Nervous To Commit to a CD? These Top-Paying Options Have a Mild Penalty if You Need To Cash Out Early

Key Takeaways

• If you need to cash in a CD early, you’ll likely pay a penalty—usually a set number of months’ worth of interest.
• These penalties vary widely, so it’s smart to find out before you open a CD what it would cost if you opt to cash out before maturity.
• Many of the best CD rates right now are 4.45% APY or better, and those rates are guaranteed for the duration of your CD term.
• While no-penalty CDs provide flexibility, they usually offer much lower yields, reducing what you can earn.

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Cashing In a CD Early Triggers a Penalty—And They Can Vary Widely

If you’re considering places to put cash and you’re lucky enough to not need immediate access to it, one option is a certificate of deposit (CD). In exchange for agreeing to leave your savings untouched for a set period, your bank or credit union will guarantee a fixed rate for the entire term—and some of the best CDs right now are offering 4.45% annual percentage yield (APY) or better. Unlike high-yield savings accounts, a CD’s APY won’t change, so you’ll know exactly how much money you’ll earn at the CD’s maturity date, regardless of how far away it is.

If you find that you need to cash out a CD before its maturity date, it’s not impossible. But you will pay an early withdrawal penalty. These are set by the financial institution, usually with different penalties for different CD terms. These penalties vary widely across the industry, so it’s important to know—before you commit to any certificate—what you’ll be charged if you need to break the CD early.

The penalties are often calculated as a number of months’ or even years’ worth of interest, and that amount generally increases as your CD term limit increases. A 1-year CD at one bank may charge a penalty equal to a few months of interest, while a CD of the same length at another bank might include a penalty of 9–12 months’ interest—or even more. And in some cases, especially if you break a CD before it has had time to accrue much interest, you may lose some of your initial deposit.

Here’s an example of what it might cost you to break a CD early: Let’s say that you have a 1-year CD with an early withdrawal penalty of three months of interest. If you cash in the CD after four months, you’ll lose three-quarters of the interest you earned (three out of the four months of earnings), and you’ll have earned just one month of interest. Had you closed the CD before the three-month mark, you would have lost more interest than you earned, eating into your initial investment.

The Best CDs With a Mild Penalty for Early Withdrawal

Fortunately, you can choose CDs that are friendlier with their penalty policy by doing some simple shopping around. And we’ve made that easy by compiling a list of today’s top-paying CDs that have what we consider a mild early withdrawal penalty. All of these appear in our daily rankings of the best CD rates across terms, so these are top-APY options. And the longest penalty included is six months. For shorter-term CDs, you can even find options charging just one to three months of interest.