Glossary
Early withdrawal penalty
An early withdrawal penalty is what a bank charges for taking money out of a CD before it matures, usually stated as a number of days' or months' interest, such as 90 days' interest.
If you haven't earned enough interest to cover it, the rest comes out of your deposit. Federal rules require at least seven days' simple interest on withdrawals in the first six days. The penalty is deductible on your federal return.
Example
Closing a $10,000, 12-month CD after 6 months
- Interest earned
- 6 months at 4.25% APY
- $210.29
- The penalty
- 3 months’ interest
- −$104.60
- Interest you keep
- Earned, less the penalty
- $105.69
Interest earned$210.29
$105.69 you keep$104.60 of penalty
Where you’ll see it on RateHerald
Related terms
- CD (certificate of deposit)A bank deposit that earns a fixed APY for a set term, from a few months to five years or more, in exchange for a penalty if you withdraw early.
- APY (annual percentage yield)The percentage a deposit earns in a year, counting compounding: the figure banks must quote for savings accounts, money market accounts and CDs.
Sources: eCFR: Regulation D, 12 CFR 204.2