By Sabrina Karl
If you own a certificate of deposit at a bank or credit union, you likely know the drill for maximizing your earnings: Don’t touch the CD balance until the day of maturity arrives.
That’s because penalties apply whenever you cash a CD out early, and the existence of that penalty policy is the reason you can earn more with a certificate of deposit than with a standard savings or money market account.
The agreement goes like this: If you agree to keep your money parked for a set period of time, and to pay a penalty if you break the commitment, the bank in turn agrees to pay you a higher interest rate than they offer on their more flexible savings accounts.
But with Covid-19 causing millions of Americans job and income losses, some banks and credit unions are considering their CD penalty policy as a way they can help their financially hard-hit customers.
If you find yourself cash-strapped as the coronavirus crisis wears on, and have one or more CDs on deposit, you may be able to access that cash sooner than you thought, or without the financial ding you might have expected.
The decision to waive a CD early withdrawal penalty is completely up to each institution. It is not an edict from the Fed or from the CARES Act. However, a handful of institutions have advertised this option to their customers.
But don’t assume that if your bank or credit union hasn’t explicitly mentioned this escape clause that it isn’t willing to grant it. If you want to cash out a CD early right now, simply ask. Even if your institution isn’t offering penalty-free withdrawals across the board, they may very well allow it for struggling customers who simply make the request.