Investors in certificates of deposit who dive into that CD cookie jar early face hefty fines that eat away at their principal.

Bankrate's 2014 CD Early Withdrawal Penalty Survey found that CD savers may pay handsomely for snacking too soon on their investment.

And it's not just interest earned that is at stake. Of the institutions surveyed, 90% will confiscate some of the original principal put into the CD, if the accrued interest is less than the required penalty.

That's counter to the very reason for investing in CDs in the first place, says Greg McBride, CFA, Bankrate's chief financial analyst.

CD early withdrawal penalties vary
Penalties on 2-year CDs Yield (using national average yield) Penalty on $10,000, if withdrawn after 1 year
Penalties on 2-year CDs: 6 months' interest Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $18.48
Penalties on 2-year CDs: 12 months' interest Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $37
Penalties on 2-year CDs: $25, plus 3% of amount withdrawn Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $325
Penalties on 2-year CDs: 3 months' interest Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $9.24
Penalties on 2-year CDs: 2% of amount withdrawn but not more than total interest earned Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $37
Penalties on 2-year CDs: 9 months' interest Yield (using national average yield): 0.37% Penalty on $10,000, if withdrawn after 1 year: $27.74

Source: Bankrate.com

No 2 banks alike when it comes to CDs
Institution Market Yield on two-year CD Penalty Penalty on $10,000
Institution: Gateway Bank Market: San Francisco Yield on two-year CD: 0.1% Penalty: 120 days' interest Penalty on $10,000: $3.33
Institution: Salem Five Market: Boston Yield on two-year CD: 0.4% Penalty: 4% of amount withdrawn Penalty on $10,000: $400

Source: Bankrate.com

"Investors look to CDs more for a return of their money than a return on their money, and early withdrawal penalties threaten the return of the investment they're trying to protect," he says.

Do the math

The penalties that banks and credit unions charge for withdrawing money early from a CD vary widely.

For instance, a person who invests $10,000 in a two-year CD but then decides to pull the money out after only a year could pay as little as $3.33 at Gateway Bank in San Francisco, or as much as $400 at Salem Five in Boston, according to Bankrate's survey.

"The first step is to pull out the calculator" when deciding whether to pull money out of a CD before it's matured, says Donald Cummings, founder of Blue Haven Capital in Geneva, Illinois. He says it's important to remove emotion from the decision and consider every cost angle.

The most common penalty for CDs with maturities of less than a year continues to be three months' interest, the same as what was found in Bankrate's 2012 survey. The 2012 survey was the last time Bankrate studied CD early withdrawal penalties

The most common penalty for one-year and two-year CDs was six months' interest, also the same as the last survey. For five-year CDs, both six months' interest and 12 months' interest penalties showed up most often in the survey.

Dipping into principal

Dan Geller, executive vice president of Market Rates Insight, studies CDs and CD rates and says early withdrawal fees have become more of a hot topic in recent years, with bankers gearing up for an eventual rise in interest rates as the Federal Reserve unwinds its policy of quantitative easing, or QE, that jump-started the economy.

"They are trying to entice consumers to get in now," Geller says.

CDs are theoretically built with higher interest rates than more liquid products because a consumer is agreeing to park his or her money for a set period of time. Banks use money from consumers' CD holdings to finance loans, so their goal is to keep consumers from pulling out their money early.

A different investing environment

But institutions have been running into a problem in recent years, Geller says. Since many CD withdrawal penalties are tied to the CD's yield and since CD yields are in the toilet, the penalty doesn't have the same significance it used to have.

"Customers are saying, 'I'll sign up for a three-year CD, but because the early withdrawal penalties are so low, if I find a better deal, I'll just jump ship,'" Geller says.

Instead, some banks "are taking part of the principal now to make it more, I don't want to say punitive, but more meaningful. The whole idea of the penalty is to serve as a deterrent to early withdrawal," Geller says.

Read the fine print

Because of the variety of early withdrawal fees mandated by different banks and credit unions, it's important to read the fine print.

McBride says that before investing in a CD, the investor needs to check:

  • Exactly what the early withdrawal penalty is.
  • Whether the penalty applies only to the amount withdrawn or to the entire amount of the CD.
  • Whether the principal investment is at risk if the interest earnings do not cover the penalty.
  • How long is the grace period, if you accidentally let a CD automatically roll over.

"Investors should know the specifics of the CD early withdrawal penalty before investing, just in case they incur a need to withdraw funds early," McBride says. He says banks in this year's survey typically allow a grace period of seven or 10 days on automatically renewing CDs without incurring a penalty.

Stiff penalties on even low-yielding CDs

Don't just assume that a CD with lower yields will have lighter penalties if you take out money early, McBride says. In fact, some of the most onerous penalties found in the survey are on lower yield offerings.

For instance, Capital One has a two-year CD that yields just 0.2%, but it charges $25 and 3% of the amount withdrawn as an early withdrawal penalty. In contrast, East Boston Savings Bank's two-year CD offers a yield of 0.7%, but it has an early withdrawal penalty of only three months' interest.

McBride says banks with larger market share tend to be less competitive on yield, "and we see some overlap between that and more onerous penalties."

Consider your options

Consumers may have been fairly tolerant of early withdrawal penalties when yields were high, but Geller says CDs have become less favorable investments with low yields since the recession.

"They've lost their appeal, even with the segment that used to cherish this savings vehicle," Geller says. A slightly better yield than other conservative investments may not be worth it for consumers who can't lock up their money for a specific amount of time, he says.

Still, CDs can be good for some consumers, Geller says.

He says liquid CDs are one option available to avoid CD early withdrawal penalties, if a consumer decides to jump ship early on a CD. Liquid CDs allow investors to take money out of their accounts without incurring a fine. However, liquid CDs tend to offer lower yields than a more traditional CD.

Cummings says he counsels consumers to stay away from liquid CDs and other CDs with lots of bells and whistles. He says the best thing that consumers can do is plan ahead and not lock up any money in a CD that they may need before it matures.

"I encourage people to think," Cummings says.

Copyright 2014, Bankrate Inc.