How to Calculate the Penalty on an Early Withdrawal of a CD

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Saving money is a wise financial decision that demonstrates personal discipline and helps you to prepare for the future. A common method of savings is in the form of a CD or "certificate of deposit." Banks offer various types of CDs. Some CDs mature in six months, whereas others take five years to mature. If you withdraw a CD before its maturity, you will incur fees based on your bank's early withdrawal policies.

Convert the interest rate on your CD into a decimal by dividing it by 100. For example, if you have a CD that is earning 2% interest, you would divide 2 by 100 to get 0.02.

Ask your banker the penalty fee for the specific early withdrawal terms for your CD. Many banks have varying fees, such as 3 months interest if the CD is a 12-month maturity account or 6 months interest if the CD requires more than 12 months until its maturity date.

Multiply the interest rate in decimal form times the principal of your CD. For example, if you have $10,000 in a CD that collects 2% interest per year, you multiply 0.02 times 10,000 to get 200. This means that you would earn $200 per year in interest.

Divide the interest per year by 12 to find out the interest earned per month. In this example, you would divide 200 by 12 to get $16.67 of interest monthly.

Multiply your answer from step four times the bank's terms (from step two) to calculate your penalty fee. For example, consider a $10,000 CD that has a term of 5 years and a 2% interest rate. If you withdraw the CD early and your bank charges 6 months' interest, you would multiply 6 times $16.67 to get a penalty of $100.02. This penalty would come from the interest you would have accrued, but would not deduct anything from the original principal amount. This feature makes CDs a relatively safe investment.


  • Talk with your banker to see if they have a flat rate fee. Although this is much less common than percentage fees, some banks charge a set fee (such as $30 or $50) for the early withdrawal of a CD.


  • Pam Shuler; Personal Banker; First Citizens Bank, 129 Parler Avenue, St. George, SC; 843.563.3011

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Charlotte Johnson is a musician, teacher and writer with a master's degree in education. She has contributed to a variety of websites, specializing in health, education, the arts, home and garden, animals and parenting.

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