With interest rates on certificates of deposit at historically low levels, savers are scrounging to earn the best possible yield on their money. But in your quest for return, don't forget to check the fine print for banks' early-withdrawal penalties. No one expects to withdraw funds early, but emergencies occur, and you should be aware that penalty rates vary widely.
Bankrate.com recently surveyed early-withdrawal penalties at 100 institutions in the top ten markets and found that savers typically lose three months' worth of interest on a CD with a maturity of one year or less. For CDs of more than a year, a fine of six months' interest is common. And the penalty for cashing out a five-year CD can be as high as 20% to 25% of the total interest you'd earn by holding to maturity. Most banks polled will reach into your principal if the interest you've accrued is insufficient to pay the penalty.
So before you sign up, do the math to figure out how much you might lose if you were to cash in your CD before it matures. EverBank, which issues the top-yielding five-year CD, takes back 25% of the total interest you'd earn over five years, which would amount to about $67 on a $1,500 CD yielding 3.29%. Ally Bank pays a little less, but its penalty is only 60 days' interest, so you would lose less than $10 on the same $1,500 CD.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
One way to skirt the problem is to create a CD ladder by purchasing five CDs of equal amounts with maturities ranging from six months to five years. One of your CDs should then be close to maturity each year if you need cash right away. If you don't, you can search for the highest-yielding CD and reinvest the proceeds.
-
Last Call for Fortnite Refunds: Parents Can Still File a ClaimThe FTC is sending out $126 million in refunds to families whose kids were charged for unwanted items in Fortnite — and there’s still time to file a claim.
-
Stock Market Today: Stocks Swing as Trump Scraps Canada Trade TalksDespite a mid-afternoon slip, the S&P 500 and Nasdaq ended the day at new record highs.
-
Roth IRA Contribution Limits for 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
Four Tips for Renting Out Your Home on Airbnbreal estate Here's what you should know before listing your home on Airbnb.
-
Five Ways to a Cheap Last-Minute VacationTravel It is possible to pull off a cheap last-minute vacation. Here are some tips to make it happen.
-
How Much Life Insurance Do You Need?insurance When assessing how much life insurance you need, take a systematic approach instead of relying on rules of thumb.
-
When Is Amazon Prime Day? Everything We Know So Far, Plus Early DealsAmazon Prime Here are the key Amazon Prime Day dates and details you need to know, plus some of our favorite early deals to shop ahead of the sale.
-
How to Shop for Life Insurance in 3 Easy Stepsinsurance Shopping for life insurance? You may be able to estimate how much you need online, but that's just the start of your search.
-
Five Ways to Shop for a Low Mortgage RateBecoming a Homeowner Mortgage rates are high this year, but you can still find an affordable loan with these tips.
-
Retirees, It's Not Too Late to Buy Life Insurancelife insurance Improvements in underwriting have made it easier to qualify for life insurance, which can be a useful estate-planning tool.
