If you have short-term savings goals but don't want to tie up your money in a longer CD, a no-penalty CD offers the best of both worlds. You'll earn a rate that beats inflation while maintaining quick access to your funds.
Normally, a certificate of deposit is a "park the money and forget about it" type of savings vehicle. However, with a no-penalty CD, you can access your money when needed without paying fees.
Moreover, even with the Fed cutting rates at its last two meetings, APYs remain high. With the Fed expected to consider another rate cut at the end of the year, now is an excellent time to lock in higher rates.
Best no-penalty CD rates
Here's a look at the best no-penalty CD. Note, we update these weekly:
Account | APY | Min. Deposit | Terms | Withdrawal frequency |
|---|---|---|---|---|
4.00% | $1,000 | 9 months | Once per month | |
3.95% | $500 | 11 months | Whenever, past the first 7 days of account opening | |
3.90% | $500 | 11 months | Whenever, past the first 7 days of account opening | |
3.80% | $5,000 | 13 months | Can withdrawal up to three times before penalties apply | |
3.75% | $1 | 5 months | Whenever, past the first 6 days of account opening | |
3.75% | $500 | 12 months | Can withdrawal fee-free for first 5 days of each calendar month |
How does withdrawing funds from a no-penalty CD work?
With a no-penalty CD, you'll have to wait a week after funding the account before you can withdraw funds. 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 notify your bank 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.
In other instances, you might be able to withdraw a portion of your funds. But you'll only be able to do one withdrawal per month.
If you're concerned about having more regular access to your accounts, a high-yield savings account might be a better fit.
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 who 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 14 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.
Use the tool below, powered by Bankrate, to quickly compare the rates of some of the top CD accounts available now:
On the other hand, since there are no penalties for withdrawing your cash early, you have the option to put your money in a new CD account if rates go up. Our savings calculator can help you determine how much interest you earn.
Before opening any savings account, it's vital to make sure your bank is federally insured. Banks that are FDIC-insured protect up to $250,000 in individual deposit accounts and up to $250,000 for each person's share of joint accounts.
Deposits in federal credit unions are covered by the National Credit Union Administration (NCUA), protecting up to $250,000 per credit union member (whether in an individual or a joint account).
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 14 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: No-penalty CDs allow you to withdraw funds before the CD's maturity date. If an emergency were to arise, you wouldn't have to pay a hefty fee to take out your cash, which can give individuals peace of mind.
- Maximize earnings: Since no-penalty CDs allow you to take out cash for no fee, it's beneficial if banks raise rates. You'll be able to withdraw and place them in an account with a higher APY.
- Guaranteed returns: Because most CD accounts are FDIC-insured and offer higher APYs than traditional savings accounts, they offer fixed, predictable and safe returns on savings.
Cons of no-penalty CDs:
- Regular CD rates: Usually, no-penalty CDs don't offer APYs as high as those on a standard CD account. And if inflation continues to rise, it might make sense to consider options with higher returns and risk on the stock market to outpace it.
- No partial withdrawal: If you decide to "break open" your no-penalty CD, you'll likely have to withdraw your entire savings, not just a partial amount. With some accounts, you can withdraw only a portion of your deposit, but they'll limit how many transactions you can make.
- 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.
Bottom line on the best no-penalty CD rates
If you're unsure whether or not you'll need to access funds from your CD before its maturity date, a no-penalty CD can be a good option. With a no-penalty CD, you won't be charged an additional fee if you decide to withdraw your balance before the term is through.
One thing to keep in mind is that interest rates might change again. So, locking in a great rate now ensures you earn a healthy return that outpaces inflation while helping you reach your savings goals.
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