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If you’re looking for a short-term place to park your cash while earning a competitive interest rate, certificates of deposits (CDs) are worth considering.

Traditional CDs often offer higher returns than standard savings accounts, which can help your money grow faster. However, there’s a catch: Your funds are locked in until the CD matures — anywhere from a few months to several years — and withdrawing early typically means paying a penalty.

No-penalty CDs offer a more flexible alternative. They function like traditional CDs but allow you to withdraw your money before maturity without incurring a fee. The tradeoff? These CDs can be harder to find and may offer lower interest rates compared to traditional options.

Here’s what you need to know to determine whether a no-penalty CD is the right fit, plus how it compares to other high-yield savings options.

No-Penalty CDs Explained

A no-penalty CD is a type of deposit account that’s structured like a traditional certificate of deposit (CD) in that money is placed into the account for a set period of time — usually around a year or less.

During that period, interest accrues, often at a higher rate than a standard savings account. That rate is locked in until the end of the CD term, also known as its maturity date.

Unlike traditional CDs, there is no fee or loss of earned interest if the money is withdrawn before the account matures. Funds usually need to be kept in the account for at least a week before they can be withdrawn. But as long as that short milestone is met, a no-penalty CD is a very flexible option.

No-Penalty CDs vs Traditional CDs

Opening one or more CDs can be an effective way to house your savings. It’s one of several ways to earn more interest than you might in a traditional savings account. But before deciding which CD to choose, it helps to understand the intricacies involved in each type.

With a traditional CD, money can’t be withdrawn from that account without incurring a penalty fee. Early withdrawal penalties for a CD vary, depending on the individual financial institution, but the penalty typically involves losing a certain number of days or months’ worth of interest.

The length of time varies by each bank or credit union, but depending on how early you withdraw your funds from a CD, you could possibly lose some of the principal or initial deposit.

For example, a bank may charge a CD early withdrawal penalty as 120 days (or four months) of interest payments. If the CD has only been open for three months, you’d not only lose the account’s accumulated interest but an additional month of daily interest would also be deducted before the cash could be withdrawn.

Generally, the farther away you are from the CD’s maturity date, the higher the penalty will be.

That’s why long-term CDs aren’t typically recommended to house short-term emergency savings. When that surprise expense pops up, it could end up costing money to access the funds.

Of course, every bank has different terms and conditions. Before opening any account, it’s important to understand all of the details to avoid getting caught off guard with unexpected charges.

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Pros and Cons of a No-Penalty CD

No-penalty CDs have both advantages and drawbacks. Here are some to consider:

Finding a No-Penalty CD

While no-penalty CDs aren’t as common as their traditional counterparts, some banks and credit unions offer them.

Shopping for a no-penalty CD is the same as evaluating any other financial product. In addition to comparing interest rates, it’s also a good idea to look at how much money you need to open the account, as well as the minimum time after depositing your money before withdrawals are allowed (typically around a week, but this can vary).

Some banks also offer tiered interest rates for no-deposit CDs, with higher rates offered for higher deposit amounts.

Whatever no-penalty CD you are considering, it’s smart to read the fine print. Some banks may advertise a “no-penalty CD” but are really offering something quite different, such as a 12-month CD that only allows you to withdraw your money penalty-free in the event of an emergency, such as a job loss.

Alternative Options

A no-penalty CD can be a great way to earn higher interest on your savings than you would get in a standard savings account yet still maintain flexibility.

It’s not the only option, however. Here are some others to consider.

High-Yield Checking Account

An interest-bearing checking account helps earn some extra cash on the money you use on a day-to-day basis. It’s one of the most flexible options because there are no transaction limits and both a checkbook and debit card can be linked to the account.

However, some banks charge a monthly account fee or require a certain minimum balance in order to qualify for interest. And interest rates on these accounts tend to be lower than other short-term savings options.

High-Yield Savings Account

High-yield savings accounts, typically offered by online banks and credit unions, generally come with a higher interest rate than a checking account or traditional savings account.

It’s easy to access your money, but withdrawals may be limited to six per month, and some institutions may charge fees for dropping below a certain minimum balance.

You can often find the best rates on high-yield savings accounts at online banks. These banks tend to have lower operating costs compared to traditional brick-and-mortar institutions, and will pass that savings on to customers in the form of higher rates and lower, or no, fees.

Online savings accounts typically allow you to deposit checks and move money back and forth between accounts but may have limits on how many withdrawals or transfers you can make per month.

