Dedicated to Deposits: Deals, Data, and Discussion

Survey of CD Early Withdrawal Penalties from Internet Banks


Locking into a long-term CD may be questionable now since there's the possibility of much higher interest rates sometime in the future. However, there's also the possibility that interest rates will stay low for several years. CD ladders can help take the guess work out of choosing terms. Even with CD ladders, it's a good idea to compare CDs not only based on rates, but also early withdrawal penalties. If rates shoot up or if you just need the money, you typically can break the CD with a penalty.

To help you compare early withdrawal penalties, I've put to together a short list of penalties from internet banks and popular credit unions. I chose the institutions based on their history of competitive long-term CD rates. I tried to summarize the penalties to make it easier to read. So it may not be exact compared to what is in the disclosures. I included links when possible to the disclosures so you can view the official details. I've also included links to my recent account review posts for additional CD details.

The most common early withdrawal penalty for CD terms over 1 year to 5 years is 6 months of interest. For terms over 5 years, the penalty is usually over 6 months of interest.

Ally Bank has the smallest penalty by far. At the other end is EverBank which has one of the highest penalties. There are a couple institutions with odd penalties which are confusing and could cause the penalty to be much higher. These two are Melrose Credit Union and Capital One Direct Banking.

There is one risk when planning on an early withdrawals. Some banks have small print that gives them the right to refuse an early withdrawal request. Banks rarely make use of this right, but there have been cases where this has happened. I described some examples in this post on long-term CDs. When I found this right-to-refuse in the disclosures, I noted it in the list.

  • Hudson City Bank (CD account review)
    • 3 months interest for 1yr and under
    • 6 months interest for over 1yr
    Special Note: "withdrawal prior to maturity may be permitted only with the consent of the Bank"
    Refer to page 6 of Truth in Savings Agreement available that's available in the online application (unable to link to it)
  • Ally Bank (CD account review)
    • 60 day interest penalty on all regular CDs
    Refer to page 3 of the Ally Bank deposit agreement (pdf)
  • Discover Bank (Discover internet bank review)
    • 3 months interest for under 1yr
    • 6 months interest for 1yr to 5yr
    • 9 months interest for over 5yr
    Refer to the Discover Bank CD FAQ
  • USAA Bank (CD account review)
    • 90 days interest for 30 days to 1yr
    • 180 days interest for over 1yr, but less than 7yr
    • 365 days interest for 7yr or more
    Special Note: Any withdrawals before the maturity date require Bank’s consent
    Refer to the service fee section of the deposit agreement
  • Melrose Credit Union (account review)
    • 9-12 Months term: Forfeiture of the first 90 days dividend and a deduction of rate to share account rate
    • 18-60 Months term: Forfeiture of the first 180 days dividend and a reduction of rate to share account rate
    • Refer to the early withdrawal section of the Melrose CD account review
  • BankUnited (CD account review)
    • 90 days interest for 90 to 365 days
    • 180 days interest for 366 days and up
    Refer to the CD Truth in Savings document in the CD Truth in Savings disclosure
  • Pentagon FCU (CD account review)
    • 180 days interest for over 6mo to 5yr
    • 365 days interest for 7yr term
    Special Note: In general the penalty will not reduce the principal.
    Refer to page 2 of the CD application
  • EverBank (CD account review)
    • one-fourth of the total interest that would have been earned on the principal balance of the account if funds had not been withdrawn prior to the maturity date
    Special Note: This penalty refers to the Yield Pledge CD Account. EverBank's CDARS have different penalties.
    Refer to the Terms and Conditions Agreement
  • Capital One Direct Banking (CD account review)
    • 3 months interest for 3mo to 1yr
    • at least 6mo interest and could equal the Economic Replacement Value for terms over 1yr
    Special Note: For more details of the Economic Replacement Value, refer to the CD disclosure
  • iGObanking.com (CD account review)
    • 3 months interest for 3mo to under 1yr
    • 6 months interest for 1yr and greater
    Special Note: According to the CD disclosure, "You may make withdrawals of principal from your account before maturity only if we agree at the time you request the withdrawal."
  • Northwest FCU (CD account review)
    • all interest earned for 6mo and under
    • 180 days interest for over 6mo
    Special Note: In general the penalty will not reduce the principal.
    Refer to the CD application disclosure/agreement.
  • OneWest Bank (CD account review)
    • 3 months interest for 180 to 364 days
    • 6 months interest for 365 days and over
    Refer to page 8 of the terms and conditions.
  Tags: CD rates

