A no-penalty CD is exactly what it sounds like - a certificate of deposit that doesn't charge an early withdraw penalty.
If you're familiar with CDs, you'll know that they all have a term length - ranging from 3 months up to 72 months or more. Typically, if you want to withdraw your money early, you'll be charged a penalty - interest you lose. On a short-term CD, it could be the full amount of interest!
Penalty-free CDs are changing that - in most cases, you can withdraw your money anytime without penalty. This makes these more akin to a high-yield savings account - and sometimes with higher yields!
Best Penalty-Free CD Rates For 2022
Here are the certificate of deposits that don't charge early withdrawal penalties, that offer higher-than-average rates while allowing for some flexibility.
1. Patriot Bank 17 Month CD
Patriot Bank has been a leader in the high-yield savings account space for a while, and they have recently launched their 17-month no-penalty CD. And right now, you can get 2.55% APY.
Plus, this account has no fees and just a $1 minimum to open!
They are mobile friendly, FDIC-insured, and more. Read our full Patriot Bank review here.
Patriot Bank 17-Month CD
2. Sallie Mae 14 Month CD
Sallie Mae Bank offers a competitive 14-month CD that has no early withdrawal penalties. This account currently offers 2.70% APY.
Plus, this account has no fees and just a $1 minimum balance requirement.
Sallie Mae 14-Month CD
3. CIT Bank 11 Month CD
CIT Bank offers a solid 11-month penalty-free CD. This CD currently yields 2.00% APY, which is awesome given its short duration.
This account has no fees but it does have a $1,000 minimum balance requirement.
CIT Bank is consistently listed on our rankings of the best savings accounts and best bank certificates of deposit. Read our full CIT Bank review here.
CIT Bank 11-Month CD
4. Sallie Mae 10 Month CD
Sallie Mae Bank also offers a 10-month CD that has no early withdrawal penalties. This account currently offers 2.50% APY.
This account has no fees and just a $1 minimum balance requirement. However, given the fact that the 14-month CD also is penalty-free, we don't see why you'd consider this product over the other one.
Sallie Mae 10-Month CD
5. Ally Bank 11 Month CD
Ally Bank currently offers an 11-month penalty free CD. This account currently yields 1.40% APY.
Plus, this account has no fees or minimum balance requirements! There's also no minimum deposit to open the account!
Ally consistently receives high marks for customer service and ease of use, but their rates aren't always the most competitive. Read our full Ally Bank review here.
Ally 11-Month CD
Before You Open A Penalty-Free CD Account
No penalty CDs are great tools to use for your savings. In fact, many people use these as an alternative to savings accounts since you can probably earn slightly more interest with them. However, there are things that you should know about opening a no withdrawal penalty CD.
- Withdrawal Terms - While we try to highlight the best no-penalty CDs here, you still should check the withdrawal terms. Some CDs may advertise themselves as "no penalty", but in reality, there may be time limits before that takes place, or even factors like when it's allowed. Read the fine print!
- Initial Deposit - Some CDs may require a large initial deposit. On our list, most are anywhere from $0 to $1,000, but it's not uncommon to see $5,000 or more. Make sure you keep an eye out. If you have a large amount to deposit, consider a Jumbo CD.
- Max Limit - Some banks may offer promotional CDs that have maximum limits. Similar to minimums, you want to make sure you don't exceed any maximums and lose interest.
- Term Limit - You might wonder why there is a term limit when there is no penalty? This is how long the bank is willing to pay that rate for. It could work in your favor when rates fall, or it could work against you when rates rise.
- Funding - Make sure you understand how to fund your CD. With most online banks, you simply setup direct ACH withdrawal from your existing bank. However, depending on your bank, there may be other options.
Top Features In Certificate Of Deposit Accounts
While every person wants something different in a certificate of deposit, these are some features that make sense to consider.
- APY - This is the biggest factor to consider for most people. You want the account that is going to pay the highest interest rate (or APY, annual percentage yield).
- Minimum Balance Requirements - Depending on how much money you have to deposit, you want to make sure that the CD aligns with your budget.
- FDIC or NCUA Insurance - You want to make sure that your money is protected. All of the banks on our list are FDIC-Insured.
- Ease Of Use - Finally, you want to make sure that your account is easy to use and transfer money into (and out of when you need it).
We believe that all of no-penalty CD accounts have the best features you can find. But that doesn't mean you shouldn't shop around.
Don’t Forget To Consider Alternatives
The big benefit of a no-penalty CD is simply the fact that you can withdraw the money at any time. This basically operates like a high-yield savings account or money market.
As such, you want to compare the best CD rates with the best high yield saving or money market account rates as well. The goal is always to maximize how much interest you earn. We have a couple excellent guides to this here:
Another alternative that you may consider, especially if you have a lower balance, is a high-yield checking account. These accounts typically pay high interest, but only on limited balances (say, up to the first $5,000). However, the interest rates can be very high - upwards of 4% or more. If you have a lower balance, this can be a great alternative. Here's our guide:
While no-penalty CDs might not have as good of interest rates compared to regular 12-month CDs, the fact that you can withdraw your money at any time is appealing. If you're shopping around for a great savings product, these should be at the top of your list.
No-Penalty CD FAQs
Here are some of the more common questions we get about no-penalty or penalty-free withdrawal CDs.
What are no-penalty CDs?
They are CDs that do not charge a penalty for early withdrawal. This means that you can withdraw your funds at any time, without any fees or penalties.
Why are no-penalty CDs a good option?
They are a good option because you know that you can access your funds without any penalties if you need to. This can be helpful if you need to access your funds quickly for an emergency.
Are there any downsides to no-penalty CDs?
The only downside to no-penalty CDs is that they often have lower interest rates than other CD options. However, this may be worth it if you need easy access to your funds in case of an emergency.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Editor: Claire Tak