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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Unlike traditional CDs, there is no fee or loss of earned interest if the money is withdrawn before the account matures. Funds usually need to be kept in the account for at least a week before they can be withdrawn.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With a traditional CD, money can’t be withdrawn from that account without incurring a penalty fee.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.

Recommended: Different Types of Savings Accounts

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

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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SOBNK-Q225-096

A clearinghouse is a financial institution that acts as a middleman between buyers and sellers in a market, ensuring that transactions take place even if one side defaults. If one side of a deal fails, a clearinghouse can step in to fill the gap, thus reducing the risk that a failure will ripple across financial markets. In order to do this, clearinghouses ask their members for “margin,” or collateral that is held to keep them safe from their own actions and the actions of other members.

While often described as the “plumbing” behind financial transactions, clearinghouses became high profile after the 2008 financial crisis, when the collapse of Lehman Brothers Holdings Inc. exposed the need for steady intermediaries in many markets. Regulations introduced by the Dodd-Frank Act demanded greater clearing requirements, turning the handful of clearinghouses in the country into some of the most systemically important entities in today’s financial system.

How Clearinghouses Work

Clearinghouses handle the clearing and settlement for member trades. Clearing is the handling of trades after they’re agreed upon, while settlement is the actual transfer of ownership, or delivering an asset to its buyer and the funds to its seller.

Other responsibilities include recording trade data and collecting margin payments. The margin requirements are usually based on formulas that take into account factors like market volatility, the balance of buy-versus-sell orders, as well as value-at-risk, or the risk of losses from investments.

Because they handle investing risk from both parties in a trade, clearinghouses typically have a “waterfall” of potential actions in case a member defaults. Here are the layers of protection a clearinghouse has for such events:

1.    Margin requirements by the member itself. If market volatility spikes or trades start to head south, clearinghouses can put in a margin call and demand more money from a member. In most cases, this response tends to cover any losses.

2.    The next buffer would be the clearinghouse’s own operator capital.

3.    If these aren’t enough to staunch the losses, the clearinghouse could dip into the mutual default fund made up from contributions by members. Such an action however could, in turn, cause the clearinghouse to ask members for more money, in order to replenish the collective fund.

4.    Lastly, a resolution could be to try to find more capital from the clearinghouse itself again — such as from a parent company.

Are Clearinghouses “Too Big to Fail?”

Some industry observers have argued that regulations have made clearinghouses too systemically important, turning them into big concentrations of financial risk themselves.

These critics argue that because of their membership structure, the risk of default in a clearinghouse is spread across a group of market participants. And one weak member could be bad news for everyone, especially if a clearinghouse has to ask for additional money to refill the mutual default fund. Such a move could trigger a cascade of selling across markets as members try to meet the call.

Other critics have said the margin requirements and default funds at clearinghouses are too shallow, raising the risk that clearinghouses burn through their buffers and need to be bailed out by a government entity or go bankrupt, a series of events that could meanwhile throw financial markets into disarray.

Clearinghouses in Stock Trading

Stock investors may have learned the difference between a trade versus settlement date. Trades in the stock market aren’t immediate. Known as “T+2,” settlement happens two days after the trade happens, so the money and shares actually change hands two days later.

In the U.S., the Depository Trust & Clearing Corporation (DTCC) handles the majority of clearing and settling in equity trades. Owned by a financial consortium, the DTCC clears trillions in stock trades each day.

Clearinghouses in Derivatives Trading

Clearinghouses play a much more central and pivotal role in the derivatives market, since derivatives products are typically leveraged, so money is borrowed in order to make bigger bets. With leverage, the risk among counterparties in trading becomes magnified, increasing the need for an intermediary between buyers and sellers.

Prior to Dodd-Frank, the vast majority of derivatives were traded over the counter. The Act required that the world of derivatives needed to be made safer and required that most contracts be centrally cleared. With U.S. stock options trades, the Options Clearing Corp. is the biggest clearinghouse, while CME Clearing and ICE Clear U.S. are the two largest in other derivatives markets.

The Takeaway

Clearinghouses are financial intermediaries that handle the mechanics behind trades, helping to back and finalize transactions by members. But since the 2008 financial crisis, the ultimate goal of clearinghouses has been to be a stabilizing force in the marketplace. They sit in between buyers and sellers since it’s hard for one party to know exactly the risk profile and creditworthiness of the other.

For beginner investors, it can be helpful to understand this “plumbing” that allows trades to take place and helps ensure financial markets stay stable.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

What does a clearinghouse do?

Clearinghouses handle the clearing and settlement for trades on the markets. Clearing is the handling of trades after they’re agreed upon, while settlement is the actual transfer of ownership, or delivering an asset to its buyer and the funds to its seller.

What role do clearinghouses play in the markets?

Since the financial crisis in 2008 and 2009, clearinghouses largely play a stabilizing role, while also clearing trades.

What protections help stabilize the markets as it relates to clearinghouses?

Margin requirements and default funds provide layers of protection against financial instability.