By Sabrina Karl

While the ideal certificate of deposit scenario is to stash your savings and then not need that money until the CD matures, life doesn’t always work out as planned. Although cashing out early will cost you some money, sometimes it’s simply necessary.

Whenever you open a new CD, the bank or credit union will stipulate its early withdrawal penalty terms. In other words, these rules are set at the time you open the CD, not current bank policy at the time you withdraw.

This points out how important it is to read the fine print before deciding on a new CD. While many institutions fall within a normal range of penalties, some impose exceptionally stiff penalties, while others have pleasantly mild policies. Identifying this information is important pre-commitment homework.

But what if you’ve already opened your certificate, and now find you need the cash? The first step is to look up the terms you received when you opened the CD, and then call the institution to confirm your specific penalty calculation.

If the penalty is a flat number of months’ earned interest, it won’t really matter when you initiate the withdrawal. But with policies that penalize you more or less depending on how close you are to maturity, you may want to consider your best withdrawal timing. Some banks also allow a partial withdrawal, which can help minimize the penalty.

Once you know your penalty amount, you can also compare it to the expense of any other alternatives you might have for securing cash. For instance, if your cash flow need is short term, tapping a home equity line of credit may cost you less than the CD penalty.

In any case, be sure to talk with the institution to fully understand your penalty calculation before making a withdrawal decision.