CD Early Withdrawal Penalty Calculator

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Principal:Penalty (in days):
APR:% Cost to close CD:

(ie: 3-months = 91, 6-months = 182, 9-months = 273, 1-year = 365, etc)

If you close the CD after the indicated time frame and pay the penalty, this is your effective net rate:


Why is this information helpful? With CD rates as low as they are, people are trying to find a way to earn as much interest as possible. Investing some of your portfolio into longer-term CDs with lower penalties can be useful. This tool allows you to compare the effective rate of the longer-term CD with the straight term of shorter CDs. For instance, if you have a choice between a 2-year at 1.30% and a 5-year at 2.00% with a 6-month penalty, the 5-year may be a better choice. Even if you pay the penalty and close the CD after two-years, your earnings for the 5-year CD will be higher.

Caveat #1: Yes, this method does have a risk. The risk is that the bank won’t honor an early closure request. As rates increase, this risk will also increase. However, in all of our years of business (Twenty at this point), we have only ever had two banks refuse to honor a closure request. And one of those banks re-negotiated a higher penalty and still let the funds go.

Caveat #2: Rates are at historic lows. This means that the penalties people would be paying are much less than in past cycles. As a result, more banks may feel the penalty is not worth it in the short-term to them. It could also become a matter of the “early bird gets the worm”. Banks initially may honor requests, but as more and more people attempt early terminations, a bank may be less likely to honor them.

Caveat #3: Some banks and credit unions have modified their penalties to close the CD early. So you could invest in a CD with a 6-month penalty and a year down the line, the bank changes it to 1-year. Historically, it was felt that this wouldn’t be possible, but many disclosure statements have become quite vague and the financial institution has claimed they have a right to do so. Don’t expect much help from the NCUA or FDIC either if you are affected. They don’t see their role as a police over disclosure statements. For the consumer, their primary role is insuring your funds against the institution’s failure.

Do I believe this type of investing is a good idea? I do. I believe the risk of not having your penalty request honored are low. A bank would suffer some bad PR and I don’t think they will want to deal with that. I wouldn’t invest all of your CDs this way though. Keeping a balance is important.