Question

Select the correct answer. You decide to cash out your CD early. What will happen? A. You will be able to invest in other stocks. B. You will be penalized with high fees. C. You will roll it over into a 401(K). D. You will reinvest the proceeds into a money market account. E. You will have tax-free income.

Answer 1

Cashing out a CD early will result in high fees as there is a substantial penalty for early withdrawal of the funds. If you decide to cash out your CD early, the correct answer is: B. You will be penalized with high fees.

Step-by-step explanation:

Certificates of deposit (CDs) are a savings instrument that typically offers a higher interest rate in exchange for keeping your money deposited for a predetermined period. These time periods can range from a few months to several years. Banks often advertise that there is a substantial penalty for early withdrawal, which means that if you access your funds before the CD's maturity date, you will be subject to financial penalties. These penalties are meant to discourage depositors from withdrawing their investment prematurely.