See exactly what breaking your CD early costs.
5 years
1 year 6 mo into a 5 years term
Penalty (months of interest)
Compounding frequency
Effective 2.77% APY on the money
Your principal is safe. After the $500.00 penalty you still keep $1,045.83 of interest, walking away with $26,045.83.
What you give up by leaving early
Leaving early costs you $4,488.91 in interest you would otherwise have earned.
Penalty modelled as N months of simple interest on principal — the most common bank structure. Check your disclosure: some banks charge a flat fee or a percentage of principal instead.
Formulas and content last reviewed . Bank rates change frequently — confirm current rates directly with your institution.
The short answer
A CD early withdrawal penalty is normally quoted as a number of months of interest — commonly around 3 months on terms under a year and 6 to 12 months on longer terms — and computed as Penalty = P × r × (penalty months ÷ 12). Take $25,000 in a 5-year CD at 4.00%, closed after 18 months: you have earned $1,545.83, the 6-month penalty is $500.00, and you walk away with $26,045.83. The figure to watch is the relationship between those first two numbers. Federal rules permit the penalty to reduce principal, so closing early enough that the penalty exceeds the interest earned returns less than you deposited — the one scenario in which an insured CD loses money. Penalty structures vary: a minority of institutions charge a flat fee or a percentage of principal instead, so check your disclosure.
Formula & method
Penalty = P × r × (penalty months ÷ 12)
Penalties are charged as simple interest on the principal, not on the accrued balance.
Find the penalty in your CD disclosure, stated as N months of interest.
Multiply your principal by the annual rate to get a full year of interest.
Multiply by penalty months ÷ 12 to scale it to the penalty period.
Calculate the interest actually earned up to the withdrawal date.
Subtract the penalty from that interest. A negative result means the shortfall is taken from your principal.
Guide
Deposit, rate and the original term — the same values from when you opened the account.
Drag the withdrawal month. The tool computes interest earned to that point and applies the penalty against it.
Take this from your disclosure. Three months is typical for short terms, six to twelve for multi-year CDs.
If the penalty exceeds interest earned, the tool flags that your principal will be reduced — you would get back less than you deposited.
Examples
Inputs
Result
You keep $1,045.83 of interest. Painful, but principal is untouched because 18 months of accrual exceeded the 6-month penalty.
Inputs
Result
Here the penalty is larger than the interest earned, so $248.76 comes straight out of the $25,000 principal.
Methodology
The penalty is quoted as months of simple interest on the principal — the most common structure, but some banks use a flat fee or a percentage of principal instead.
The bank permits early withdrawal at all. Some CDs are non-negotiable before maturity.
No partial withdrawal is modelled; the calculation assumes closing the full CD.
Grace periods after maturity, during which you can withdraw penalty-free, are not included.
Conventions follow Regulation DD (12 CFR 1030), which governs how US institutions disclose APY on deposit accounts. Deposits at insured institutions are FDIC-protected up to $250,000 per depositor, per bank, per ownership category.
Primary sources
Details
Federal rules permit the penalty to reduce principal — 'you can lose money on a CD' is only true in this scenario.
Typical schedule: terms under 12 months carry about 3 months of interest; 1–3 years around 6 months; 4+ years 9 to 12 months.
No-penalty (liquid) CDs exist and let you withdraw after the first week, usually at a lower rate.
Penalties are deductible on your federal return as an adjustment to income — they appear in Box 2 of Form 1099-INT.
If a higher rate is available elsewhere, breaking a CD can still be net-positive. Compare the penalty against the extra interest from switching.
How it connects
Applications
An unexpected expense has come up and you need to know the real cost of accessing the money.
Rates have risen since you locked in and you want to know if breaking out is worth it.
You are comparing CD terms and want to price the downside before you commit.
Related tools
FAQs
Penalty = P × r × (penalty months ÷ 12), where P is the principal, r is the CD's nominal rate as a decimal, and the penalty months come from your disclosure. It is simple interest on the full principal, not on the interest you happened to earn, and it does not shrink because you left near the end of the term. Take $25,000 in a five-year CD at 4.00%, closed after 18 months with a six-month penalty: 25,000 × 0.04 × 0.5 gives $500.00. You had earned $1,545.83, so you keep $1,045.83 of it and walk away with $26,045.83. Typical schedules run around three months of interest on terms under a year, six months on one-to-three-year terms, and nine to twelve months beyond that — but a minority of institutions charge a flat fee or a percentage of principal instead.
Security & privacy
Uses the same compound interest and APY conventions as banks under Regulation DD.
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Knowing the penalty in advance is how you pick the right term. See what an early withdrawal would actually cost you.