Best No-penalty CDs

related category image

Point of Interest

No-penalty CDs offer attractive earnings and solid interest rates — and these types of CDs don’t have any penalties for early withdrawal, either. Investing in no-penalty CDs can be a smart move if you want a low-risk way to earn interest on your money but aren’t sure if you’ll need to withdraw your investment early.

Certificates of deposit (CDs) are a great, no-risk addition to an investment portfolio. These products allow you to lock in a rate of return on your financial investment that is paid over a fixed period, and most CDs also offer higher interest rates than most savings accounts or other low-risk banking products. However, you stand to lose some of your earnings if you have to withdraw your money early with many types of CDs, as this type of investment often requires you to invest your money for a specified period without withdrawing it.

If you’re considering investing in CDs but are unsure of whether you’ll be able to keep your funds tied up long term, don’t fret. No-penalty CDs are a good option, as these investment vehicles give you the earnings potential of a traditional CD without penalties or fees for accessing your money early. The best no-penalty CDs will offer not only no penalties for early withdrawal but also an attractive interest rate to help get your money working for you.

The best no-penalty CDs of 2020

ProviderMax APY (as of June 15, 2020)Min. Deposit RequirementTerm LengthRestrictions
Ally Bank1.05%$011 monthsNo withdrawals in first 6 days
Marcus1.00% – 1.20%$5007, 11 or 13 monthsNo withdrawals in first 7 days
My eBanc1.10% – 1.20%$10,00011 monthsLimited to (2) partial withdrawals
Investors eAccess0.50%$5006 monthsNo withdrawals in first 6 days, no partial withdrawals

What is a No-penalty CD?

Banks and credit unions use the money that people deposit in their accounts to make short-term investments. You aren’t likely to notice this, though, because your money is still 100% available to you. When you agree to leave your money untouched for extended periods, as you do with CDs, the bank or credit union can make more of that investment knowing that your money will be there for them to use. In return, you are given a higher interest payment on your investment. This is precisely how CDs work.

When you agree to leave your money invested in a CD for a certain period and then withdraw your money early, it disrupts the bank or credit union’s operations. To deter you from doing this and to recoup some of the losses, the bank often charges a penalty for early withdrawals. The penalty is a portion of the interest that you have earned on your investment. 

A no-penalty CD, on the other hand, gives you the same earning benefits as a standard CD, except there is no penalty assessed if you have to access your money early. These types of CDs operate much like savings accounts, with fixed rates of return that do not fluctuate with the market.

No-penalty CDs vs CDs

Generally speaking, you will get a slightly lower APY rate with a no-penalty CD than you would with a standard CD, primarily because the bank can’t count on you leaving your money in the CD for the long haul. In return for taking a slightly lower rate, you will gain the benefit of liquidity. If you find you need to access your money for any reason, you can withdraw it without penalty. Some banks allow unlimited withdrawals, while others will have more limitations.

Overall, no-penalty CDs are best for people who are unsure if they will need to access their funds in the near future. If you know for sure that you won’t need to touch your money, you may be better off with a standard CD and a higher interest rate.

 

No-penalty CD vs. jumbo CD (100)

The terms no-penalty CD and jumbo CD are a bit like comparing apples to oranges, as a CD can be either, neither or both of these terms. A no-penalty CD offers you an investment that has no risk and no penalty assessed if you access your funds early. The opposite would be a traditional CD that charges an interest penalty if you access your funds early. A  jumbo CD refers to a CD investment that is over a certain investment size threshold set by each bank or credit union. These jumbo CDs require a larger investment but generally pay a higher interest rate.

If a CD requires a larger than normal investment and has no penalty for early access, it can be a jumbo, no-penalty CD. If the CD requires a lower deposit and does assess a penalty for early withdrawals, then it is neither a jumbo CD nor a no-penalty CD. Additionally, you can have a larger CD that assesses a penalty for an early withdrawal, which would be a jumbo, with-penalty CD. Or you could have a CD with a lower deposit with no penalty, much like the recommended listings here, which would be a non-jumbo, no-penalty CD.

The 4 Best No-penalty CDs

Ally Bank — Best for customer satisfaction

Ally Bank, which was originally the captive financing company for General Motors, offers no-penalty CDs for 11 months with an APY rate of 1.05% as of June 15, 2020. This rate is not only great for no-penalty CDs, but it’s also better than the rates offered for some standard CDs with penalties. As is the case with all of Ally’s CDs, there is no minimum balance requirement to open an account.

There are also no fees with this investment — as long as you don’t withdraw your funds in the first six days after opening, anyway. Ally is also currently offering a 0.05% reward bonus when you renew your CD with the bank.

Marcus — Best for no fees

While most providers often limit their no-penalty CD options to one type, Marcus offers three different term lengths to choose from. CDs come in 7-month, 11-month and 13-month increments with attractive APY rates that range from 1.0% for the 13-month term to 1.20% for the 7-month term. Marcus does require a minimum deposit amount of $500, which is fairly standard.

As with any no-penalty CD, you can’t withdraw your money for a short period after opening your account. The industry standard is six days, but Marcus requires seven days and limits withdrawals for the first seven days. While this probably isn’t a deal-breaker, it’s something to note.

My eBanc — Best for large investments

The first thing that stands out when looking at the no-penalty CDs from My eBanc is the deposit minimum. You’ll have to be prepared to invest $10,000 at minimum in My eBanc’s no-penalty CDs — otherwise, you will not be able to take advantage of this offer. 

Your APY rate is dependent on the amount you invest, though, so if you have a ton of money to deposit, it will pay off. If you deposit over $100,000 into a no-penalty CD with My eBanc, you will get 1.20% APY in return. Anything less — but over $10,000 to meet the minimum — drops the rate to 1.10%.

My eBanc will let you can make two partial withdrawals without penalty, however. You will be required to notify the bank at least seven days before you make a withdrawal, though, and additional withdrawals will result in an early withdrawal penalty.

Investors eAccess — Best short-term CD

One of the shortest term no-penalty CDs is available through Investors eAccess. The CD term options are only 6 or 10 months in duration and come with an APY of 0.50%. The rate is a bit lower than some of the other options, but it’s still a solid option for people who aren’t ready to tie up their funds in a CD with a longer term. 

One thing to consider is that you can get a 7-month CD with Marcus with an APY rate of 1.10%, which is a much better rate in exchange for one extra month. Plus, since there are no penalties with that CD, you could always withdraw at the 6-month mark if you needed to.

You are not able to make a withdrawal without penalty in the first six days, which is pretty standard for this type of investment. The downside is that with an Investors eAccess no-penalty CD there are no partial withdrawals. If you withdraw anything from your CD account, it closes out the CD completely.

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.

Next steps

Jason Lee

Personal Finance Contributor

Jason Lee is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.