What is a No-Penalty CD and How Does it Work?

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Whether you’re setting aside funds for a vacation, wedding, emergency, or any other financial goal, saving is an important aspect of life. Savings accounts are usually the most common way of building funds, but often take a while to grow because of low interest rates. Certificates of Deposit offer high-yield, but you can’t close them until maturity, without incurring a penalty. What if there was a way to receive a higher interest with the ability to withdraw money at any time?

That’s where a No-Penalty Certificate of Deposit (CD) comes in. Here’s everything you need to know about what it is and how it works.

What is a No-Penalty CD rate?

HA No-Penalty CD, also known as liquid or breakable, doesn’t charge a withdrawal penalty for money taken out before the CD term expires. This provides flexibility and convenience for those looking for short-term investments in a secure way.

Like traditional CDs, No-Penalty CDs are fixed-rate accounts over a specified time period – so expect to earn a set amount. However, because of the flexibility of withdrawing before maturity, the interest rates are typically lower than traditional CDs.

How does a No-Penalty CD work?

A No-Penalty CD functions just like a regular CD, with the main difference being that there is no Early Withdrawal Penalty under certain conditions. Early withdrawals for traditional CDs can be costly to savers. Typically, you could lose up to 180 days of interest for removing funds before long-term maturity. Penalties for short-term CDs are usually less.

The greatest benefit of No-Penalty CDs is not having to worry about any fees when (and if) you need to close your account during the term, as long as the withdrawal is at least 7 days from initial deposit.

No-Penalty CDs: Pros and Cons


  • I ncreased savings: If you need to save money for a set period of time—and want to hedge against interest rate risk—a No-Penalty CD is the perfect solution. It’s designed to increase your savings because regardless of what the market does, the money you put into the CD grows . It’s meant to be shorter-term,  allowing clients to earn more interest than they would through a savings or money market account.
  • No-fee withdrawals: Perhaps the most attractive benefit of a No-Penalty CD is that you can withdraw your savings with no fees. You can benefit from the confidence of a fixed rate, while enjoying the freedom to withdraw your total balance beginning seven days after funding. 
  • Security: A No-Penalty CD is not only a flexible choice, but a safe one. Unlike the risks and uncertainties that come with stocks, any money placed into a No-Penalty CD will continue to grow predictably over time. As long as your chosen bank is FDIC insured, you can rest assured knowing your money is always protected, too.
  • Easy funding: With a No-Penalty CD, you can also benefit from convenience. Easily fund your account via bank transfers, mobile deposits, wire transfer or check.


  • Lower Interest Rates: As mentioned previously, No-Penalty CDs do not offer the highest interest rate but are  still known to be higher than traditional savings accounts. If you are considering a No-Penalty CD, try looking for a longer term as it usually offers a higher yield.
  • No Partial Withdrawals: It’s important to remember that in order to avoid the Early Withdrawal Penalty, the withdrawal must be one full withdrawal, not multiple or partial withdrawals. If you need a portion of your money, you can take a partial withdrawal subject to penalty or have to close out the entire account.
  • No Multiple Deposits: This is standard for all CDs, not just No-Penalty CDs. Most banks don’t allow additional deposits during the term of your account, including cash deposits.

The Difference Between No-Penalty CDs and Online Savings Accounts

No-Penalty CD accounts and regular savings accounts both provide flexibility, but there are clear differences. Savings accounts allow you to deposit and withdraw funds. But with a CD, you have one full withdrawal instead of multiple. No-Penalty CD accounts yield higher interest rates than savings accounts, and the interest rate also doesn’t change during the term. If you’re looking for higher interest, know how long you need to save your money, and if you need flexibility, a No-Penalty CD may be the better option.

No-Penalty CD
Savings Account
Interest Rates
CDs have locked-in rates for the full term. Even if interest rates decline, you would continue to earn the same return.
Interest rates are variable— meaning that they can fluctuate over time.
You can withdraw your money as soon as 7 days from initial deposit, with no fees (remember: does not apply to partial withdrawals).
You can take out as much or as little as you need from your account, but there is a limited number of withdrawals per month you can make.

How to invest in a No-Penalty CD

Signing up for a No-Penalty CD is easy. First, you need to find the bank that is right for you, whether that consists of researching what the minimum deposit is, rates offered, or withdraw options available. It’s also important to determine the term length that would benefit you the most, keeping in mind that a longer term will most likely have a higher interest rate.

We’re committed to providing innovative savings solutions designed to empower you to earn more—and save more. Learn more about our No-Penalty CD or contact our Client Support Center.

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