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A certificate of deposit (CD) early-withdrawal penalty is the consequence set by the account terms when you take money out before maturity. It may be a fee, lost interest, a reduced rate or another adjustment—not one standard amount. For covered deposits, federal law sets a minimum penalty in a narrow early-withdrawal case, but no maximum; the CD agreement determines the usual formula and when it applies.
What can a CD early-withdrawal penalty include?
A penalty does not necessarily appear as a separate cash fee. Regulation DD recognizes several possible consequences, and a bank’s disclosure must explain whether a penalty may apply, how it is calculated and the conditions that trigger it. See the CFPB’s official interpretation of Regulation DD, section 1030.4.
- A fixed monetary charge.
- Forfeiture of accrued but uncredited interest, potentially alongside an interest charge.
- A lower interest rate or APY, or less frequent compounding, on funds left in the account.
- Reclamation of a bonus paid for opening the account.
Check the agreement’s calculation base and conditions rather than relying on the word “penalty.” Depending on the terms, the consequence may consume some or all of the interest earned; the agreement should say whether a minimum charge or other adjustment applies.
What federal law requires—and what it does not set
For time accounts covered by Regulation DD, disclosures must state the maturity date and whether an early-withdrawal penalty will or may be assessed, how it is calculated, and under what conditions. If interest compounds during the term and can be withdrawn before maturity, the disclosure must also explain that the stated APY assumes interest stays on deposit until maturity and that withdrawing it reduces earnings.
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The OCC says federal law establishes a minimum penalty but no maximum. Its consumer guidance states that a withdrawal within the first six days after deposit must incur at least seven days’ simple interest. That is a limited rule for withdrawals during those first six days—not a general estimate of the cost of closing a CD later in its term. For other early withdrawals, consult the account agreement for the applicable formula and conditions. Read the OCC’s guidance on CD early-withdrawal penalties.
Does your CD allow you to withdraw early?
Terms vary by product. The FDIC says most fixed-rate CDs allow early redemption for a fee, while most market-linked CDs do not permit it. Some market-linked and other long-term, high-yield CDs are callable, meaning the bank may close the account early under the conditions stated in its terms. A bank’s right to call a CD is different from your right to request early redemption.
Before opening or renewing a CD, check whether it renews automatically, when any grace period falls, and what rate and terms apply after renewal. The FDIC’s guide to shopping for a certificate of deposit discusses early redemption, call features and renewal terms.
What to check before asking the bank to close a CD
- Find the maturity date. Confirm whether the account allows depositor-requested early redemption at all.
- Read the penalty formula. Look for days or months of interest, a flat charge, forfeited interest, or another disclosed adjustment.
- Check the impact and triggers. Determine whether the penalty can reduce principal or is limited to interest, whether a minimum charge applies, and what conditions activate it.
- Identify special product terms. Check whether the CD is market-linked or callable, and whether the institution can refuse a customer-requested early redemption.
- Review an approaching maturity. Check automatic-renewal, grace-period and post-renewal terms before acting.
- Request a payoff calculation. Ask the institution for the amount you would receive and how it calculated the penalty before authorizing closure.
The OCC advises customers to read their account agreement because bank policies and fees depend on the account terms. Its separate explanation of whether a bank can charge a CD early-withdrawal penalty notes that CDs are contracts for a fixed amount, term and agreed interest rate and yield.
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If the CD is held in an IRA
Separate the CD’s account penalty from any tax consequences that may apply to distributions from an IRA or another retirement arrangement. A CD held inside an IRA can involve both the bank’s early-redemption terms and retirement-account rules; they are not the same penalty.
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