal section of the disclosure. That is where your actual answer lives.