Getty Images/iStockphoto 
There’s a lot to like about certificate of deposit (CD) accounts now. Rates remain high, returns are guaranteed and they’re easy to use. Earning more than $1,000 from a CD is as simple as depositing $20,000 into an 18-month CD at today’s rates and withdrawing your money at maturity.
As simple and profitable as CDs are, they come with one caveat: Many CDs charge early withdrawal penalties. If you withdraw money from your account before it matures, the issuer typically charges you a penalty that’s equal to a certain number of months of interest, negating much of the reason why you opened the account to start with.
Banks and credit unions set up CDs this way to lower the risk they assume by giving you a return on the money you deposit, says Sarah Wicker, manager of deposit account and IRA services for Georgia’s Own Credit Union.
“We’re able to offer a higher interest rate on CD accounts rather than savings and checking accounts because we lock up the money,” Wicker says. “When you open up a CD, you basically enter an agreement with us that you’ll keep the money in that account for [a certain] amount of time.”
Early withdrawal rules apply to most CDs you open, no matter which bank or credit union offers the account. You may be wondering, then, if there’s ever a chance that your bank might waive your early withdrawal penalty. In some cases, it may. Below, we’ll break down what to consider.
See how much you could earn from a top CD here.
Will my bank waive my CD early withdrawal penalty?
A CD issuer may waive early withdrawal penalties in specific situations. Here’s when it could happen:
If the account holder asks the bank
In certain instances, as when a financial hardship arises immediately after the CD is opened, some banks may be willing to forego the early withdrawal penalty. So it’s worth asking the bank for a one-time waiving of the penalty. That said, these instances are rare, and the longer you keep your money in the account, the less likely you are to have the penalty waived. Still, it’s worth asking as some banks may be more lenient in their approach than others, particularly if you can demonstrate credible financial hardship.
Explore your top CD account options now.
A court declares the account holder incompetent
Your CD issuer is likely to waive your early withdrawal penalty if you’ve been “determined legally incompetent by the court,” Wicker says. Wicker points out that these are the kinds of situations that may result in a conservatorship, where the court appoints a person to manage your financial accounts if you can’t do it yourself. In these situations, the person overseeing your account may withdraw the money or convert your CD into a special account they manage without penalty, Wicker says.
The account holder dies
Banks and credit unions typically waive any early withdrawal penalties if the account holder dies. This allows the person(s) inheriting your CD or the executor of your estate to withdraw some or all of the money in the CD without penalty.
Depending on your bank issuer, you may be able to designate your CD as a “payable on death” (POD) account. In the event of death, the POD designation would allow the bank to pay out the CD’s funds to the listed POD beneficiary or beneficiaries without penalty, in most cases. Read over the terms of your CD contract to verify the rules for CD withdrawals in this scenario and contact your issuer if you have any questions.
What about no-penalty CDs?
CDs tend to be pretty restrictive about waiving early withdrawal penalties.
You can get around those restrictive rules, though, with no-penalty CDs. These CDs work just like they sound — you can withdraw money from the account without paying a penalty. No-penalty CDs are an excellent solution if you want to earn the guaranteed, fixed-rate returns CDs provide and have access to your deposit.
However, there’s a trade-off for that liquidity. Most issuers offer lower rates for their no-penalty CDs than their traditional CDs. In some cases, though, the approximate 0.50% difference between a no-penalty’s annual percentage yield (APY) and traditional CD may be worthwhile if it means maintaining access to your funds.
The bottom line
CDs are an easy way to generate guaranteed returns on your money. Opening a CD may require a minimum deposit of as little as $100 or $500, making them accessible to many types of savers. Early withdrawal penalties are a CDs main drawback, but you have alternatives. No-penalty CDs allow you to withdraw money without a fee. High-yield savings accounts also offer competitive returns right now and don’t have the same withdrawal restrictions that CDs do. Keep in mind, though, that those accounts have a variable rate that can move up or down from month to month, while CDs have a fixed rate.