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When it comes to earning fixed income, certificates of deposits are a very popular option. And when you look at CD rates versus your average checking or savings account that pays around 0.06%, you definitely get more returns for your money.
CD rates have fallen in recent years, but the good news is that they’re starting to increase again. However, if you want to balance fixed-income and flexibility, regular CDs won’t cut it. Instead, you need to use a no-penalty CD or liquid CD so you can withdraw your funds whenever you want.
Time to explore some of the best no-penalty CD rates out there right now and how to make the right choice.
The Best No-Penalty CD Rates Right Now
We’ve reviewed dozens of banks and credit unions to find the best no-penalty CD rates on the market right now. The Investor Junkie team is also updating this piece regularly to ensure rates are as current as possible. However, always double-check rates and the terms and conditions before signing up for any CD.
1. CIT Bank
APY: 2.00%
Term: 11 months
Minimum Balance Requirement: $1,000
Right now, CIT Bank has one of the best no-penalty CDs out there due to its high interest rate and low minimum balance requirement. And its main advantage is that interest compounds daily whereas many other CDs pay out interest at maturity. This means that you still earn some interest even if you withdraw your funds early.
If you’re looking for somewhere to stash your emergency fund or idle cash, it’s an excellent option to consider. We also like CIT Bank for its high-yield savings account. And like other leading CD products, your money is FDIC-insured so you can have peace of mind.
2. Ally
APY: 2.00%
Term: 11 months
Minimum Balance Requirement: $0
Many of the best no-penalty CDs require a certain amount of money to open your account. But with Ally Bank, you can enjoy 2.00% on an 11-month no-penalty CD without paying fees or worrying about minimum balance requirements.
Furthermore, Ally’s currently giving customers a 0.05% loyalty bonus if you renew a CD with Ally. And you can explore this mobile bank’s range of other features, including its investing platform and fee-free checking account. Just note that for CDs of 12 months or less, Ally pays out interest at maturity.
3. Rising Bank
APY: 2.18%
Term: 15 months
Minimum Balance Requirement: $1,000
With an APY of 2.18%, Rising Bank has one of the best rates out of all no-penalty CDs. Interest gets paid every three months, so it’s also a middle-ground between CIT Bank and Ally. The only slight downside is the $1,000 opening requirement.
4. Marcus
APY: 1.75%
Term: 13 months
Minimum Balance Requirement: $500
The Marcus no-penalty CD has a slightly lower rate than both Ally and CIT Bank. But it’s still one of the most competitive options on the market right now. Plus, the $500 funding requirement is reasonable and lower than CIT Bank.
Marcus also lets you keep all of the interest you’ve earned with your CD even if you withdraw early. You can also open an 11-month and a 7-month no-penalty CD, but rates are currently under 0.50% for both options.
5. Synchrony Bank
APY: 1.60%
Term: 11 months
Minimum Balance Requirement: $0
One final option you can consider is Synchrony’s 11 month no-penalty CD. It has a competitive rate and a $0 funding requirement which is a plus. It also has an excellent money market account and a range of other CDs you can use to earn interest on your cash.
What Is a No-Penalty CD?
A no-penalty CD, also known as a liquid CD, is a type of CD that lets you withdraw money before the maturation date without paying penalties. In contrast, fixed-rate CDs have early withdrawal penalties if you take out your money before the maturation date.
No-penalty CDs typically have a short period at the start of the term when you can’t liquidate. But this is normally the first 6 days of funding. Afterwards, you’re free to liquidate your CD without paying penalties.
Pros & Cons of No-Penalty CDs
pros
- Flexibility: The main advantage of no-penalty CDs is that you can withdraw your money if you need it before maturation without paying steep fees.
- Guaranteed Rates: You get to lock-in a certain rate with your no-penalty CD for the term length.
- Security: CDs have FDIC insurance, which is typically up to $250,000.
cons
- Rates Aren’t The Highest: Other types of CDs like fixed-term CDs generally pay higher rates.
- Some Alternatives Pay More: CDs aside, certain online-only banks and high-yield savings accounts can pay higher interest rates.
Other Types of CDs to Consider
Sticking with a no-penalty CD makes sense if flexibility is important to you. But there are plenty of other CD types you can explore for steady, fixed-income.
- Fixed-Rate CDs: Also known as traditional CDs, a fixed-rate CD is a one-time deposit you make to earn a fixed interest rate. Typically, you earn more than liquid CDs but there are steep penalties for taking out your money before maturation.
- Bump-Up CDs: These CDs let you bump-up your interest rate if the bank you’re using raises interest rates during your CDs term. However, your starting rate is generally lower than a fixed-rate CD, and there are usually limits to how often you can bump-up.
- Jumbo CDs: A jumbo CD is like a fixed-rate CD but typically requires $100,000 to open. Rates can be higher, the same, or lower as traditional CDs.
- Add-On CDs: With most CDs, you can’t add money throughout your term. But add-on CDs let you add money to your CD, although there can be limits on how many times you contribute.
- IRA CDs: These CDs are held in an IRA to help you benefit from tax advantages.
It’s also worth noting that some people use a strategy known as CD laddering to invest through CDs. This involves investing in several CDs, each with different maturation dates. This helps you get the highest rates with some longer-term CDs while still having some flexibility with short-term CDs.
How to Pick The Right No-Penalty CD
Once you’ve settled on a no-penalty CD versus your other options, it’s time to pick the bank or credit union you’re opening an account with.
Some of the most important factors to consider when making your choice include:
- Interest Rates: The main reason to open a CD is to put your money to work instead of holding it in a lackluster bank account. This means the interest rate is the main metric you’re looking for.
- Term Length: Even though liquid CDs don’t have withdrawal penalties, term length is still important since some banks and credit unions might pay out interest upon maturation. In contrast, some of the best CDs compound interest daily or monthly.
- Deposit Requirements: The leading no-penalty CDs often have $0 funding requirements, but some have requirements of $1,000 or higher.
- Withdrawal Limits: Always read the terms and conditions of any financial product you’re using. Some no-penalty CDs have limits of how many times you can withdraw money. And pretty much every option prevents withdrawals for the first six days or so.
Methodology
The companies in this article didn’t influence their inclusion or position in any way. Rather, this article represents the research and opinions of the author and the Investor Junkie team. There are numerous other CDs you can use as well that didn’t make our list.
Bottom Line
While CDs haven’t been too popular in recent years due to low rates and rising inflation, they’re gradually making a comeback. And if you stick with a no-penalty CD, you can earn some interest on cash you’re not investing without locking it up in case you need it.
Just know that various high-yield savings accounts are also excellent options for holding cash right now. For example, both Aspiration and Varo are paying up to 5% APY, which is better than sticking with CDs.
Ultimately, deciding how CDs fit into your overall asset allocation is up to you. But for a low-risk, fixed-income option, consider CDs for parking some extra cash you have on hand.
