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No penalty CDs charge no fee for early withdrawal. Get a list of great no penalty CD options here--as well as some imposters to avoid.

I can still remember earning double-digit returns on high interest CDs in the early 1980s. I had saved a little money and was locking it away in 6-month CDs earning 12% or more. Of course, inflation was raging, and the interest rates on home mortgages had gone through the roof. But those were the days for savers. And it was also a much simpler time for those wanting to save with a CD.

All you did was pick the term you wanted and deposit your money. Today we have all kinds of exotic types of CDs, including liquid CDs, risk-free CDs and access CDs. And while they go by different names, they all describe the same type of certificate of deposit–the no penalty CD.

As the name suggests, a no penalty CD typically does not charge a fee if you withdraw your money before the CD term expires. Traditional CDs levy a penalty when an account holder withdraws the money before the CD matures.

The amount of the penalty varies based on the length of the CD, with longer CD terms resulting in high penalties for early withdrawal. The amount of the penalty is usually the loss of so many months worth of interest. Recognizing that many savers don’t like the penalty aspect of certificates of deposit, some banks have launched penalty free CDs.

Best No Penalty CD Rates

Unfortunately, the number of banks that are currently offering a no penalty CD is just two. That said, the rates and length of term are very good when compared to online savings accounts and 1-year high yield CD rates. Because rates can change without notice, be sure to confirm the rates and terms on the bank’s website before opening an account.

Ally Bank 11-Month No Penalty CD–The Ally Bank no penalty CD is a little different than most CD’s. It’s tiered with three different interest rates depending on the amount of money you can deposit.

  • 1.75% APY for deposits of $25,000 or more
  • 1.70% APY for deposits of $5,000 – $24,999
  • 1.50% APY for deposits of less than $5,000

After six days, the entire balance of the CD can be withdrawn penalty free. The CD can automatically renew if you choose. The rate for your renewed no penalty CD can be different. Whatever the rates are at the time of renewal are the rates you will receive. Future no penalty CD’s will not be locked in at the current APY.

Related: Ally Invest – Online Discount Broker

CIT Bank 11-Month No Penalty CDCIT Bank–If tiered interest rates isn’t your thing, then CIT Bank and their 11-month no penalty CD is right up your alley. All deposits, no matter the size will receive a 0.35% APY. The primary difference between CIT and Ally is the minimum deposit. Ally has no minimum deposit required, CIT requires a $1,000 initial deposit.

With CIT, the no-penalty CD kicks into full effect seven days after your deposit is made. CIT also offers a few other kinds of CD’s including a Jumbo CD and a Ramp Up CD. This allows you to increase your CD rate once per term.

CIT also launched a new product called Savings Builder that sports a high 0.75% APY.  All you have to do is make a deposit of $100 a month OR maintain a balance of $25,000 or more.

Beware of No Penalty CD Impostors

Some banks advertise CDs as no penalty, when that’s not exactly accurate. For example, Discover Bank offered a CD with what it described as “penalty-free CD.” So what are these benefits? Basically, if you invest in a 12-month CD, and during the CD’s term lose your job, you can withdraw the balance without penalty. Here are the details:

“The Discover Bank “No Penalty CD” benefit applies to 12-month Certificates of Deposit and/or 12-month IRA Certificates of Deposit* (“CD”) opened or renewed between July 1, 2009 and December 31, 2009 and held as a sole ownership or joint-tenant account. The No Penalty CD Benefit (“Benefit”) waives the Early CD Withdrawal Penalty fee in the event an account holder experiences involuntary** job loss.

In order to qualify for the Benefit the following conditions apply: Account holders employed by a business or organization must: (1) be employed full time*** when the CD was opened or renewed, and for 30 days thereafter (2) involuntarily lose his/her full-time job and (3) provide proof of unemployment to Discover Bank.

Account holders who are self-employed when CD was opened or renewed must have suffered one of the following events after account opening or renewal: (1) business property or inventory damage; or (2) business closure for at least 5 business days due to fire or flood. Proof of such event will be required at time of request. The Benefit does not apply within the first 30 days of account opening or renewal.

