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

A no-penalty CD is a certificate of deposit that does not charge a withdrawal penalty for taking out your money before the CD term expires.

With a Marcus No-Penalty CD you can withdraw your funds beginning seven days after the day that you funded the CD.

When you withdraw funds from a Marcus No-Penalty CD, you must take out the full amount.

 

On its face, a CD, or certificate of deposit, seems like a pretty great way to save money. After all, you may earn more interest, as compared to a traditional savings account.

But CDs may charge you a withdrawal penalty if you take your money out before maturity. And depending on your savings goals, that might not make sense for you.

There is a way to avoid that, though – a no-penalty CD.

Like the name implies, a no-penalty CD doesn't charge withdrawal penalties; you can typically withdraw your money beginning seven days after you funded the CD.

With a no-penalty CD, you might earn more interest than a traditional savings account, but still have the flexibility to withdraw your money before maturity without penalty.

Here are few things you need to know about them. 

No-penalty CDs are attractive when interest rates rise

No-penalty CDs aren’t new. They just tend to gain more attention when short-term interest rates are on the rise. That’s because when the Federal Reserve raises rates, the return on CDs tends to increase, too.

That, in turn, can make no-penalty CDs more attractive because they allow you to move money to a higher yielding CD, even before the maturity date.

If your money is locked up in a traditional CD for a long time, you may not be able to benefit from increases in interest rates without withdrawing the funds. And that may cost you fees. But with a no-penalty CD, that’s not a concern.

Opening a no-penalty CD

Even though you can open a no-penalty CD from some banks, just make sure you pick the right bank.

For your own protection, be sure your bank is backed by the Federal Deposit Insurance Corp (FDIC). The FDIC is an independent agency of the federal government, which insures an individual's deposits, typically up to $250,000 per bank, including principal and any accrued interest. 

"With a no-penalty CD, you can save for your future, earn a return on interest, and know that your money is there for you in the event of an emergency."

Account terms may also vary from one provider to the next, so make sure you understand the fine print before you deposit your money.

With a Marcus No-Penalty CD, for instance, you can withdraw your deposit beginning seven days after you funded the CD. Just keep in mind – if you do withdraw funds from a Marcus No-Penalty CD before it matures, you’ll need to take out all of your money since a partial withdrawal isn't allowed.

Benefits of no-penalty CDs

Interest rates

Without withdrawal penalties, no-penalty CDs give you the ability to take advantage of rising interest rates. If you open a five-year CD and rates rise during that time, you may not want to miss out on the opportunity to earn a higher rate. A no-penalty CD makes it easier for you to withdraw and move your money to do just that. 

Ready access

No one sets out to purchase a CD with an eye toward withdrawing their money early. But life happens and knowing there's an option to withdraw early provides peace of mind. With a no-penalty CD, you can save for your future, earn a return on interest, and know that your money is there for you in the event of an emergency.

A quick comparison: no-penalty CD vs a traditional CD

Is a no-penalty CD right for you?

A no-penalty CD gives you a simple way to earn interest on your savings with some added flexibility when compared to a traditional CD. And that flexibility can help you take advantage of higher interest rates if they become available to you.

Any savings account should ultimately work for whatever your savings goals may be. Depending on your needs, a no-penalty CD might check all those boxes. Find out more about the Marcus No-Penalty CD. 

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.