Breaking a Savings Plan Early Costs More Than You'd Think
If you need cash and close out a regular savings plan before it matures, most of the interest you were counting on disappears. The reason is simple: the contracted rate only applies if you keep the account to maturity. Withdraw early and the bank applies a much lower early-withdrawal rate instead โ often just a small fraction of the contracted rate โ so the earlier in the term you break it, the less interest you actually earn. This calculator compares the interest you'd earn by holding to maturity against withdrawing now, so you can see exactly what an early withdrawal costs.
How It's Calculated (Simple Interest)
| Item | Formula |
|---|---|
| Interest at Maturity | Monthly deposit ร contracted rate รท 12 ร cumulative months |
| Interest at Early Withdrawal | Monthly deposit ร early rate รท 12 ร cumulative months elapsed |
| Interest Lost | Interest at maturity โ interest at early withdrawal |
Here, "cumulative months" accounts for the fact that your first deposit earns interest for the full term while your last deposit earns interest for only a single month. In the U.S., interest income is also generally taxable as ordinary income, so your actual take-home amount is lower than the pre-tax figures shown here after tax withholding or reporting on Form 1099-INT. This tool uses a simplified simple-interest model โ actual early-withdrawal rates vary by bank, product, and how much time has elapsed, so check your account terms for the exact figure before you decide.
Frequently Asked Questions
The contracted rate only applies at maturity; early withdrawal triggers a much lower rate, often a small fraction of it.
Yes โ it's generally taxed as ordinary income in the U.S. and reported on Form 1099-INT.
Check your account terms, disclosures, or online banking portal โ rates vary by institution and elapsed time.
โป This is a simplified simple-interest estimate. Actual rates and tax treatment vary by institution and account type.