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Money Market Account

A money market account (MMA) is a type of savings account that offers some of the features of a checking account, such as checks and a debit card. These accounts may pay a higher rate than a traditional savings account, but usually have higher minimum deposit or balance requirements. Like other savings accounts, MMAs may limit the number of withdrawals you can make each month.

Cash Management Account

A cash management account (CMA) is a cash account offered by a financial institution other than a bank or credit union.

CMAs are designed to merge the services and features of checking, savings, and investment accounts, all into one offering.

Generally, when you put money into a CMA, it earns money (often through low-risk investing that is done automatically), while you can also access it for your daily spending.

This allows CMAs to function similarly to a traditional checking account, yet pay interest that is often higher than most savings accounts.

Some brokerage firms require a large minimum deposit to open a CMA, or may charge monthly fees if you balance dips below a certain threshold.

For people who are interested in streamlining their accounts, as well as saving for a short-term goal, a CMA can be a good option.

The Takeaway

If you’re looking for a higher return on your savings than you’re getting at the bank, but still want some liquidity, a no-penalty CD could be the right choice for your financial goals.

However, these CDs may offer lower interest rates than you would get with a traditional CD. So it’s a good idea to shop around for rates to see which bank is offering the best deal.

Other types of accounts that can help your savings grow include regular CDs, high-yield savings accounts, interest-bearing checking accounts, money market accounts, and cash management accounts

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are no-penalty CDs a good idea?

No-penalty certificates of deposit (CDs) can be a good idea if you value flexibility and the potential to access your funds without fees. They offer a middle ground between savings accounts and traditional CDs, often providing a slightly higher interest rate than regular savings while allowing for withdrawals without penalties.

How much will a $10,000 CD make in one year?

The amount a $10,000 certificate of deposit (CD) will make in one year depends on the interest rate. For example, at a 4.00% annual percentage yield (APY), it would earn $400 in interest over one year. CDs with lower rates will make less, while those with higher rates will yield more.

What is the difference between a high-yield CD and a no-penalty CD?

A high-yield CD is a certificate of deposit that offers one of the highest available rates on CDs. A no-penalty CD, on the other hand, allows you to withdraw funds without incurring early withdrawal penalties, offering more flexibility but often at a lower interest rate.

What is the biggest negative of putting your money in a CD?

The biggest negative of putting your money in a certificate of deposit (CD) is the lack of liquidity. Your funds are typically locked in for a set period, and early withdrawal can result in significant penalties. This limits your ability to access funds for emergencies or better investment opportunities.

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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SOBNK-Q225-096

As of January 2025, the U.S. national debt had reached $36.1 trillion — the amount the government owes to its creditors. About 80% of U.S. national debt is owned by foreign governments like Japan, China, and the U.K., as well as businesses and individual investors. The rest is intragovernmental debt.

The United States borrows money typically by issuing Treasury securities, such as bills, notes, and bonds to these various entities — who loan the U.S. the funds it needs for various operations.

While there are different viewpoints on the extent to which the national debt may impact individual investors, many investors are aware that the total amount of national debt, and the government’s ability to manage its payments, can impact interest rates, bond yields, and more.

How Much Debt Does the US Have?

The amount of debt taken on by the U.S. government over time has grown precipitously. In the 100 years between 1924 and 2024, the national debt grew from $365 billion to $35.46 trillion.

Each year that the United States cannot pay the deficit between its revenue and expenses, the national debt grows. As of July 2025, the U.S. had once again reached its debt ceiling — roughly $36.1 trillion — which is the maximum amount the government can legally borrow.

It’s anticipated that Congress will once again raise the debt ceiling later this year, so that the U.S. does not default on its debt obligations, which could have severe market impacts worldwide.

The U.S. national debt comes from Treasury securities issued to foreign governments, as well as intergovernmental loans, in addition to those sold to businesses and individuals. These include Treasury bills, notes, bonds, floating-rate notes, and Treasury Inflation Protected Securities (or TIPS).

Because the U.S. has never defaulted on its debts, many people anticipate that the government’s ability to borrow will be extended at some point in 2025.

Who Is the US in Debt to?

There are generally two categories of debt: intragovernmental holdings and debt from the public. The debt that the government owes itself is known as intragovernmental debt. In general, this debt is owed to other government agencies such as the Social Security Trust Fund and other programs.

Because the Social Security Trust Fund doesn’t use all its capital, for example, it invests the excess funds in U.S. Treasuries — effectively loaning other parts of the government its cash. If the Social Security Trust Fund needs money, it can redeem the Treasuries.

