What’s the Difference Between No-Penalty CDs and Online Savings Accounts?

A no-penalty CD is a certificate of deposit that includes a bit of freedom. You can usually withdraw money beginning seven days after the day the CD was funded – you don’t have to wait for the term to end.

A high-yield savings account earns a higher interest rate than a traditional savings account does.

Saving for certain things just makes sense: rainy day funds, vacations, a wedding, or other financial goals are all good things to save money for. A key question, however, is where are you going to put all of that money you’re setting aside?

Putting your money into a traditional savings account and certificate of deposit may immediately come to mind when you think savings. Traditional savings accounts can be convenient because you can add and withdraw money when you need to. (Savings accounts generally permit up to six withdrawals or transfers per month.)

Traditional CDs tend to have better interest rates than savings accounts (a good thing) but the commitment to leaving your money locked away for period of time may feel too restrictive, depending on your situation.

There are two other savings options – a no-penalty CD and an online savings account – that could be worth considering.

To see how each of these stacks up, read on.

A no-penalty CD operates like a CD, but with more flexibility

CDs have long been a popular way to save money because you generally get a fixed rate of return for a predetermined period of time. The trade-off is flexibility. If you need to withdraw money early, expect to pay a penalty.

No-penalty CDs don’t have early withdrawal penalties. (Hence the name.) Depending on the bank, you can typically withdraw the money beginning seven days after a no-penalty CD is funded.

In addition to providing access to your money, the no-penalty CD has an additional benefit: you can withdraw your money if interest rates go up and put it into another CD with a higher interest rate, without having to wait for the term to end.

Online savings accounts offer high interest rates

An online savings account from an online bank is like a traditional savings account; you deposit money in an account and earn interest on it. The big difference is in the interest rates. With fewer overhead costs, online banks can typically offer higher interest rates than brick-and-mortar banks.

Differences between no-penalty CDs and online savings accounts

Both provide flexibility and a return on your savings, but there are clear differences that will appeal to different needs.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.