Getting the best of both worlds is the goal when you start investing. A no-penalty certificate of deposit, or CD, is the savings product for you if you’re looking for that. It offers finanical security and high return of a CD with the added benefit of flexibility of accessing your money without paying withdrawal penalties.
A no-penalty CD, also referred to as a liquid CD, is a type of certificate of deposit that earns interest and allows you to withdraw your money early without paying a fee. If this the product you’re looking for, continue reading to learn more.
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How Does a No-Penalty CD Work?
Generally, a CD is considered a low-risk investment because your principal is insured for up to $250,000 by the Federal Deposit Insurance Corp. or National Credit Union Administration. However, a CD requires time and a funding commitment.
To maximize the amount of money you can earn through interest, you must leave your money in the account and not touch it.
The longer the CD term is, the higher the interest rate you can get. Keep in mind that if you touch the money before the end of the term, federal law mandates that you forfeit seven days of interest.
Banks and credit unions will also impose a higher penalty for early withdrawal. Many do so by charging a percentage of the amount withdrawn, which could far exceed the seven-day interest minimum.
It’s for this reason that rare, no-penalty CD accounts are so enticing to depositors. But there are some disadvantages to a liquid CD. Although no-penalty CDs sound like they provide depositors with the best of both worlds, the trade-off is a reduced interest rate.
If you want the option of not having to commit to a long term CD, then you may not get the best rates. In fact, you may get below-average CD rates. Although, lower interest rates may be okay if you think you’ll need the money earlier than you think.
Is a No-Penalty CD Right for You?
It is important to thoroughly investigate the terms of a no-penalty CD so you’re not caught off guard with lost earnings. In conjunction with federal laws, many financial institutions allow withdrawals within seven days of opening the account, with any accrued interest forfeited.
Before you decide to lock your funds into a CD, be sure you read all the fine print of the account contract. Make sure you know how much you’re allowed to withdraw and how many times you can do so. This will allow you to manage your CD better.
With the CIT Bank No-Penalty 11-Month CD:
• Earn 0.30% APY on your funds with just a $1,000 minimum deposit.
• The perfect balance between a great fixed rate and flexible money access.
• Access funds, if needed. No penalty.
• No opening or maintenance fees
• Shorter 11-month timeframe and a great APY
• If you need your funds prior to the maturity date, you can withdraw your money — including any interest earned — beginning seven days after the funds have been received. No penalty. No problem. It's the security of a CD with the flexibility to access your funds early if you need them.
Which Banks Offer No-Penalty CDs?
Below is a list of financial institutions that still offer no-penalty CDs despite a sharp decrease in their prevalence.
Best No-Penalty CDs
|Bank||Term||Minimum Amount||Withdrawals Allowed|
|Ally Bank||11 months||Under $5,000, Under $25,000 or $25,000 and up||One full balance withdrawal|
|CIT Bank||11 months||$1,000||One full balance withdrawal|
|Citizens Access||11 months||$5,000||One full balance withdrawal|
|Colorado Federal Savings Bank||11 months||$5,000||One full balance withdrawal|
|Investors eAccess||6 months||$500||One full balance withdrawal|
|Marcus by Goldman Sachs||7, 11 or 13 months||$500||One full balance withdrawal|
|My eBanc||11 months||$10,000 or $100,000||Two partial withdrawals|
|PurePoint Financial (Union Bank)||11, 13 or 14 months||$10,000||One full balance withdrawal|
No-Penalty CD Alternatives
No-penalty CDs are a good savings option if you’d like to earn a higher interest rate without locking your funds in for a long time. As long as you don’t foresee needing the funds before the term ends, this option might work for you.
But remember that many no-penalty CDs only allow you to make a single full withdrawal of the funds without a penalty. This means you’ll be withdrawing your funds only once during the term of the CD — and it’s probably at closing time.
If you would rather have the option to tap into your savings without any steep penalty, a high-yield savings account may be a better banking product for you.
These high-yield accounts tend to offer similar interest rates to the best no-penalty CDs and allow you to make up to six free withdrawals per month.
A lot of places offer no-penalty CD and all you have to do is look up your local banks! Compare the interest rate at each bank to make sure you get the best interest rates.
The most important thing to keep in mind when searching for a certificate of deposit is to make sure it’s terms and conditions are right for you.