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No-penalty CDs: What they are and how they work

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Certificates of deposit (CDs) typically come with penalties for early withdrawals. These fees can put a dent in your savings. There is 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.

Unlike traditional CDs, however, no-penalty CDs allow early withdrawals without 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 money market account.

How no-penalty CDs can improve your finances

No-penalty CDs generally don’t impose a penalty for early withdrawal after six to seven days of funding the account. This is a convenient feature if a financial emergency arises.

Like most other types of CDs, a no-penalty CD offers a fixed APY, allowing you to lock in a rate even if yields decrease. A no-penalty CD also gives you the flexibility to switch to a different CD account or savings product if rates increase, offering you the opportunity to earn a higher return.

But the flexibility of no-penalty CDs has a cost — lower yields than traditional CDs. Still, a no-penalty CD can help people commit to saving while allowing them access to their funds should the need arise.

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.

How to choose a no-penalty CD

No-penalty CDs offer greater flexibility than regular CDs – but at a cost.

The big drawback of no-penalty CDs is that the APYs tend to be lower than they are for traditional CDs.

However, the ability to withdraw funds at any time could be a big plus if you have an emergency because you can access your cash without paying a penalty.

Choosing a no-penalty CD could cost you some interest income, but you will have the peace of mind of knowing that you can use the funds at any time.

Be sure you understand when you can withdraw money from your no-penalty CD and how many withdrawals you are allowed to make. You might be required to withdraw the entire amount.

Before buying a no-penalty CD, compare CD rates at several banks and use Bankrate’s CD calculator to figure how much you could earn by putting your money in a CD.

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.

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.

— Bankrate’s Libby Wells contributed to an update of this story.

Written by
Matthew Goldberg
Consumer banking reporter
Matthew Goldberg is a consumer banking reporter at Bankrate. Matthew has been in financial services for more than a decade, in banking and insurance.
Edited by
Managing editor
Reviewed by
Professor of finance, Creighton University