What If I Change My Mind After Opening a Certificate of Deposit?

Make sure you know all of the terms and conditions for a CD before you open the account.

A certificate of deposit is a bank account that allows you to save money and earn interest. CDs are issued by banks for a certain period of time for various amounts and have some restrictions. If you change your mind after opening a CD, you could incur a penalty for early withdrawal.

Significance

A CD for $500 with an interest rate annual percentage yield of 5 percent invested for five years may have a penalty of four months' interest for a withdrawal prior to the maturity date.
The interest for one year would be $25, ($500 x .05). One month of interest equals $2.0833,( $25/12 = $2.0833) The penalty would be $8.333, (4 x 2.0833).

Considerations

When you close a CD immediately after opening it, you could lose a portion of your principal balance in addition to interest earned. The penalty you incur when you withdraw after one month could be different from the penalty for a withdrawal after eight months.

Effects

CDs can be opened for a variety of time frames. Usually the longer the term, the higher the rate of interest.

Maturity

When a CD matures, which is the end of the term, you can safely take your money out without being penalized. You can also deposit more money into your CD at this time.

Prevention/Solution

When you open a CD, always make sure you can afford to leave the money in the account for the full term to avoid losing some of your money. Find out about all of the terms and conditions.

References

• Securities and Exchange Commission: High-Yield CDs - Protect Your Money by Checking the Fine Print
• Bankrate: CD Early Withdrawal Penalties Survey