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mygirlpunky · Jan 17, 2009, 11:40 AM

If I wanted to take out 3/4 of the amount I have in a CD early, my papers say I would be penalized on 3 months for early withdrawl. How do I calculate the amount I am losing for doing this? And is the penalty interest based on the amount of interest you were making on the CD? And is the penalty cost figured just on the amount you withdrawl or the whole CD? My CD's maturity date is not until Sept. Thanks for the help.

walt17 · Jan 18, 2009, 08:08 AM

How do I calculate the amount I am loosing for doing this?
To get an approximate amount: Multiply annual rate by 3/4; then multiply the amount of principal you are withdrawing by that answer. Your bank will should tell you the exact penalty amount before you make the withdrawal.

And is the penalty interest based on the amount of interest you were making on the CD?
Yes. The bank will calculate 3 months interest and that will be the penalty you pay.

And is the penalty cost figured just on the amount you withdrawl or the whole CD?
Amount withdrawn. But some banks allow partial withdrawals, others do not. You will need to ask your bank. Also, if your bank allows you to withdraw just the interest earned, there probably would not be a penalty on that.

Another option, is to take out a loan using the CD as collateral. That may be a better choice. Your bank should be able to provide you with an exact penalty amount and tell you if a loan is advantageous.

Keep in mind that there are laws and there are bank policies. You will need to ask your bank for an exact answer.

mygirlpunky · Jan 18, 2009, 03:51 PM

I thought of the option of borrowing against the CD as collateral but my way of thinking makes me think it isn't a good idea. I am intending to take out this money for my son who makes good money but has bad credit because of his, finally, ex-wife. In order for him to pay off the debts incurred during their marriage, he needs a loan. If I take out a loan in my name or even sign for him using my CD as collateral, they will charge a lot more int. rate on the loan. I figured if I just withdrew from my CD, and added on enough int. to offset the amount I would have been getting for the CD had I left it in the bank and enough to cover the penalty, it would still be much less than the amount the bank would be charging for a loan. My son can make monthly payment to me instead. This way the payments would be reasonable for him and I am not losing money by taking it out of my CD. I'm sure that if I discuss this with my bank, asking their opinion, they are naturally going to discourage me from taking the CD out and encourage me to borrow against it instead. I want what will be the best route for my son. Thanks for the help.