The account holder must complete, sign, notarize and return proof of unemployment and/or other documents requested by Discover Bank to Discover Bank via facsimile and certified mail, return receipt requested. If account holder is deemed ineligible for the Benefit, Discover Bank will contact the account holder to confirm the withdrawal request. To apply for Benefit or for any questions about the Benefit, account holder must contact Discover Bank toll free at 1-800-347-7000 or write to Discover Bank, PO Box 2019, Greenwood, DE 19950.”

This penalty free benefit is a nice feature. But it is not a true no-penalty CD, at least it’s not what most people think of as a risk free CD.

Don’t Confuse a No Penalty Certificate of Deposit with a Savings or Money Market Account

Don’t confuse a CD with a savings or money market account. Once you invest in a CD, you can’t add to it. You can of course open another CD. And when any CD reaches maturity, you can rollover the CD, adding funds to the account at that time. But CDs are not demand deposit accounts. As a result, if you exercise your right to withdraw money early without penalty, you must take all of your money and earned interest. In other words, you close the account.

Why Do Risk Free CDs Have a Term?

One common question is why risk free CDs have a term. After all, if you can withdrawal the money anytime you want, who cares about the term of the CD? It’s because CDs are generally fixed rate deposit instruments. That’s why longer term CDs generally pay higher rates. And so the point of the term is that’s how long the bank is willing to fix the rate. Once the term expires, the then prevailing rate will apply if you rollover the funds into a new CD.

Are No Penalty CDs a Good Place to Keep Your Emergency Fund?

In this podcast episode, we discuss why a no-penalty certificate of deposit is a great option for your emergency fund:

Author Bio

Total Articles: 1082
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

Bill says:

I’d caution against CIT. Nothing shady or underhanded, but my experience banking with them was not good. Attracted by the high interest rates, I opened a savings account with them once. Long story short, the hassle that working with them turned out to be was not worth the handful of extra interest, and I ended up closing my account. Highlights include:
– Archaic online banking interface
– Terrible phone app
– Difficult to find important account information (I had to call them to get the routing number, it turns out it was buried in an FAQ)
– Excessive hold times on deposits compared to other online banks I’ve worked with (7-10 days)
– It doesn’t play nice with YNAB, constantly requesting authentication through text message verification. I don’t use Mint, but I wouldn’t be surprised if they had similarly compromised usability

I dunno, these may be minor quibbles for some, but it was enough to make it more trouble than it was worth for me.

Joe Joe says:

I fully agree with, 2014 0020Bill. I tried to open a CD that offered a good rate along with a $100 bonus. I felt they made it difficult to open the account and kept delaying with e-mails saying they needed more information. After providing it and making 2 calls, I gave up with CIT and parked my money elsewhere.

2017 11-9-17 says:

CIT is definitley not as streamlined and easy to work with as Ally. But they are not the worst online bank out there in a long shot. I still consider them to be in the top tier, alongside Ally, Goldman Sachs, Synchrony, and Barclays. (Discover, Capital One 360, and American Express I consider to be tier 1.5 because they aren’t consistent with their rates – even compared to CIT).

I don’t feel like my money is in danger being at CIT. Their website could definitley use an overhaul and they need to make more features available online rather than having to call up. That’s where Ally has them beat. The other downside is that CIT is the only one among my top tier online banks that plays around with their rates on some of their products – such as their savings accounts. In the last 2 years, they’ve used 3 different primary savings accounts (high yield savings account, spring savings, and now premier high yield savings).

However, with the no-penalty CD, you’re protected from them lowering their promised rate since you’re locked in and can always close the CD and open another one after 7 business days if they raise the rate. So you get the best of both worlds.

Ally’s no-penalty CD is definitley more convenient to open and close (you can do both online rather than call up), but all in all, they’re extremely similar products.

peter kafkalas says:

I also just opened a CIT Savings Builder Account. Also had problems finding the routing number, which I finally did. You can get around the long hold times by initiating the transfer from your bank account TO CIT, rather than FROM your CIT account. Now my money is available immediately, no hold time.

