The recent interest rates in savings accounts have really been bumming me out. Due to the recent Federal Reserve cuts, my high yield savings account rates have plummeted close to 1%. Meanwhile, my savings account at Chase has always been a whopping 0.01% since the dawn of times.

With so much uncertainty in the economy right now, I’ve been focused on building my cash. But instead of just sitting there like a bench warmer, I’d like to have the money work for me a bit.

Despite offering higher interest rates, I’ve always shied away from regular CD’s because they required leaving my money in the bank for a fixed period of time (and penalized me if I withdrew my money earlier than the agreed term). I mean how can I predict today if I won’t need that Le Creuset signature dutch oven within the next 2 months??

And then I discovered the no-penalty CD.

If you have commitment issues like me, no-penalty CD’s give you the the peace of mind that your money can grow safely and you can get the money out if necessary with no fee.

SEVEN THINGS YOU SHOULD KNOW ABOUT NO-PENALTY CD'S

1. “No-Penalty” means no penalty for early withdrawal

Yes it is as good as the name sounds; a no-penalty CD allows you to withdraw your money without paying a penalty or fee, even if you withdraw early before the CD term ends. With a no-penalty CD, you’re generally able to take out your full original deposit, plus any interest you earned - all for free.

2. You can only fund the no-penalty CD one-time

Generally no-penalty CDs are fixed purchases - you pick an amount to put into it, and you cannot add any more cash to the account after your initial deposit. Mo money? No problem - read on to #4.

3. You cannot make partial withdrawals

While you will not have a penalty for withdrawing early, if you decide to withdraw any money from your no-penalty CD, you will have to withdraw the full amount (and thus terminate the CD). You cannot make a partial withdrawal.

4. You can open multiple CD accounts at once

While you cannot add more money to an existing no-penalty CD, you can always open another one.

Also, if let’s say you have $10,000 that you want to put into a CD but you’re worried that you may potentially need to access $1,000 in an emergency, it would be such a waste to close the entire CD (remember, no partial withdrawals) just to take out the $1,000.

You could consider opening two CD accounts with $5,000 in each. No need to put all eggs in a basket.

💡 The more you know! You can open multiple no-penalty CD accounts and split your money across, so if you need to use the money for an emergency, you do not have withdraw all of the money from the CD at once.

5. No-penalty CD interest rates are locked in

No-penalty CD’s are locked in or guaranteed. This means it won’t change over the term.

This can be spud-tacular because unlike savings accounts, which have variable interest rates (meaning they can change any day), you don’t have to worry about losing interest income if the rates in the market drop.

This is relevant in today’s economy. Interest rates have been dropping for high-yield savings accounts, since they generally react in-line with interest rate reductions from the Federal Reserve, who has recently dropped their rates down to 0% - 0.25%.

6. Some no-penalty CD’s have better rates than high-yield savings accounts

Nowadays, some no-penalty CD’s have rates just as high, if not higher than those of savings accounts. Why that is the case? Not sure, but maybe because banks are trying to attract as much capital as possible right now to protect themselves for the potential defaults on loans that is expected to occur.

7. Your no-penalty CD’s are safe

As long as you open your no-penalty CD account in an FDIC-insured bank (you should always be leaving your money at an FDIC-insured bank), then your CD funds are protected (up to the legal limits*).

* Most banks (i.e. Chase, Bank of America, etc.) are FDIC-insured up to $250,000. This means the U.S. government will protect up to $250,000 of your money in case the bank fails. This includes CD’s, just as with any deposit account (i.e. CD, checking, regular savings).

MY THOUGHTS

Below are some of my other thoughts on no-penalty CDs:

While no-penalty CDs won’t charge you for withdrawing your money early, in order to receive its full benefits (of interest income), it is always better to try to leave it until the end of the term
It’s a great way build your savings by segregating a portion to be sort of “locked up” for a period
I still leave cash in my savings account, so that I can access it immediately if I need to
I like to spread my cash into multiple no-penalty CD accounts in the case I do need to withdraw some money (although my plan is to hold every CD until the end of their terms)
I have opened no-penalty CD accounts at Marcus and Ally and have had positive experiences with both (I have no affiliation with either company)