A certificate of deposit, or CD, is a type of savings account that holds a fixed amount of money for a fixed period of time. For most CD accounts, your cash isn’t accessible until your term length is over, whether it’s a 1-year CD or a 5-year CD. If you do decide to withdraw funds from your CD before the term expires, you’ll usually be penalized. This, and the fact they earn a higher APY on deposits, is how they differ from traditional savings accounts.
A no-penalty CD is a type of certificate of deposit that allows individuals to withdraw funds early without a fee, although there are pros and cons to opening one.
Best no-penalty CD rates April 2023
Use our tool, in partnership with Bankrate, to compare the rates of some of the best CD accounts available now.
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Here is a selection of the best no-penalty CD rates, as chosen by Bankrate (opens in new tab).
CIT Bank
APY: 4.80%
Minimum deposit: $1,000
Term: 11 months
Ally Bank:
APY: 4.25%
Minimum deposit: $0
Term: 11 months
America First Credit Union:
APY: 4.35%
Minimum deposit: $500
Term: 1 year
Citibank:
APY: 4.05%
Minimum deposit: $500
Term: 1 year
Synchrony Bank:
APY: 4.10%
Minimum deposit: $0
Term: 11 months
Marcus by Goldman Sachs:
APY: 4.15%
Minimum deposit: $500
Term: 13 months
Withdrawing Funds from a No-Penalty CD
With a no-penalty CD, sometimes called a liquid CD or penalty-free CD, you’ll have to wait a week after funding the account before you can withdraw funds. And while penalty-free withdrawal can be useful if you think you might need the cash at some point in the foreseeable future, keep in mind that it’s not as easy as withdrawing from a traditional savings account. You’ll need to give your bank advance notice before taking out funds. Additionally, many institutions require you to withdraw all cash from an account, not just a partial amount, if you decide to “break open” your CD.
Opening a No-Penalty CD Account
Like other CD accounts, no-penalty CDs offer higher APYs on deposits than traditional savings accounts. Therefore, they're good savings options for individuals that want guaranteed returns on their savings but don’t want to commit to a traditional CD account in case they need access to their cash before the CD maturity date. Most of the time, no-penalty CDs have relatively short terms, typically under 13 months.
With a no-penalty CD, you’ll lock in an APY when opening the account. If banks drop rates, your APY won’t be affected. On the other hand, since there are no penalties for withdrawing your cash early, you have the option to put your cash in a new CD account if rates go up. Our savings calculator tool can help you determine just how much you’ll earn in interest after your CD term is through.
Before opening any kind of savings account, it’s important to make sure your bank is FDIC insured, which protects up to $250,000 in individual deposit accounts and up to $250,000 for each person’s share of joint accounts.
No-Penalty CDs vs Savings accounts
| Header Cell - Column 0 | No-Penalty CD | Savings Account |
|---|---|---|
| Interest Rates | Fixed | Variable |
| Access to funds | You will need to wait seven days after opening the account to access funds. You also need to give your bank advance notice before withdrawing cash. | Cash can be accessed at any time. |
| Term | Typically under 13 months | None |
| Minimum Deposit | Minimum deposit requirements vary from bank to bank. | Often require a low minimum deposit or none at all. |
| Withdrawals/Deposits | Partial withdrawals and additional deposits after the opening of the account are not allowed. | Funds can be withdrawn or deposited anytime. |
Pros of No-Penalty CDs
- Accessibility: Non-penalty CDs allow you to withdraw funds before the CD’s maturity date. If an unexpected emergency were to arise, you won’t have to pay a hefty fee to take out your cash, which can give individuals peace of mind.
- Maximize earnings: Since non-penalty CDs allow you to take out cash for no fee, it’s beneficial if banks raise rates. You’ll be able to take out cash and put it in an account with a higher APY.
- Guaranteed returns: Because most CD accounts are FDIC insured and have higher APYs than traditional savings accounts, they offer fixed, predictable and safe returns on savings.
Cons of No-Penalty CDs
- Regular CD rates: There is a drawback to the added flexibility of no-penalty CDs. Usually, no-penalty CDs don’t offer APYs as high as those on a standard CD account.
- No partial withdrawal: If you decide to “break open” your non-penalty CD, you’ll likely have to withdraw your entire savings, not just a partial amount.
- No additional deposits: Like standard CD accounts, in most cases, cash can only be deposited upon opening the non-penalty CD. No additional deposits can be made.
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