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No-Penalty CDs vs. Online Savings Accounts

June 8, 2020

What we'll cover:

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.

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.

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Okay, so chances are someone has told you at least once in your life that it's a good idea to start saving, and they couldn't be more right. Whether it's saving up for a wedding, your first home, first child, an emergency fund, or just for peace of mind, saving money for the future is always a good idea. Marcus by Goldman Sachs presents, Differences Between CDs, Marcus No-Penalty CDs, and Marcus Online Savings Accounts. So there are a lot of ways to save, let's talk about three: a certificate of deposit, also called a CD; the Marcus NoPenalty CD; and the Marcus Online Savings Account. The one that's right for you can depend on a couple of things, like what you're saving for and when you'll need your money. Page 2 of 3 CDs can be great when you're saving for something specific in the future, like a wedding. When you open a CD, you're giving the bank money for a specified period of time, and, in return, you generally receive a fixed interest rate. When the CD matures, you get your money back, with interest. So by the time your wedding date rolls around, you can plan on picking out the cake and dress with the knowledge of how much you'll have earned on your CD. CDs typically offer higher rates than a traditional savings account, because you're locking up your money with a bank. But keep in mind, if you want to access your money before your CD matures, usually sometime between six months and six years, you'll likely have to pay a fee. What if you like the idea of earning CD rates, but don't like the idea of paying early-withdrawal fees? Enter the Marcus No-Penalty CD. These can be useful when you're saving for something big or small, but you're not sure when that something will happen. Take house hunting. You could take weeks, months, or even years finding your dream home. So you need to be financially prepared when you find it. Like a traditional CD, a Marcus No-Penalty CD has a fixed interest rate for a set period of time. But unlike a traditional CD, you can withdraw all of your money seven days from the date the account is funded, without getting hit with a fee. Just in time for that down payment. So CDs: check. Marcus No-Penalty CDs: check. How about Marcus Online Savings Accounts? Unlike CDs, Marcus Online Savings Accounts have no minimum deposit to open, and you can access the money in your account without incurring a penalty. This gives you the freedom to save on your terms. And here's another plus: unlike most CDs, if the interest rate on your savings account rises, the interest you're earning rises, too. Okay, that was a lot to take in, so let's recap. Many CDs have long terms, which could make them ideal for your long-term savings goals. They also generally have higher interest rates than savings accounts. Marcus No-Penalty CDs can be great for flexible savings goals, and allow you to withdraw your funds without penalties. And Marcus Online Savings Accounts have no minimum deposits, and allow you to access your money whenever you want. Deciding which account is best for you ultimately depends on, well, you. Depending on the amount you have to save, you could even split your savings between multiple types of accounts. At Marcus, whichever you choose, we're here to help you every step of the way.

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.

No-Penalty CD

Online Savings Account

No-Penalty CD

Online Savings Account

Interest rates

You lock in the interest rate for the full-term. That means that even if CD interest rates decline, you wouldn't earn less of a return.

Interest rates are variable; Your account's interst rate could go up or down.

Withdrawals

You can typically withdraw money as soon as 7 days after funding although rules may vary at different banks.

You can take out as little or as much as you want from a savings account. Withdrawals are limited to six per month, depending on the type of withdrawal you make.

Minimum Deposit

The minimum deposit for no-penalty CDs varies from bank to bank.

Typically a low or no minimum deposit is recquired to open an account.

No-Penalty CD

Online Savings Account

No-Penalty CD

Online Savings Account

Interest rates

You lock in the interest rate for the full-term. That means that even if CD interest rates decline, you wouldn't earn less of a return.

Interest rates are variable; Your account's interest rate could go up or down.

Withdrawals

You can typically withdraw money as soon as 7 days after funding although rules may vary at different banks.

You can take out as little or as much as you want from a savings account. Withdrawals are limited to six per month, depending on the type of withdrawal you make.

Minimum Deposit

The minimum deposit for no-penalty CDs varies from bank to bank.

Typically a low or no minimum deposit is required to open an account.

Get the CD that lets you walk away with your entire balance, beginning 7 days after funding

Grow your savings

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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