NEED TO CASH CD: escape early withdrawal penalty?

Q: My condo burned to the ground last summer. I received money in early October, and put it in a 6 month Certificate of Deposit at Citibank. I was originally told repairs to the condo would take a year to complete. But as things stand, they'll be finished in April. The problem is the CD matures in April, and I need some of that money now. Is there a hardship clause that would allow me to take a portion of that $130,000 CD and give the contractor the money he needs to complete the project? -- MA, via email 

A: You're really at Citibank's mercy in this situation.  

Federal law says when you invade a CD within the first six days after your deposit, you must be charged a minimum penalty of at least seven days simple interest on the amount you withdraw. But other than that, banks are free to set their own penalties and there's no maximum limit. 

According to Bankrate.com, a personal finance website that tracks bank fees and interest rates nationwide, it's not unusual to forfeit three months of interest when you cash a two-month to 12-month CD before it matures -- and you could lose up to six months of interest when you cash out a 13 month to 36 month CD. 

In a worst-case scenario, you could lose some of your principal. For example, if the early withdrawal penalty is six months interest and you cash out an 18-month CD after four months, you owe the bank more interest than you've earned! 

Of course, banks do sometimes waive the penalty. If you die before your CD matures, for example, most banks won't charge your estate the early withdrawal fee.   

And they usually waive the early withdrawal penalty if your CD is also an Individual Retirement Account and you're over 70 and a half and must take a minimum annual withdrawal. 

You have nothing to lose by explaining your situation and asking Citibank to waive the penalty. You may find that the bank manager understands that customer goodwill should be a priority for a bank that owes its survival to the taxpayers.  

If not, here's some cold comfort: The early withdrawal penalties you pay on CDs are tax deductible.