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Comments
8 comments.
Comment #1 by Anonymous posted on
Anonymous
I spoke with a Hudson City CSR at the main office. She stated to me in no uncertain terms that the Bank would, under no circumstaces, refuse an early withdrawal request. 

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Comment #2 by Anonymous posted on
Anonymous
When I questioned the CSR at USAA about the 7 year CD and the wording of getting bank approval before early withdrawal,she stated it was MY money and I could withdraw it when ever I wanted to and they ALWAYS approve of it, provided you pay the penalty.

3
Comment #3 by ctgottapee (anonymous) posted on
ctgottapee
i did an early PenFed withdrawl once for a large amount and they had no questions, even tried to offer some other options as they didn't want to see me take a loss. I had to pay the full penalty, and fax my request with a notary signature, but they responded to it that day. They did not offer ACH (like their online banking) just Wire for a fee and mail a check.

 

My only advice is if your going to dump a large sum into a single CD, split it up into multiple smaller amounts of the same CD so you can potentially withdrawl part of it without breaking the rest. The bank is generally not going to offer a partial withdrawl on a CD at better rates than current. A bit messier for book keeping....

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Comment #4 by Anonymous posted on
Anonymous
It was several years ago that I learned of the (then) new Capital One early withdrawal policy.  I didn't like it one bit, and it has negatively impacted my willingness to business there.

As for trusting a person's word over a banking institution's written policy . . well . . only a fool would to that.  I did run into this situation seven or eight years ago.  It was a great CD rate, too.  I insisted on a letter countermanding and negating their written policy and safeguarding my right to early withdrawal.  I got the letter, too.  Only after receiving that letter did I send them my money and open my CD.  You can't be too careful.  And several years later, well . . you guessed it . . I needed to close that CD early and re-claim my money!

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Comment #5 by Anonymous posted on
Anonymous
CitiBank claims that all CD's 1 year or greater (ie. upto 5yrs.) has a 30 day penaly for the FIRST year. So, if the rate improves over that time and you need to cancel to improve your return, you may do it with 1 month penalty. The penalty increases as the CD ages (90 days to 180 days of interest). Sounds good if the rate is OK - but it is only 2.5% for a 5-year term. You may do better locking in at a credit union that pays 60 to 70 basis points higher.

1
Comment #6 by Anonymous posted on
Anonymous
Confirmed this with Ally bank - their 60-day early withdrawal policy on CDs is NOT guaranteed and can change on existing accounts at any time. Old CDs will adhere to new policies if they decide to change 60-days to anything else.

5
Comment #7 by ctgottapee (anonymous) posted on
ctgottapee
another thing i forgot to mention is that a bank might allow you to borrow against the CD if it is a liquidity crunch you run into, whereas most people here are rate chasing...

 

my prior penfed CD issue was related to a spur of the moment distressed property deal, and cash was needed. penfed offered a personal line of credit against the CD. depending on your payback time frame and rates, you could still come out nicely. [note for me in this case a home loan wasn't possible due to time frame and appraisal issues]

 

i'm guessing not many banks will offer or even have the option, but it could be one, especially with a credit union where you have a good portion of business and good credit.

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Comment #8 by Anonymous posted on
Anonymous
Under the Ally bank section Refer to page 3 of the Ally Bank deposit agreement (pdf)  you get a 401

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