If you want to earn a little extra interest on your savings, you should check out no-penalty CDs. They present less risk and lower returns than investing in stocks but offer higher interest yields than traditional savings accounts. And, as the name alludes, no-penalty CDs have a term but don’t charge you a penalty if you withdraw your money early. Who doesn’t love that kind of flexibility?
Several banks offer no-penalty CDs but if you want to maximize your earnings, you need to find the highest rate of return, lowest minimum deposit, and fewest restrictions on the no-penalty benefit. Here are 4 of the best no-penalty CDs on the market today.
The 4 Best No-penalty CDs
- Marcus by Goldman Sachs: Best overall
- My eBanc: Best withdrawal policy
- Ally Bank: Lowest minimum balance
- Investors eAccess: Shortest term
|Marcus by Goldman Sachs||1.65% – 1.90%||$500||No partial withdrawals||7 to 13 months|
|My eBanc||1.90%||$10,000||Limited to two partial withdrawals||11 months|
|Ally Bank||1.65% – 1.90%||$0||No partial withdrawals||11 months|
|Investors eAccess||1.80%||$500||No partial withdrawals||6 months|
What is a No-penalty CD?
A certificate of deposit (CD) is a type of savings account that is federally insured and offers you a fixed interest rate if you keep your money in the account for a fixed term. The terms often range from one to 60 months while the annual percentage yields (APYs) vary. While the return is not as high as you can earn in the stock market, it is higher than the average 0.09% interest yield you’d earn from a regular savings account. As for the no-penalty part, no-penalty CDs have fixed terms like a standard CD but don’t charge you a penalty if you withdraw your money early. This gives you a bit more flexibility if you have savings to invest but might need them in the case of an emergency.
No-penalty CDs vs CDs
If you invest in a standard CD and need to withdraw your money before the term is over, you’ll get hit with a penalty. There are no limits on how much banks can charge for early withdrawal. Chase, for example, charges a penalty of 6 months of interest on 12-month CDs. So depending on which bank you’re with, you could lose a lot, if not all, of the interest you’ve earned if you take out your money early.
That’s what makes no-penalty CDs such an attractive option — they allow you to withdraw your money at any time without being penalized. Something to keep in mind, though, is that they typically offer lower returns than penalty CDs. So if you have savings that you know you’re not going to touch for a few months, shop around for penalty and no-penalty CD rates to find the best deal. But if there is any chance you may need to withdraw the cash early, a no-penalty CD is the way to go.
CDs vs Savings Accounts
While CDs are a type of savings account, they have a time requirement that regular savings accounts don’t have. You deposit money into the account and agree to leave it for a certain number of months (often, ranging from 1 to 60 ). When the term is up, you can withdraw your principal balance plus the interest you earned over the term.
Due to the term, the interest rates you can get with CDs are often higher than those with savings accounts. However, many CDs will charge you a penalty if you withdraw your deposit before the term fully matures. This can cost you any interest you’ve earned. So if you think you may need to withdraw money before the term ends, you’ll be better off with a savings account or a no-penalty CD.
With that in mind, note that some online savings accounts are offering rates that compete with no-penalty CD rates, so it’s always smart to shop around before deciding where to invest your money.
CDs vs Brokerage Accounts
Brokerage accounts are investment accounts that you open with a brokerage firm. There are many types, including accounts you manage yourself online and those managed by humans or robo-advisors. Regardless of who’s managing your account, the end result is that your money gets invested in a variety of mutual funds, stocks, bonds, and other assets. In most cases, you want to invest and leave your money in the account for long-term growth, riding out the ups and downs in the market. CDs, on the other hand, are a low-risk investment that offers more modest returns in a shorter period of time. They are a great introduction to investing for newbies and can provide portfolio stability for more experienced investors.
The 4 Best No-penalty CDs
Marcus by Goldman Sachs – Best overall
Marcus, an online bank launched by Goldman Sachs in 2016, offers one of the best no-penalty CDs on the market. It has a minimum deposit of just $500, which is much more manageable than the $10,000 deposit some banks require. In addition, this CD has high APYs that range 1.65% to 1.90% for terms of seven to 13 months.
If you end up needing the money you deposit before your term is up, you can withdraw it penalty-free at any time after the first seven days. However, you can’t make any partial withdrawals; it’s all or nothing! You’ll have to withdraw the balance early and close the account. That’s not a deal-breaker for us, though. This CD is still our top pick because it has a winning combination of a low minimum balance, no early withdrawal penalty, and a high APY, something you don’t often see in CDs.
My eBanc – Best withdrawal policy
Next, My eBanc is the online division of BAC Florida Bank, a regional bank that’s been in business for 45 years. It offers an 11-month CD with a high APY of 1.90%. However, this is for those with a significant amount of savings as you’ll need to invest at least $10,000 to open the account. On the upside, unlike other CDs, you can make two partial withdrawals during the 11-month term without incurring any penalties. If you have the funds, we highly recommend this CD for its flexible withdrawal policy and high-interest rate.
Ally Bank – Lowest minimum balance
Ally is an online bank that’s known for its high returns and top-notch customer service. It offers an 11-month no-penalty CD with no minimum deposit, meaning you can open an account for free. The bank gives you 60 days to fund your account with as much or as little money as you want, although higher deposits will yield better returns. Deposits of less than $5,000, earn an APY of 1.65%, while those over $5,000, earn a competitive APY of up to 1.90%.
If you need your money early, you can withdraw your full balance at any time as long as your account has been open at least 6 days. Note that partial withdrawals are not allowed. We like this CD because it has the lowest minimum balance requirement and competitive rates. No matter how much money you have on hand, you can open an account with Ally which makes it great for new investors.
Investors eAccess – Shortest term
Lastly, Investors eAccess is the online branch of Investors Bank, one of the largest banks in New Jersey. It offers CDs with competitive rates, low minimum balances, and short terms including a no-penalty 6-month CD. This no-penalty offer requires just $500 to open and will earn you a healthy 1.80% APY. Plus, you can withdraw your full balance at any time without any fees. Because of its short term, high APY and lack of early withdrawal penalties, this CD is a great place to stash money and make a quick return.
The Final Word
CDs are a great middle-of-the-road option between savings accounts and brokerage accounts. They’ll earn you more interest on your short-term savings than regular savings accounts without putting your money at risk. Plus, no-penalty CDs give you the freedom to withdraw your money at any time without losing your earnings. Review your budget and goals against the 4 best no-penalty CD offers above to find the best fit for your situation. And, keep in mind, rates and terms are always changing, so it’s smart to shop around and check with different providers before deciding where to invest.