Charles Mann says:

CIT is a terrible bank that should be avoided. Many other good banks out their that wont waste to time and energy.

Sean X says:

I have money market savings accounts at both CIT and Ally, and Ally is far more pleasant to deal with. CIT’s customer service isn’t the worst I’ve endured, but Ally’s is great– always prompt and friendly. CIT’s interest rates have gone down without notice, or failed to go up when other banks’ have, whereas Ally hasn’t ever played gotcha games with me. For the .05% difference in interest, I’ll give Ally the bulk of my business.

Gary says:

Ally’s no-penalty CD was extremely easy to open and can also be configured to deposit monthly interest payments directly to an external checking account. In addition, Ally will automatically give you a higher rate, if their rate changes within 10 days of opening the CD. In fact, that did occur and I ended up getting a marginally higher rate with the first no-penalty CD that I opened. Lastly, Ally’s customer service is extremely good, which I leveraged during chats and phone calls. I do not work for Ally, but have used several brick and mortar banks over the years and I prefer Ally to be my primary savings bank.

Regarding CD ladders, although they can be complicated to manage, I leverage Fidelity’s service to automatically create CD ladders, which takes the complication out of building/managing CD (or Bond) ladders. Currently have two separate one-year ladders at Fidelity with one one set to auto-roll and the other to automatically disburse the funds at the end of each rung of the ladder.

As I am retired (yeah!), managing a fixed income portfolio during a low interest environment is important to me. Ally and Fidelity are the sole providers of the fixed income portion of my portfolio and they were chosen for their service excellence, not to mention, they offer very competitive rates.


Marcus says:

Marcus by Goldman Sachs now offers No-Penalty CD’s.

CB says:

Be alert when opening this account with Marcus. The default term and rate set in their sign-up form does not match the term and rate of all of their advertising. You have to notice that and change the selection in order to get their best advertised rates.

Karen Wolfe says:

How do you get to change the selection?
I got to the transfer fund screen , but didn’t proceed on. Was afraid that I’d get the incorrect 11 month fixed CD

Mike says:

Yes, and the Marcus by Goldman Sachs 13 month, no penalty CD is currently better than both Ally and CIT since the current rate is 2.35% versus 2.30% for Ally and the 13 month duration guarantees that rate for longer than Ally’s 11 months.


I opened a CIT high yield savings account. My intent is to hold that money there without ever touching it. They offered me 2.45% APY. It was very easy to setup online and they did require authentication that took days (they gave two options to deposit, I took the longest option because I felt it was more secure), but I was not a bit concerned about that because after all, that is my money they are protecting. Yes I have to get a text each time I log into my account but that just tells me they value security a lot and I respect that. The online website interface is just like my major NYC bank that I deal with and when I spoke to them by phone twice already, the representative was professional and very helpful and so I don’t know where these negative comments are coming from. If everybody read the fine rule about the offer regarding the 2.45% and if you deviate from that rule then of course there are consequences. I believe most of the commentators here did not bother to read the rules and when the consequence hit them, they don’t like it. I have not used their app yet but I don’t intend to use it because for security purpose, I prefer to log online instead. I believe the CIT 2.45% is perfect if you just want to leave your money there and do your banking at your main bank.

jigs says:

i dont understand why ally would offer CDs that has a lesser APY rate than their normal online savings account.

Barton says:

Regular (high-yield) savings accounts have an APY that is subject to change, while a CD has a fixed rate for a fixed term. If the FED decides to decrease interest rates in the near future (which seems likely based on the past decisions), rates on the (high-yield) savings accounts will drop. If you want a guaranteed rate, you better open a CD. While a CD may have a lower rate, you are at least protected against rate decreases. Take Wealthfront as an ezample, they constantly claim they offer the highest yield, but none of their rates have been able to survive more than a few months until getting lowered. The best option in between is a no-penalty CD. You lock in a rate for a certain term, but if FED would increase interest rates, you can break the CD without penalty and move your money to a higher yield savings account.