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.
Featured No-Penalty CD
- 4-Month No-Penalty CD
- FDIC Insured
- Minimum Deposit: $1
- APY: 5.06%
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
Over the last six months we’ve seen numerous banks introduce no-penalty CDs. What was not long ago a savings product offered by just two banks, not we have dozens of options. Here are some of the best no-penalty rates we can find available nationwide.
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.
Savebetter No-Penalty CDs
Savebetter is not a bank. Rather, it is a free service that allows you to open savings accounts at any one of dozens of FDIC-insured banks and NCUA-insured credit unions. If you find a better rate at one of Savebetter’s banks, you can switch your money without the hassle of opening a new account at a different bank.
Savebetter currently offers some of the highest rates on no-penalty CDs.
| Bank or Credit Union | Term | APY |
|---|---|---|
| Ponce Bank | 4 months | 5.06% |
| Blue Federal Credit Union | 9 months | 5.00% |
| mph.bank | 6 months | 4.92% |
| First Mid Bank & Trust | 12 months | 4.82% |
| FVCbank | 12 months | 4.90% |
| Sallie Mae Bank | 14 months | 4.75% |
| Sallie Mae Bank | 10 months | 4.70% |
CIT Bank No-Penalty CD
CIT Bank’s 11-Month No Penalty CD has been a competitive savings product for years. All deposits, no matter the size will receive a 4.90% APY. The primary difference between CIT on the one hand and Savebetter and Ally on the other is the minimum deposit. Ally and Savebetter has no minimum deposit required (well, Savebetter’s is $1), 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 CDs including a Jumbo CD and a RampUp™ CDs. This allows you to increase your CD rate once per term.
Ally Bank 11-Month No Penalty CD–The Ally Bank no-penalty CD is currently earning 4.25% APY. 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 CDs will not be locked in at the current APY.
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 a 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:
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.
What are the Downsides of No-Penalty CDs?
As great as “No Penalty” CDs sound, there are some downsides and limitations. For starters, the rates on no-penalty CDs may in some cases be lower than traditional CD rates. In some cases, they might be no higher than online savings account rates.
In terms of minimums, some banks require high minimum deposits for their no-penalty CDs, in some cases ranging as high as $5k-$25k. Fortunately, others don’t. Thus, it’s important to look closely at the terms when considering your options.
In addition, despite their “No Penalty” moniker, there might still be some limitations on how and when you can access your money. For example, while some banks allow you to pull your money back out within a week, others require up to 30-90 days.
Finally, these CDs are typically short-term CDs. In the vast majority of cases, we’re talking 9-12 months, or even less.
Why Do CDs Have a Term?
One common question is why risk-free CDs have a term. After all, if you can withdraw 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 roll over the funds into a new CD.
Are No Penalty CDs a Good Place to Keep Your Emergency Fund?
Yes, they can be. Because you can withdrawal the money without penalty, the funds can be used for an emergency. In addition, as noted above, the rates on no-penalty CDs are very competitive with other types of deposit accounts.
Rob Berger
Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.
