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

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Certificates of deposit (CDs) are known for having penalties for early withdrawals, which can put a dent in your savings plans. No-penalty CDs, however, generally don’t charge a fee, should you need to pull your money out, while still offering a fixed annual percentage yield, like traditional CDs.

But there are trade-offs. Here’s what to know about no-penalty CDs.

What is a no-penalty CD?

A no-penalty CD, like other types of certificates of deposit, earns interest over a defined period, usually months or years. Unlike traditional CDs, however, no-penalty CDs, also known as breakable or liquid CDs, allow early withdrawals without a penalty.

You may be able to withdraw money from a no-penalty CD without paying a fee in as few as seven days after it’s been funded. Each financial institution, however, sets its own rules, which may require that you wait several months to withdraw your money. For more information, rules stipulating withdrawal policies and any fees can be found at the bank or on its website.”

A no-penalty CD will more likely earn a higher interest rate than with a savings account or money market account.

How no-penalty CDs can improve your finances

No-penalty CDs allow you to earn a fixed APY and generally don’t impose a penalty for withdrawals after about the first week, a useful feature should a financial emergency arise.

Like most other CDs, a no-penalty CD offers a fixed APY, allowing you to lock in a rate even if yields decrease. But a no-penalty CD also provides the flexibility to switch to a different product or account should rates increase, giving you the ability to earn a higher return. The flexibility offered by no-penalty CDs, however, comes at a cost: lower yields than traditional CDs.

Still, for consumers looking to be more disciplined, a no-penalty CD may help them commit to saving while still providing 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 key when you quickly need cash. When interest rates rise again, no-penalty CDs offer another perk: The ability to earn a higher rate by withdrawing your money and putting it in another CD that offers a higher rate.
  • Guaranteed rate: CDs pay a fixed-interest rate, which is often higher than what money market and high-yield savings accounts pay, helping you to build your savings faster.

Cons of a no-penalty CD

  • All or nothing: 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.
  • Multiple deposits not permitted: Just like with a traditional CD, multiple deposits into a no-penalty CD usually aren’t allowed.

How to choose a no-penalty CD

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

“The biggest drawback of owning a penalty-free CD is that the interest rate you earn on your investment will be lower than a ‘regular’ CD,” says Douglas R. Jackson, a private wealth manager at Boulevard Wealth Partners.

The ability to withdraw funds at any time could benefit you, however, if you run into an emergency, by providing access to your funds without paying a penalty.

You may get a higher rate with a traditional CD than with a no-penalty CD, so, opting for a no-penalty CD could cost you some interest income. But you will have the peace of mind in knowing that you can use the funds at any time.

Know when you are eligible to withdraw money and how many withdrawals you are able to make. Often, you will be required to withdraw the entire amount.

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

Which banks offer no-penalty CDs?

Although a no-penalty CD may sound like an ideal financial product, not many financial institutions offer them. With a limited number in the market, it may be challenging to find a no-penalty CD 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: A deposit of at least $1,000 is needed to open an 11-month no-penalty CD.
  • Marcus by Goldman Sachs: Marcus offers 7-, 11- and 13-month no-penalty CDs, all of which require a $500 minimum deposit.

Bottom line

If you are looking to grow your savings without sacrificing liquidity, a no-penalty CD may be a good option, depending on your budget and timeline.

Another option is a high-yield savings account, which allows you to grow your savings, while also providing the added flexibility to withdraw funds, should you need to.

Learn more:

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
Wealth editor
Reviewed by
Professor of finance, Creighton University