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
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
- 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
- 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
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
- Pentagon FCU (CD account review)
- 180 days interest for over 6mo to 5yr
- 365 days interest for 7yr term
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
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
- iGObanking.com (CD account review)
- 3 months interest for 3mo to under 1yr
- 6 months interest for 1yr and greater
- Northwest FCU (CD account review)
- all interest earned for 6mo and under
- 180 days interest for over 6mo
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