Six months ago seems like a lifetime ago. You had stable financial footing, dual incomes provided a steady cash flow to the household, and as a couple you had enough spare cash to invest in some low risk CDs. Due to unfortunate events, you are now a single income family with just as many bills as before. For the time being you are surviving, but you are worried you may soon need to make withdrawals from your CD accounts. If that is the case there are some things you should know.
Every bank sets their own rules for the withdrawal of principal for CDs. If your CD has reached maturity, you can get your investment without penalty. If however you are only a few months into your longer-term commitment, you will pay a penalty. By law, the bank penalizes you at least by seven days worth of interest. However, the law doesn’t set a maximum penalty, and financial institutions typically charge much more than the minimum.
When opening up a CD, it is extremely important for you to review all the terms of the investment. In some cases, you may actually forfeit a portion of your principal investment. Consider if you have opened up a 2-year CD, knowing the bank’s penalty for early withdrawal was 6 months interest. If you need to access your money after four months of investment, you not only forfeit the interest earned but have to pay two months more out of pocket to access to your money.
Like every other “absolute” banking policy, there are exceptions to the rules. Penalties for withdrawal of the principal may be waived if the investor is declared mentally incompetent by the court system or if the investor dies.
When investing in a CD, it is essential that not only should you research the rules carefully but be confident that you can live without accessing that money for the full term of the investment. That way when your CD matures you will be able to withdraw the amount without any penalty.