The Highest No-Penalty CD Rates
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Certificates of deposit offer savers a way to earn higher yields in exchange for locking their money away for a set period. The downside is that you’ll pay an early withdrawal penalty if you need your money early. No-penalty CDs offer higher yields without the penalty for early withdrawal.
The trick is to find a no-penalty CD that pays the highest rates. We track the highest no-penalty CD rates and list them below. If you know of a better option, please let us know.
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Highest No-Penalty CD Rates by APY
The best no-penalty CD rates are similar, but of the few hundred banks we surveyed, here are the rates listed by APY.
How We Chose the Highest No-Penalty CDs
Not every bank offers a no-penalty CD, but you can trust that the rates we found are truly the best nationwide. We also considered term length when looking for other factors to determine the best no-penalty CDs.
- Interest Rate (APY) – Every no-penalty CD above has a terrific interest rate compared to its peer CD of the same term. In almost all cases, the APY of a no-penalty CD is better than that of a high-yield savings account (but it is not as flexible).
- Term Length – Ideally, longer-term no-penalty CDs are best because your rate is guaranteed for the entire term. The CD needs to have a term of at least three months. The longer, the better, at a high rate.
Every bank above is also FDIC insured up to the $250,000 per depositor maximum.
How No-Penalty Certificates of Deposit Work
No-penalty CDs work like traditional CDs, but there is one important exception. They do not charge a penalty if you take out your money early.
As with all CD accounts, the money must remain in the account for seven days. After that, you can withdraw your money at any time.
Like CDs in general, you deposit a lump sum into a CD. You must take all of the money if and when you withdraw it. Unlike a checking, savings, or money market account, you do not make multiple deposits and withdrawals to and from a CD.
No-Penalty CDs vs. Traditional CDs
The no-penalty feature does come at a cost. The best CD rates on a 1-year CD are about 50 basis points higher (or more) than what you find on no-penalty CDs. The no-penalty CD may be worth the cost if you think rates will rise. The same is true if you believe you’ll need access to the money before the end of the term.
If not, a traditional CD may be the better choice.
No-Penalty CDs vs. Savings Accounts & Money Market Accounts
We’ve found that the best no-penalty CD tends to pay a slightly higher APY than the best savings account rates.
We’ve also found the same to be true of MMAs. No-penalty CDs tend to pay slightly higher yields. However, remember that this is true only for the top-paying CDs. Plenty of no-penalty CDs are offered by well-known banks that pay below-market yields. Here, it pays to shop around.
Beware of No-Penalty CD Impostors
Some banks advertise CDs with no penalty when that’s not exactly accurate. For example, Discover Bank offered a CD that was described as a penalty-free CD. So, what are these benefits? If you invest in a 12-month CD and lose your job during the CD’s term, you can withdraw the balance without penalty.
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 consider risk-free.
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. When any CD matures, you can roll over the CD, adding funds to the account. 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 your money and interest. In other words, you close the account.
Frequently Asked Questions (FAQ)
What are the Downsides of No-Penalty CDs?
As great as the sound of “No Penalty” CDs, there are some downsides and limitations. For starters, the rates on no-penalty CDs may sometimes be lower than traditional ones. Sometimes, they might be no higher than online savings account rates.
Regarding 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, looking closely at the terms is important when considering your options.
In addition, despite their “No Penalty” moniker, some banks still have limitations on how and when you can access your money. For example, while some banks allow you to withdraw your money within a week, others require up to 30-90 days.
Finally, these CDs are typically short-term. In most cases, they last 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. So, the point of the term is how long the bank is willing to fix the rate. Once the term expires, the 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 withdraw the money without penalty, the funds can be used for emergencies. In addition, as noted above, the rates on no-penalty CDs are very competitive with other deposit accounts.
Final Thought on No-Penalty CDs
Opening a no-penalty CD is a great idea for one primary reason. If you’re unsure whether you can keep your deposit locked down for a regular full-term CD, this is the right one.
No-penalty CD rates always sacrifice a touch of interest vs. normal CD rates, but the peace of mind of knowing your cash is always available is well worth it for most consumers.
