When you get a Certificate of Deposit (CD) at the bank, you promise to keep the money there for a while.
What happens if you cash out early? You have to pay a penalty, which is often a percentage of the amount you withdraw.
That may seem like a fair tradeoff --after all, CDs should pay more than other bank deposit products -- but penalties have gotten pretty bad lately. Chicago Tribune readers report paying a 3% penalty for cashing out a 13 month CD, which is especially harsh when you consider that they were never going to earn anywhere near 3% for keeping their money invested in the CD.
It is possible for the bank to take more than you're earning. In other words, when you cash out you may get less than you put in. Now it's more likely than ever because interest rates are especially low and banks know that you'll bet tempted to jump ship once rates rise.
Before investing in a CD, be sure you understand the penalties for cashing out early. They may have changed since the last time you checked.
[via DepositAccounts.com]
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