To cash in a CD, you contact the issuing bank at or just after the maturity date, verify your identity, submit a distribution request, and tell the bank where to send the money. Do this during the short grace period after maturity and you pay no penalty. Do it before maturity and the bank will subtract an early withdrawal penalty, usually equal to several months of interest, from what you get back.
Find Your Maturity Date and Grace Period
Your maturity date is on the original deposit agreement you signed when you opened the account. If you no longer have that document, the date also appears on periodic statements and is usually visible through your bank’s online portal. This date is what unlocks a short penalty-free window.
That window is the grace period. It varies by institution. Some banks give ten calendar days, others as few as one day for very short-term CDs and seven days for longer ones. Federal rules require that when a bank uses a particular method for mailing renewal notices, the grace period must be at least five calendar days, though many banks exceed that minimum.1Consumer Financial Protection Bureau. 12 CFR 1030.5 – Subsequent Disclosures Confirm the length with your own bank before assuming you have a full week.
During the grace period you can withdraw everything, change the term, or add funds if you want to renew at a different rate. The moment the window closes, the money is committed again.
What Happens If You Miss the Window
If you do nothing, the bank automatically rolls the balance into a new CD at whatever rate it currently offers, usually for the same term as the original. A 12-month CD renews as another 12-month CD. Once that rollover completes you’re locked in, and pulling the money out triggers the early withdrawal penalty.
Most banks send a renewal notice by mail or email before maturity, but relying on that alone is risky if it gets lost or filtered into spam. A calendar reminder two to three weeks before your maturity date gives you time to decide and submit a request.
Early Withdrawal Penalties
Cashing out before maturity almost always costs you. Banks charge a penalty calculated as a set number of days or months of interest, and it grows with the CD’s term. A short-term CD of three to twelve months might cost 60 to 90 days of interest. A five-year CD can run 150 days to 18 months of interest, depending on the bank. Federal regulations require banks to disclose the exact penalty method before you open the account.2eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
On short-term CDs the penalty can eat into your principal. Deposit $10,000 in a one-year CD at 4% APY and withdraw after two months, you’ve earned roughly $667 in interest, but a 90-day penalty would run about $1,000. The $333 difference comes out of your original deposit. Banks are permitted to do this. The only federal floor is that a time deposit must carry a penalty of at least seven days of interest for withdrawals within the first six days after funding.3eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD) – Section 1030.2 Beyond that first week, banks set their own schedules.
Some banks waive the penalty when the account holder dies or is declared legally incompetent. That is a bank-by-bank policy, not a federal rule, so ask before assuming.
Partial Withdrawals
Some banks allow partial withdrawals, though the early withdrawal penalty still applies to whatever you take out. Banks that permit them typically set a minimum amount, such as $500, and require that the remaining balance stay above the account minimum. Many banks don’t offer partial withdrawals at all and will require you to close the CD entirely. Check your deposit agreement or call to confirm.
How to Submit the Request
Whether you’re cashing out at maturity or paying a penalty to leave early, the mechanics are the same. You’ll need your account number, the original certificate number if a paper certificate was issued, a valid government-issued photo ID such as a driver’s license or passport, and a completed distribution request form from the bank.
Most banks offer three channels for submitting the paperwork:
- Online or mobile banking. Upload the signed form through the bank’s secure message center or document portal. Automated confirmation usually arrives within minutes.
- In person at a branch. A banker verifies your ID on the spot and can often issue a cashier’s check or start an internal transfer the same day. This is the fastest route when you need funds immediately.
- By mail. Send the signed form by certified mail with return receipt so you have proof of delivery. This is the slowest option and adds postal risk.
You also have to tell the bank how to pay you. The common choices are a check mailed to your address on file, an ACH transfer to a linked checking or savings account, or a domestic wire transfer. ACH is typically free but takes one to three business days. A wire arrives the same day but carries a fee, usually $25 to $30 for domestic transfers, deducted from your payout.
IRA CDs Carry Extra Consequences
A CD held inside a traditional IRA is subject to every bank-level penalty above plus a separate layer from the IRS. Take a distribution from an IRA CD before age 59½ and the IRS imposes a 10% additional tax on the amount withdrawn, on top of the regular income tax you owe.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions That means the bank penalty and the IRS penalty can hit at the same time.
Several exceptions eliminate the 10% IRS tax. The most common are distributions after death or total and permanent disability, unreimbursed medical expenses exceeding 7.5% of adjusted gross income, up to $10,000 in lifetime distributions for a qualified first-time home buyer, and funds rolled over to another qualifying retirement account within 60 days. These waive the IRS tax only. The bank’s own early withdrawal penalty on the CD still applies regardless of the reason.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Required Minimum Distributions
Once you turn 73, the IRS requires annual distributions from traditional IRA accounts, including IRA CDs. The first required minimum distribution must be taken by April 1 of the year after you turn 73, and every subsequent RMD is due by December 31.5Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) If the CD hasn’t matured when an RMD comes due, you may have to break it early and absorb the bank penalty to satisfy the requirement. Choosing maturity dates that fall before your annual distribution deadline avoids this.
Taxes on the Interest, and the Penalty You Can Deduct
The principal comes back tax-free. The interest doesn’t. All CD interest is taxable as ordinary income in the year it’s paid out or credited to your account.
If interest totals $10 or more during the calendar year, your bank must send you Form 1099-INT and file a copy with the IRS.6Office of the Law Revision Counsel. 26 U.S. Code 6049 – Returns Regarding Payments of Interest Banks generally mail 1099-INTs by January 31 of the following year, and digital copies are often available earlier through the bank’s online tax center.7Internal Revenue Service. About Form 1099-INT, Interest Income The interest is reported on your return and taxed at your ordinary rate. If interest was under $10 and no 1099-INT arrived, you still have to report it.
If you paid an early withdrawal penalty, that penalty is deductible on your federal return as an adjustment to income. It goes on Schedule 1, Line 18 and flows to Form 1040, Line 10, reducing your adjusted gross income directly.8Internal Revenue Service. Penalty on Early Withdrawal of Savings It’s an above-the-line deduction, so you get it whether you itemize or take the standard deduction. The penalty amount appears on the 1099-INT your bank sends, so look for it there when filing.
Cashing In a CD After the Owner Dies
A named beneficiary can claim the funds by contacting the bank with a certified copy of the death certificate and personal identification. Many banks waive the early withdrawal penalty when the original account holder dies, but this is a policy choice rather than a legal requirement, so ask before assuming. If no beneficiary is named, the CD becomes part of the estate and passes through probate, which can delay access significantly.
A Note on Brokered CDs
If you bought your CD through a brokerage account rather than directly from a bank, the process above doesn’t apply. Brokered CDs generally don’t carry traditional early withdrawal penalties. Instead, you sell the CD on a secondary market, and the price depends on current interest rates and the buyer-seller spread. If rates have risen since you bought it, you may sell at a loss; if rates have fallen, you may sell at a premium. Holding a brokered CD to maturity returns the full face value without any secondary-market transaction.