Certificate of Deposit accounts are nice for their relatively high interest rates but potentially inconvenient because of their relatively rigid structure. If you could get CD-quality yields without facing the possibility of an early withdrawal penalty, that might seem like the perfect account.
No-penalty CD accounts do exist. Penalty-free CDs are not offered by many banks and their rates typically aren’t as high as standard CDs, but if you’re looking for an account with additional flexibility, you might want to consider opening a no-fee CD account. Most CDs hit you with a penalty for withdrawing your money earlier than the account’s maturity date. CDs generally carry terms from three to 60 months, meaning your funds might not be available in the case of emergency. Penalty-free CDs allow you to withdraw your balance at any time without facing a fee.
MyBankTracker.com has in-depth information on the no-fee CDs offered by major banks. You can also find penalty-free CDs at some credit unions. Here’s a look at some of the current penalty-free options:
Ally 11-Month No Penalty CD — 1.30% APY
The 11-month penalty-free CD account from Ally isn’t the bank’s best CD in terms of interest rate, but it might be a good account to look into if you’re seeking good return and no penalties. The APY on Ally’s account is exceptional for a no-penalty checking account. Considering the national average rate on all normal 11-month CDs is 1.32%, taking a 0.02% APY cut is probably worth it for the extra flexibility you’ll have. This account has no minimum initial deposit, meaning you can put in as little money as you see fit when you first open the account.
TD Bank 6-Month No Penalty CD — 0.50% APY
TD Bank 12-Month No Penalty CD — 0.40% APY
TD Bank’s no-penalty CD accounts come with two different term lengths, which gives you a bit more freedom to personalize your banking relationship. The problem with TD’s penalty-free accounts in comparison to Ally’s is their lower APYs. The TD Bank CDs come with 0.50% and 0.40% interest, which is substantially lower than Ally’s 1.30% APY account and quite a bit worse than the national averages for those particular terms. The average 12-month CD currently earns 0.84% APY, but TD Bank’s no-penalty CD only earns 0.40%, less than half of average. With these TD accounts you are free to withdraw your funds at any time, but it would be worthwhile to evaluate how much your early withdrawal penalty would set you back before investing in a low-interest penalty-free CD just to avoid the fee.
Bank of America 9-Month No Penalty CD — 0.40% APY
Bank of America’s nine-month no-penalty CD offering comes with an APY of 0.35%, about half of the return you’d see from the average nine-month standard CD account. Bank of America, a big bank that is currently offering low yields across the board, offers rates of up to 1.75% on similar products if you can stomach the fact that you’ll need to keep your money in the account or face a fee. Bank of America’s nine-month no-penalty CD could be a good product if you already have an established relationship with the bank but might not be worth opening if you’re a member at a bank such as Ally with a stronger no-penalty product.
Credit Unions and Small Banks
If you aren’t interested in any of the aforementioned no-penalty CDs you should keep track of your local credit union’s special offers to see if a good deal emerges. Credit unions often provide limited-time offers on no-penalty CD accounts. For example, Agriculture Federal Credit Union issued a 60-month, 3.00%-APY, no-penalty CD for a limited time earlier this year. Virginia Heritage Bank offered a 24-month, 2.00%-APY, no-penalty CD for a limited time earlier this year. Credit unions and small banks sometimes provide higher rates on these no-penalty CDs, but they also have very few branches and are usually limited to small communities. If you live near a credit union and have no intention of moving in the next several years, opening a CD at a community bank or credit union might be worthwhile.