Certificates of deposit (CDs) typically come with penalties for early withdrawals. These fees can put a dent in your savings. There’s a CD, however, that allows you to pull your money out without being penalized and still gives you a fixed annual percentage yield (APY). It’s called a no-penalty CD.
There are trade-offs with this type of CD, however. Here’s what to know about no-penalty CDs.
What is a no-penalty CD?
A no-penalty CD, also known as a “liquid” or “breakable” CD, earns interest over a defined period of time, called the term. The term can range from months to years.
Regular CDs have terms, typically ranging from three months to five years – though these terms can be shorter or longer. During these terms, you’ll likely incur an early withdrawal penalty if you withdraw your money before the CD matures.
Unlike regular CDs, no-penalty CDs allow early withdrawals without incurring a penalty. Depending on your bank’s withdrawal policies, you might be able to withdraw money from a no-penalty CD as early as seven days after it’s been funded.
The rules on withdrawals and fees should be available at your bank or on its website.
A no-penalty CD will often earn a higher interest rate than a savings account or a money market account.
How no-penalty CDs can improve your finances
A no-penalty CD can help improve your finances by:
- Helping you to avoid an early withdrawal penalty if you need money before your CD term ends.
- Giving you the flexibility to withdraw money early, but the mentality that this money can’t be touched until the CD matures.
- Giving you a competitive yield that’s fixed – if you think top-yielding variable APYs will decrease during your CD term.
Pros and cons of no-penalty CDs
As with all financial products, no-penalty CDs have their pros and cons. Here are some things to take into account:
Pros of a no-penalty CD
- Added flexibility: The ability to take out money from your CD early without paying a penalty fee is important when you quickly need cash. When interest rates rise, a no-penalty CD offers another perk: an opportunity to earn a higher rate by withdrawing your money and putting it in another CD with a higher APY.
- Guaranteed rate: CDs pay a fixed interest rate that is often higher than what money market accounts and high-yield savings accounts pay, helping you to build your savings faster.
Cons of a no-penalty CD
- Withdrawal restrictions: You may not be able to make partial withdrawals. If you need to take out money early from a no-penalty CD, the bank may make you withdraw all of your cash and close the account.
- Deposit limits: Like a traditional CD, a no-penalty CD usually doesn’t allow additional deposits after the account is opened.
Which banks offer no-penalty CDs?
Although a no-penalty CD has its benefits, it’s not a common product. Few financial institutions offer no-penalty CDs, so it might be tough to find one that suits your needs.
Here are a few banks that offer no-penalty CDs:
- Ally Bank: Ally Bank offers an 11-month no-penalty CD with no minimum deposit required to open.
- CIT Bank: CIT Bank offers an 11-month no-penalty CD that has a minimum opening deposit of $1,000.
- Marcus by Goldman Sachs: Marcus offers 7-, 11- and 13-month no-penalty CDs, all of which require a $500 minimum deposit.
- Synchrony Bank: Synchrony offers an 11-month no-penalty CD that requires no minimum deposit to open.
Before getting a no-penalty CD, compare rates and use Bankrate’s CD calculator to determine how much interest you’ll earn during your term.
Bottom line
If you want to grow your savings without sacrificing liquidity, a no-penalty CD might be a good choice.
Another option is a high-yield savings account, which helps you build up your savings while giving you the flexibility to withdraw funds when you need to.
— Libby Wells contributed to an update of this story.
