After working diligently to build your savings and you opted to invest your bounty into a low risk, FDIC insured CD. Your original choice of a twelve month CD was an excellent decision, however you feel that with the mortgage rates being as low as they are and with the over abundance of real-estate that money could serve your family better being used as a down payment for a home. From the get go you knew that there were early closing penalties for CDs, but you are wondering how much the fees will cost you.
Financial institutions provide a higher rate of return on a CD compared with a typical savings account. The longer the CD a higher interest rate is offered as an incentive since your money cannot be accessed for a period of time. However, banks know that sometimes your goals may change unexpectedly. Therefore many banks require a forfeiture of three months interest as an early closing penalty for a CD.
Perhaps you opted for a 12 month CD upon your original investment. However, six months down the line you needed to cash into your principal for whatever reasons you choose. The bank would keep three months of your earned interest while you would be able to redeem not only your entire principal, but also the additional three months of earned interest.
Although the penalty from the bank may cost you money, in no way, should your credit be impacted by the decision to close your CD account early. Additionally, taxes your taxes may be affected by the early closing of your CD. Please note that the early penalties for closing a CD differ from bank to bank. Federal law mandates a minimal forfeiture of seven days interest for early withdrawal on all time deposit accounts including CDs. Before making your initial investment, make sure to ask your bank their policies.
