No-Penalty CDs: Definitions & a Beginner’s Guide for 2021

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Considering a no-penalty CD? These savings vehicles are slowly gaining in popularity. Let's take a look at how these certificates of deposit work and where the best rates can be found.

Why Invest in a No-Penalty CD?

If you're putting your money in low interest-paying savings accounts, you may be thinking it's time to switch to a certificate of deposit (CD). However, the biggest drawback to investing in a CD is that you can't withdraw your money before maturity without being charged a fee.

Let's say your car unexpectedly gives up the ghost. The $5,000 you have been earning a tidy 2.70% interest on in a one-year CD at the bank sure would come in handy for making a down payment on a new ride.

However, you opened that CD just six months ago, and the penalty for withdrawing your own money early is six months' worth of interest! That means the interest-earning abilities of your CD might as well be zilch. (Penalties vary per bank and per CD.)

No matter how much of a sob story you present to the bank's customer service team on the phone, the answer is the same: We're sorry you've got an emergency, but if you want your money now, you're going to be penalized.

Now, I realize this isn't a huge loss of cash, but your goal is to make the most of your money, right? Losing out to fees just plain sucks.

Enter the no-penalty CD…

The Best No-Penalty CD Rates

Banks have slowly been catching on to the fact that penalty-free CDs have a lot of appeal. That said, right now, there are only a few truly no-penalty CDs on offer.

Let's take a look at our two favorites.


CIT Bank is an excellent online-only bank that offers generous interest rates on savings products.

Along with traditional CDs, CIT offers long-term RampUp CDs that let you adjust your APY if rates increase, Jumbo CDs for deposits of $100,000 or more, and — you guessed it — No-Penalty CDs.

Beginning on the seventh day after opening, you can withdraw your total balance, including any interest earned, without having to pay any fees.

Unlike Ally (see below), CIT requires a minimum deposit of $1,000 for these CDs.

Here's the current rate for these 11-month certificates of deposit:

Deposit Amount APY
$1,000 or More 0.30%

Clearly, this is a particularly good deal if you have between $1,000 and $5,000 to invest (beyond which Ally's APY is higher).


Ally Bank is hands-down one of our favorite banks. It consistently shines with low or no fees, generous interest rates, and online features.

This bank is 100% online — there are no branch offices anywhere. While that means no free lollipops, it also means Ally passes the savings from not having brick-and-mortar overhead along to you. In large part, Ally does this by eliminating fees and paying higher-than-average interest in savings accounts, money markets, and CDs.

Ally is currently offering an 11-month no-penalty CD. There's no required minimum, but the size of your deposit will determine how much interest you earn:

Deposit Amount APY
Up to $5,000 1.30%
$5,000–$24,999 1.30%
$25,000 or more 1.30%

That's better than what you'll earn with many traditional CDs at brick-and-mortar banks.

Keep in mind that you must wait six days after opening the account before you can withdraw the entire balance. When your Ally No Penalty CD comes to maturity, you can also choose to have it automatically renewed at a potentially different APY.

Conclusion

If the idea of not being able to withdraw your money on demand bothers you, opening a no-penalty CD at either Ally Bank or CIT Bank might be a comforting choice for you.

However, note that you can also open a regular savings account at several online banks and receive just as high an APY — and maybe even higher. This might make better sense for your emergency fund.

Kat Peach

Although Katherine Peach originally intended to become an archaeologist, she has now been working as an editor in the financial publishing industry for more than 10 years. (Unearthing ideas about improving your personal finances isn’t such a bad career alternative!)

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