Currently, CDs offer some of the best rates available three-month CDs are offering interest rates of 1.22%, almost double the national average for money market accounts.

But higher yields come at a price -- you can't touch your money until the CD matures. If you do, you'll face stiff penalties that could potentially leave you with less money than you started with. So what’s a CD investor to do?

To help reduce the pain of an unexpected early withdrawal, consider comparing penalties and fees at the same time as you shop around for rates. Although Federal law sets a minimum penalty of seven days of interest on early withdrawals, there are no rules governing maximum penalties, so it can vary from lender to lender. Here are a few tips to help you avoid CD penalties.

Compare rates

Shopping around for the best rates is a good idea when buying CDs, since rates vary widely from lender to lender. Enter your ZIP code in BankingMyWay.com's CD section to search for hundreds of CD offers from local banking institutions.

For instance, in New York, the annual percentage yield on 12-month CDs includes a 2.00% offer from Bank of America (ticker: BOA), a 2.15% offer from Wachovia (ticker: WB) and a 2.75% offer from Citibank (ticker: C).

Compare fees

While comparing CD rates, also be sure to research the bank’s fee structure for CDs.
In most cases, interest on a CD is calculated daily and added at the end of the month. Most banks charge no penalty for withdrawing interest, but will charge penalties if you dip into the principal. (In most cases, institutions that offer CDs will list the penalties in the accounts agreement section of their websites.)

For instance, Bank of America charges 90 days of simple interest on any principal that you withdraw early from a 12-month CD. By comparison, Citibank only charges 30 days of interest on the withdrawn principal.

The penalty changes as the term of the CD increases. For example, Wachovia charges 180 days of simple interest on early withdrawn principal from CDs over 12 months in length. Capital One (ticker: COF), on the other hand, varies its early withdrawal penalties for long-term CDs based on how close the CD is to maturity. If the CD is within six months of maturity, the customer will lose just six months of interest. But for CDs more than six months out, an early withdrawal may require the customer to pay Capital One an extra fee -- called an Economic Replacement Value -- if interest rates have risen.

Plan ahead

It's best to avoid early withdrawal penalties altogether by ensuring that you buy a CD of the appropriate maturity. That involves planning ahead and potentially keeping some money set aside in a lower yielding and accessible account. Also, consider staggering the maturities of a number of different CDs so that you'll have access to some of your money at specific intervals -- a strategy referred to as CD laddering. (For more on building a CD ladder, read here).

However, if you have no choice but to withdraw your money prematurely from a CD, make sure to first contact your banking institution. Depending on the situation, they may work with you to reduce or even waive the fee.

For more rate offers in your area, go to bankingmyway.com and enter your ZIP code.

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