Glossary term
Early Withdrawal Penalty
An early withdrawal penalty is a charge for taking money out of a certificate of deposit before it matures. It is usually expressed as a number of days' or months' worth of interest, such as 90 days or six months. If you have not yet earned enough interest, the penalty can reduce your original deposit.
Updated October 17, 2026 · Editorial Team
How Early Withdrawal Penalty works in practice
Each bank sets its own penalty schedule, often scaled to the CD's term, and must disclose it before you open the account. Some calculate the penalty on the amount withdrawn, others on the whole CD. A few no-penalty CDs allow withdrawals after a short waiting period.
Say you have a $10,000 CD at 4.00% APY with a penalty of six months of interest, roughly $10,000 × 0.04 × 6 ÷ 12 = $200.00. If you break it after four months, you have earned about $131.59. The penalty exceeds what you earned, so you would get back around $9,931.59, less than you deposited.
Before choosing a CD, compare penalties as well as APYs, especially if there is any chance you will need the money. Breaking a CD to move to a higher rate can still pay off, but only if the extra interest outweighs the penalty.
Early Withdrawal Penalty: quick questions
Can an early withdrawal penalty take my principal?
Yes, if the penalty is larger than the interest you have earned. That is most likely early in the term.
Are there CDs without penalties?
Some banks offer no-penalty CDs that allow a withdrawal after an initial waiting period, often at a lower rate.
Is the penalty tax deductible?
Penalties on early withdrawal of savings may be deductible as an adjustment to income. Check current IRS guidance or a tax professional.
Sources
- Certificates of deposit (CDs) — U.S. Securities and Exchange Commission (Investor.gov). Accessed October 17, 2026.
- Regulation DD (Truth in Savings), 12 CFR Part 1030 — eCFR / National Archives. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations. See our methodology.
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