The public debt consists of debt owned by individuals, businesses, governments, and foreign countries. Foreign countries own roughly one-third of U.S. public debt, with Japan owning the largest chunk of American debt hovering around $1.1 trillion. US debt to China ranks second, with that country owning roughly $859 billion of American debt.

What Is the History of the National Debt?

Since the founding of the United States and the American Revolution, debt has been a reality in America.

Creating a System of Lending

When America needed funding for the Revolutionary War in 1776, it appointed a committee, which would later become the Treasury, to borrow capital from other countries such as France and the Netherlands. Thus, after the Revolutionary War in 1783, the United States had already accumulated roughly $43 million in debt.

To cover some of this debt obligation, Alexander Hamilton, the first Secretary of the Treasury, rolled out federal bonds. The bonds were seemingly profitable and helped the government create credit. This bond system established an efficient way to make interest payments when the bonds matured and secure the government’s good faith state-side and internationally.

Using Debt to Fund War

The debt load steadily grew for the next 45 years until President Andrew Jackson took office. He paid off the country’s entire $58 million debt in 1835. After his presidency, however, debt began to accumulate again into the millions once again.

Flash forward to the American Civil War, which ended up costing about $5.2 billion. To manage some of the debt at hand, the government instituted the Legal Tender Act of 1862 and the National Bank Act of 1863. Both initiatives helped lower the debt to $2.1 billion.

The government borrowed money again to fuel World War I, and then substantially more money to pay for public works projects, and to stem deflation during the Great Depression. It borrowed even more to pay for World War II, reaching $258 billion in 1945.

The Debt Ceiling Is Established

Since 1939, the United States has had a debt ceiling, which limits the total amount of debt that the federal government can accumulate. The Treasury can continue to borrow money to fund government operations, but the total debt cannot exceed the prescribed limit.

However, Congress regularly raises the ceiling. The latest change came in June 2023, when President Biden signed a bill that suspended the limit until January 2025, in exchange for imposing some cuts on federal spending.

Since the debt ceiling was first introduced, American debt’s growth continued, with the pace accelerating in the 1980s. U.S. debt tripled between 1980 and 1990. In 2008, quantitative easing during the Great Recession more than doubled the national debt from $2.1 trillion to $4.4 trillion.

More recently, the national debt has increased substantially, with Covid-related stimulus and relief programs adding nearly $2 trillion to the national debt over the next decade.


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Why the National Debt Matters to Investors

As the national debt continues to rise, some policymakers worry about the sustainability of increasing debt, and how it will impact the future of the nation. That’s because the higher the U.S. debt, the more of the country’s overall budget must go toward debt payments, rather than on other expenses, such as infrastructure or social services.

Those worried about the increase in debt also believe that it could lead to lower private investments, since private borrowers may compete with the federal government to borrow funds, leading to potentially higher interest rates that can affect investments and lower confidence.

In addition, research shows that countries confronted with crises while in great debt have fewer options available to them to respond. Thus, the country takes more time to recover. The increased debt could put the United States in a difficult position to handle unexpected problems, such as a recession, and could change the amount of time it moves through business cycles.

Additionally, some worry that continued borrowing by the country could eventually cause lenders to begin to question the country’s credit standing. If investors could lose confidence in the U.S. government’s ability to pay back its debt, interest rates could rise, increasing inflation or other investment risks. While such a shift may not take place in the immediate future, it could impact future generations.

The Takeaway

The national debt is the amount of money that the U.S. government owes to creditors. It’s a number that’s been steadily increasing, which some investors and policymakers worry could have a negative impact on the country’s economic standing going forward.

Some economists believe that the growing national debt could lead to higher interest rates and lower stock returns, so it’s a trend that investors may want to factor into their portfolio-building strategy, especially over the long-term.

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FAQ

Who owns the most U.S. debt?

The largest amount of U.S. debt — about 42% or $15.6 trillion — is held domestically, by private investors and entities such as institutions, corporations, and individual investors.

How serious is the U.S. debt crisis?

Given that the national debt exceeds the U.S. GDP, many investors are concerned that without finding ways to stem the tide of borrowing, the economy could suffer slower growth, higher interest rates — not to mention the risk of a financial crisis, if the U.S. were to default.

Could the U.S. default on its debts?

The United States has never defaulted on any of its debt obligations, and it’s unlikely it will do so now. A more likely scenario is that the government will move to extend the debt ceiling to allow more borrowing.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.