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What If You Need to Withdraw Your Money from Certificates of Deposit?

A certificate of deposit or CD is an investment designed in such a way that a person will enjoy a reasonable interest if his or her money is kept in a bank for an extended period, typically a year in duration. Returns are guaranteed and these are much higher than the interest earned by standard savings accounts, but this is only on the condition that the money stays with the bank for a specific number of days. Once a CD reaches its maturity date, the principal is paid back to the owner with the interest being paid either upon each accrual or once it is accumulated. Under satisfactory market conditions, many banks issue long-term CDs so that they may have more money and time for their own investment activities to generate profit not only for themselves but for their depositors as well. The inclusion of high yet reasonable interest rates will hopefully attract more depositors into investing in long-term CDs.

The best time to withdraw money from a CD is when it matures, by which time the total proceeds will be credited to your account, anyway. You are then able to benefit from the fruits of your investment which include interest earned along the way. However, there may be a time when a person who invests money in a CD needs some or all of that money for his or her personal use even before the security matures which for him or her could take too long. With a savings account, you can withdraw your money anytime. With a CD, to do so might not be such a good idea.

CDs are fixed-income securities which means investors are guaranteed income over principal upon reaching the maturity date. Regardless of price fluctuations experienced by other more liquid securities such as stocks and money market funds, investors are sure to get back precisely what they have placed in CDs plus some interest by the end of a specified term. Any early withdrawal would negate the purpose of a CD which is to generate income through long-term deposit. It happens in the cases of people who need money very badly to pay for expenses and of people who can afford to relinquish a CD prematurely in order to take advantage of a fleeting investment opportunity promising potentially greater returns.

While banks cannot prevent people from withdrawing what they have invested in CDs before their terms end, they are allowed to at least discourage their customers from doing so. Banks are authorized to impose penalties for early withdrawals of money from CDs. It could be a specific amount or the equivalent of one to six months of interest which could possibly cancel out most if not all of the interest already earned, especially in the case of CDs that are one year or less in duration. If the funds in a CD have been withdrawn so early that no interest has yet accrued, the issuing bank may deduct the necessary charges from the invested principal, thus leaving a depositor with less money than what he or she put in.

Some banking observers advise investors who cannot wait for the maturity dates of their CDs to at least wait until a time when whatever interest has been earned will exceed the corresponding penalties. This will allow investors to redeem the principal but not the full interest amount which will also be deducted by penalties. It is a better alternative to getting out with less money, but it is highly recommended for investors to stick to their CDs until they mature and benefit from more money than what is otherwise possible.