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What is a No-Penalty CD?

How Do CDs Work and What Are My Options?

A certificate of deposit (CD) is a type of savings product that is a low-risk way to grow your money. Interest rates on CDs are often higher than on savings accounts because the money in a CD must remain untouched for a fixed period. They've become an attractive investment option because interest rates on CDs have been higher than they’ve been in over a decade. The types of CDs vary from one financial institution to another but usually take the form of the following two types: Standard CDs and No-Penalty CDs.

Standard CDs
Standard CDs must remain untouched for the entirety of their term, or the money in the account risks penalty fees for early withdrawal.  For example, a one-year certificate of deposit that charges an early withdrawal penalty of 180-day worth of interest can charge you the 180 days’ interest if you withdraw funds prior to the 12-month term.

No Penalty CDs
A no-penalty CD is unique because, like the name suggests, a no-penalty CD does not impose early withdrawal penalties if you need to withdraw your savings before the term is complete.  In most cases, you can make a no-fee withdrawal after 6 days of opening the account and effective for the lifetime of the CD.

Keep in mind that most no-penalty CDs don’t allow you to make a partial withdrawal.  Typically, if you need to access the funds, you have to take all of your money out and close the account.
 

What are the advantages of a no-penalty CD?

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  • Flexibility & Yield: A no-penalty CD fixes the downside of a traditional CD.  If you need the money, you can access it without paying a penalty.  It’s also useful during changing market conditions.  If rates rise, you can take your money out and put it in a different investment.  Plus, no-penalty CDs offer a higher rate than many savings accounts.
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  • Safe Investment: Like standard CDs, non-penalty CDs are typically FDIC insured through financial institutions.  For your protection, be sure your bank is a member of the Federal Deposit Insurance Corp (FDIC).  The FDIC typically insures up to $250,000 per depositor, per bank, including principal and interest.
Keep your money growing and your options open.  Check out our No-Penalty CD.

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Common Questions:

Yes, like other CDs, no-penalty CD rates are fixed.  For example, a 39-month No-Penalty CD has a fixed rate for 39-months, but you can withdraw your money early without a penalty.

  • Flexibility and Yield – A no-penalty CD fixes the downside of a traditional CD.  If you need the money, you can access it without paying a penalty.  It’s also useful during changing market conditions.  If rates rise, you can take your money out and put it in a different investment.  Plus, no-penalty CDs offer a higher rate than many savings accounts.
  • Safe Investment: Like standard CDs, non-penalty CDs are typically FDIC insured through financial institutions.  For your protection, be sure your bank is a member of the Federal Deposit Insurance Corp (FDIC).  The FDIC typically insures up to $250,000 per depositor, per bank, including principal and interest.

No-penalty CDs typically pay more than a savings account but sometimes less than a standard certificate of deposit rate because the bank offers you greater flexibility. Interest rates on a CD will vary, and sometimes banks offer specials on CDs that allow you to get a rate on a no-penalty CD like that of a standard CD.