How to avoid CD fees (2024)

FAQs

How to avoid CD fees? ›

Wait for your CD to mature.

This is the most obvious way to avoid CD early withdrawal penalties, but is worth mentioning. Make sure that there's very little chance you'll need the money in your CD before the term ends, or consider opening a shorter-term CD instead (or sticking with a high-yield savings account).

Wait for your CD to mature.

This is the most obvious way to avoid CD early withdrawal penalties, but is worth mentioning. Make sure that there's very little chance you'll need the money in your CD before the term ends, or consider opening a shorter-term CD instead (or sticking with a high-yield savings account).

Many banks and credit unions charge fees for opening and maintaining CD accounts, which can cut into your earnings. These include early withdrawal fees, monthly maintenance fees and broker fees.

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Banks and credit unions can penalize savers who withdraw CD funds before maturity. CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.

If you are withdrawing money because of an emergency, you might qualify for a fee waiver. You can usually qualify for a waiver in cases of death, disability, or court-determined incompetence, for example. 7 Banks are permitted to waive penalties in these situations, but they're not required to do so by law.

Traditional CDs impose a penalty for withdrawing money before maturity, but no-penalty CDs let you withdraw your principal and interest when you prefer. Typically, you must wait at least seven days after your initial deposit and withdraw the full balance in your account.

Your financial advisor receives a percentage of any commissions or charges for CDs.

Certificates of deposit generally have only one type of fee: an early withdrawal penalty. CDs, unlike other bank accounts, require you to lock up a fixed sum of money for a set period of months or years.

At maturity, if your CD is set to automatically renew, there is a 10 calendar-day grace period during which you can add or withdraw funds from your CD account without penalty. Looking for something else? What it is, how it works and everything in between. Quick links to get you—and keep you—on the right track.

Can I lose money in a CD? ›

A Certificate of Deposit (CD) could lose money if funds are withdrawn early, incurring penalties that may exceed earned interest. CDs are generally low-risk and guarantee a fixed interest rate for the term. Early withdrawal penalties can sometimes reduce the principal, not just the interest.

Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.

The national deposit rate for 5-year CDs is 1.39%, up from less than 0.50% in June 2022. Yet many banks are offering rates well above that—the best 5-year CDs have annual percentage yields (APYs) that exceed 4%, and some 1-year CDs are offering APYs well above 5%.

Bottom line. A long-term CD can be a good fit for money that you won't need during the CD's term. Locking in a longer-term CD now could help you preserve purchasing power if rates were to drop in the future.

CD Fees and Penalties

Typically, there are no fees for opening a CD, but there may be minimum deposit requirements. All banks charge some type of penalty for withdrawing your CD funds early. In most cases, penalties are based on a percentage of the interest accrued.

Key takeaways

Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

Indeed, most CDs charge an early withdrawal penalty if you take out your money before the term is up, and it can be steep: Federal law mandates that banks charge a minimum of seven days' worth of interest, but there's no maximum penalty, so you could be charged the equivalent of a year's worth of interest or even more, ...

If you break that commitment and withdraw money from your CD prior to its maturity date, you will incur early CD withdrawal penalties. This could mean the financial institution withholds an amount of interest on the money you withdraw or could even take some of your principal.

Snap the disc using your hands while nobody is around and put it somewhere in your outside garbage bin or your local dumpster. If you can't do that, get a lighter and burn it along with paper to mask it.