How Do I Avoid Penalty Interest on a CD?

  • Some banks issue interest payment disbursements throughout the term of your CD, which is one way to access money from your CD without touching the principal.
  • A No-Penalty CD does not charge an early withdrawal fee if you take out your money before the CD term expires. You can generally withdraw your money beginning seven days after the CD is funded.

Looking for a way to save? Certificates of deposit can be a great option. They’re a safe place to park your money, much like a traditional savings account, but typically with higher interest rates.

One thing to be aware of, though, is that traditional CDs don’t let you touch your money until the term ends, which could be months or even years, unless you’re willing to pay a penalty to withdraw money early.

However, there are a few ways (and reasons) you may be able to keep money in a CD and have access to funds without getting dinged by penalties. One way is to use a No-Penalty CD (more on that below). But that’s not your only option.

See if your bank issues interest payments

Some institutions allow you to schedule regular interest payments throughout the term of your CD, while leaving the principal untouched. Read the fine print in the CD’s terms to see if interest disbursements are an option.

Important to know and be clear about: receiving interest payments from your CD is not the same thing as withdrawing money.

This may seem obvious, but it’s an important difference because interest disbursements follow a schedule and keep your principal intact.

If you’re earning a nice amount of interest on a sizeable principal, it may be enough to cover expenses while not withdrawing funds from your principal.

Extenuating circumstances may absolve you from early withdrawal fees

Some CDs allow for early withdrawal penalties to be waived outright in extenuating circumstances, such as:

  • Death
  • Disability
  • Legal incompetence

Get a No-Penalty CD

A No-Penalty CD gives you the freedom to withdraw funds before the CD term ends, without an early withdrawal penalty. There are some restrictions though. With a Marcus No-Penalty CD, for instance, you can withdraw your total deposit beginning seven days after you funded the CD. Just keep in mind – if you do withdraw funds from a Marcus No-Penalty CD before it matures, you’ll need to take out all of your money since a partial withdrawal isn't an option.

Benefits include:

  • Interest rates. No-Penalty CDs give you the ability to take advantage of rising interest rates. If you open a five-year CD and rates rise during that time, you may not want to miss out on the opportunity to earn a higher rate. A No-Penalty CD gives you the flexibility to do just that.
  • Ready access. No one sets out to open a CD with an eye toward withdrawing their money early. But life happens and knowing there's an option to withdraw early provides peace of mind.

A Marcus No-Penalty CD is a great option. It can help you achieve your savings goals while leaving flexibility to handle the unexpected. Learn more about how Marcus could help.

Fear commitment? Get the CD that lets you walk away with your entire balance beginning 7 days after funding

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.