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The No-Penalty CD: Another Option for Your Savings

Love the high fixed rate of a CD but reluctant to give up access to your money? Here’s another option.

Certificates of deposits, more commonly referred to as CDs, are savings products that allow you to receive an interest rate that is typically higher than what savings accounts offer. In exchange for this higher rate, your money is “locked” into the account for a set term. Your interest remains the same for the entire term, and you will be unable to access your money without a penalty until the CD’s maturity date. Penalties for early withdrawal vary by financial institution, the length of the CD, and deposit amount but could range from a fee to 90 days of interest on a six-month CD to as much as 24 months of interest on a five-year CD.

Because of these early-withdrawal penalties, people who require access to their funds often deposit their money in a savings account. The drawback to a savings account is typically a lower interest rate. However, there is an alternative‒the no-penalty CD.

What is a no-penalty CD?

A no-penalty CD is a CD that lets you lock in a competitive rate for a set term, but allows you to withdraw your funds, including any interest earned, penalty-free, after a certain time period. For example, with a CIT Bank No-Penalty CD you can withdraw your money beginning seven days after funds have been received.

What is the difference between a no-penalty CD and a savings account?

While both accounts offer liquidity, there are a couple of differences. One is the interest rate‒a no-penalty CD will typically offer a higher interest rate than a savings account. The second big difference is that unlike a savings account, partial withdrawals are unavailable with a no-penalty CD. If you wish to access your money from a no-penalty CD, you must withdraw the entire balance.

Benefits of a no-penalty CD

  • Grow your money with a competitive rate
  • Easily access your funds and any interest earned–there is no early withdrawal penalty1
  • Low risk since your rate is locked in for a set term
  • FDIC insured for peace of mind

How to choose a no-penalty CD

Select banks offer no-penalty CDs, and online banks, such as CIT Bank, are known for offering higher rates than brick and mortar financial institutions. When evaluating your no-penalty CD options, it is important to look for:

  • A competitive rate
  • A term that works for your needs
  • No account opening or maintenance fees
  • Daily compounding interest so that your money grows faster
  • A bank that is respected in the industry

No-penalty CDs combine the security of a CD with the flexibility of a savings account. If you are thinking about taking advantage of all a no-penalty CD has to offer, look to CIT Bank. CIT Bank is an award-winning bank and was selected as a top 10 finalist in three categories of GOBankingRates’ 2017 Best Banks Study.2

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