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

May 7, 2020

What we’ll cover:

No-penalty Certificates of Deposit (CDs) can offer higher interest rates than savings accounts
But they offer more flexibility than traditional CDs and easier access to your money
Typically, you can withdraw all of your money from a no-penalty CD beginning seven days after funding

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

But traditional CDs may come with a withdrawal penalty if you take your money out before maturity (another way of saying when the CD term is up). And depending on your savings goals, that might not make sense for you.

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

Typically banks that offer a no-penalty CD don’t charge you a penalty for withdrawing your money early.

Are no-penalty CD and CD rates fixed?

Like many other CDs, no-penalty CD rates are fixed. But the key difference with a no-penalty CD is that typically you can withdraw your money early without a penalty.

If you’re worried about committing to a traditional CD with a fixed rate over a long period of time, a no-penalty CD may be a good option because it offers more withdrawal flexibility.

No-penalty CDs are attractive when interest rates change

Interest rates on CDs and other savings products tend to change when the Federal Reserve (aka “the Fed”) lowers or raises its rates.

A no penalty-CD can be helpful in either situation because you’ve secured a fixed rate, but have the ability to get out without paying a penalty.

If interest rates are on the rise, you can move your money to a higher-yielding CD, before your no-penalty CD matures. When interest rates fall, you have the security of knowing your money is still earning a higher fixed rate.

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Savings accounts: they're easy to use and flexible. Certificates of deposit, or CDs, are great, too. They typically provide higher interest rates than traditional savings accounts. But what if there was a tool that got you the best of both worlds: flexibility and great rates? Marcus by Goldman Sachs presents: What You Need To Know About Marcus No-Penalty CDs. Marcus No-Penalty CDs are like traditional CDs, except Marcus does not charge you a fee if you need to withdraw your money before the term ends. As long as it’s seven days from the date the account is funded. Say an emergency comes up. With a No-Penalty CD, you can have the financial flexibility to deal with a lot of things life throws your way. Or say you want to withdraw all of your funds before the maturity date and put that money into a different CD with a higher rate. With a No-Penalty CD, you can do just that. And don't forget, they're also a useful way to save for purchases not tied to a specific date, like a new car or a down-payment on a house. Page 2 of 2 Okay, so you probably have a few questions. Let's take them one-by-one. How do you fund a Marcus No-Penalty CD? Thirty days. Five hundred dollars. That's what you should remember. With Marcus No-Penalty CDs, you have thirty days to deposit a minimum of five hundred dollars or more into the CD. Once the amount deposited reaches or exceeds five hundred dollars, the opportunity to add more funds closes, and you start earning interest on that amount. When is your money available? This one's short and sweet. Seven days. All or nothing. Once you've added five hundred dollars or more to the account, your funds will become available to withdraw seven days from the date the account is funded. Just remember, you have to withdraw all of your money, interest included. What happens when your Marcus No-Penalty CD matures? Well, this is pretty obvious, but you can withdraw your money and do whatever you want with it. It's your money after all. But, if you want to continue saving and earning interest, try this: Put your money in a new No-Penalty CD, potentially one with a longer term. Or, roll over your money into a Marcus No-Penalty CD with the same term. To put it simply, a Marcus No-Penalty CD could be the perfect hybrid between a savings account and a CD: great flexibility and great rates. At Marcus, we believe there's a way for everyone to save. Learn more about Marcus No-Penalty CDs, and other savings products, at marcus.com.

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 a member of the Federal Deposit Insurance Corp (FDIC). The FDIC is an independent agency of the federal government, which insures deposits, typically up to $250,000 per depositor, per bank, including principal and any accrued interest.

With a Marcus fixed-rate No-Penalty CD, you can save for your future, earn a guaranteed return, and know that your money is there for you in the event of an emergency¹.

¹guaranteed return assumes funds are held through the end of the term

Account terms may also vary from bank to bank, so make sure you understand the details – such as whether there is a minimum deposit, the annual percentage yield (APY), and any withdrawal restrictions – before you deposit your money.

Pros of a no-penalty CD

Ready access

No one sets out to open a CD with an eye toward early withdrawal. 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, typically earn a high APY, and know that your money is accessible, in the event of an emergency.

Interest rates

Without early withdrawal penalties, no-penalty CDs give you the ability to take advantage of when interest rates rise. Here’s why: If you open a five-year CD and rates rise during that time, you may miss out on the opportunity to take advantage of the rising rates because your money is locked in. If you had that money in a no-penalty CD, you could easily withdraw it and move your money to take advantage of the higher interest CDs.

Cons of a no-penalty CD

Regular cd rates tend to be higher

What you gain in flexibility with a no-penalty CD, you may (slightly) lose in APY. While rates on no-penalty CDs are typically higher than a savings accounts, they are usually slightly lower than traditional CDs.

No partial withdraws

A big draw for no-penalty CDs is being able to withdraw your funds early. However, generally no penalty CDs require that you withdraw your entire balance at once. So if you have $5,000 in a no penalty CD and need access to that money, you have to withdraw your full balance. There are no partial withdrawals. If this is a deal-breaker for you and you want an account that you can continuously withdraw and add funds to, you might consider a Marcus Online Savings Account instead.

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

No-Penalty CD

Traditional

No-Penalty CD

Traditional

Fixed rate

FDIC-Insured

Early withdrawal penalties

With Marcus, no fees when you withdraw the total balance beginning seven days after funding

Fees vary depending on the CD term and bank. Typically, the shorter the CD term, the less penalty you'll have for withdrawing early.

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

No-Penalty CD

Traditional

No-Penalty CD

Traditional

Fixed rate

FDIC-Insured

Early withdrawal penalties

With Marcus, no fees when you withdraw the total balance beginning seven days after funding

Fees vary depending on the CD term and bank. Typically, the shorter the CD term, the less penalty you'll have for withdrawing early.

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 navigate changing rates.

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.

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

See your CD options

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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