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Unlike traditional CDs, there is no fee or loss of earned interest if the money is withdrawn before the account matures. Funds usually need to be kept in the account for at least a week before they can be withdrawn.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.
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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With a traditional CD, money can’t be withdrawn from that account without incurring a penalty fee.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:
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Pros:
• Penalty-free withdrawals: You can access your money before the CD matures without losing earned interest.
• Fixed interest rate: Unlike regular savings accounts, CDs offer a guaranteed rate of return. This can be particularly beneficial in a declining rate environment.
• FDIC insured: Like traditional CDs, no-penalty CDs are typically insured up to $250,000 per depositor, per account ownership category (such as single, joint, or trust account), per insured institution.
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Cons:
• Lower interest rates: No-penalty CDs usually offer lower yields compared to traditional CDs of the same term.
• Waiting period: Many no-penalty CDs require you to keep funds in the account for at least six days before withdrawals are allowed.
• Limited availability: Fewer banks offer no-penalty CDs, and terms or conditions may vary more than with standard CDs.
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 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 11/12/25. 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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