How this number is made
Breaking a certificate of deposit usually costs a number of months of interest. If you have not earned that much yet, the penalty comes out of principal. This page treats the APY as a simple yearly rate for the days held and for the penalty. A bank that computes the penalty on the coupon rate, not the APY, will differ slightly.
- The penalty months are in the receipt. Three and six are common. Yours might not be.
- Days held are days since the deposit, not days left.
Formula
Interest earned = principal × APY × days ÷ 365. Penalty = principal × APY × penalty months ÷ 12. Net = interest − penalty.
Worked example
With the figures already in the form, net interest after the penalty is $134.08.
Questions
Can I lose principal?
Yes, when the penalty is larger than the interest earned. The result is negative in that case.
What about a partial withdrawal?
Type only the principal you are withdrawing. The rest of the CD stays on its own terms.