Mother driving car with daughter
Hero Images/Getty Images

Committing to locking up your money in a certificate of deposit can be hard, especially when interest rates are climbing.

But if CDs are your investment of choice, keep in mind that there’s not always a penalty for withdrawing your money before your account matures.

Some banks offer CDs that have no withdrawal penalty, otherwise known as liquid CDs. Generally, they allow account holders to make a fee-free withdrawals beginning on the seventh day after the CD has been funded.

Penalties for early CD exits can sting

Early withdrawal penalties can be costly for consumers. Savers often lose 180 days’ interest for cashing out their CDs before they mature.

Penalties for short-term CDs are usually less strict, but an early exit could still cost you as much as 90 days’ interest. Do the math. Depending on how much interest you’re expecting to earn, you’re probably better off waiting until your CD comes due to withdraw your deposit.

Sometimes, however, you can’t leave your savings tied up in a CD until the end of the term. In the event of an emergency, you may need access to your money right away.

That’s the beauty of a no-penalty CD—you have the freedom to tap into your account whenever you need extra cash. And as rates rise, a no-penalty CD won’t keep you from taking advantage of a better deal with a higher yield.

Banks offering no-penalty CDs

A no-penalty CD may sound like a great product, but they’re hard to find. Few banks and credit unions offer them today. That’s always been the case, says Greg McBride, CFA, chief financial analyst for

“Like umbrellas on a rainy day, you tend to see them when interest rates are rising, much more so than when interest rates are falling,” McBride says. “But even in a rising rate environment, they’re still a bit of a niche product.”

Ally and CIT Bank are two financial institutions offering 11-month, no-penalty CDs to savers across the country. Bethpage Federal Credit Union, the largest credit union in the state of New York, offered the same product for a couple of months, but recently discontinued it.

“It was a CD we ran until December, 2017,” says Linda Armyn, senior vice president at Bethpage Federal Credit Union. “We decided a better product to offer was a high rate money market to provide value to more members. We have a minimum of $500 and the members have an everyday great rate of 1.25% as of now. No one was excluded, as all members who had a money market automatically were given the higher rate.”

With Ally Bank’s no-penalty CD, the amount of interest you can earn depends on the size of your deposit. For example, A $25,000 deposit is required for savers who want the best rate (1.5 percent APY). You’ll need $5,000 to earn 1.25 percent APY.

CIT Bank’s no-penalty CD pays 1.55 percent APY for a $1,000 minimum deposit. The bank touts it as a product for consumers looking for a secure place to put their savings without sacrificing liquidity.

“CIT’s 11-month CD is a smart option for those who want a safe, flexible way to create more value with their savings,” said Ravi Kumar, head of Internet Banking for CIT.

There are trade-offs

An old adage says that if something seems too good to be true, it probably is. With no-penalty CDs, that’s often what consumers find.

While you can withdraw the money from your no-penalty CD within days of funding your account, the amount of interest you can earn may be relatively low. While the top 11-month no-penalty CDs pay around 1.5 percent APY, the top 12-month traditional CDs pay more than 2 percent APY.

“You do pay for the convenience, being able to tap into the money prior to maturity,” McBride says.

 Top nationally available 12-month CDs
Bank APY Minimum deposit
VirtualBank 2.11% $10,000
Live Oak Bank 2.10% $2,500
XCEL Federal Credit Union 2.02% $500
Connexus Credit Union 2.01% $5,000
ableBanking 2.00% $1,000

Compare the best no-penalty CDs to other high-yield certificates of deposit.

Not so carefree after all

There’s another issue with no-penalty CDs: Too often, they aren’t as carefree as their names imply. You can withdraw funds before the CD matures without penalty, but typically, you’re not allowed to make partial withdrawals. If you need a portion of the money in your no-penalty CD, you’ll have to close out the entire account.

Also, no-penalty CDs usually don’t allow account holders to make multiple deposits. Savers who want to add or withdraw money from their accounts whenever they need it should consider a high-yield savings or money market account. Today’s best liquid deposit accounts pay a higher interest rate than the best no-penalty CDs.

Bottom line: Before you open a no-penalty CD, you’ll need to do some comparison shopping. See how the interest rates stack up and calculate how much interest you could earn based on the amount of money you plan to park in your account.

You should also look at other types of CDs. Add-on CDs, for example, pay a high yield and allow consumers to make more than one deposit.