No-Penalty CD vs. High-Yield Savings Account: Which Is Better?

Deciding where to place your savings can feel complicated. No-penalty CDs generally provide higher interest rates than regular savings accounts but still limit access to your money during the account’s term. A high-yield savings account (HYSA) gives you greater flexibility for withdrawing funds, though you may get a lower annual percentage yield (APYs) than with a traditional or no-penalty CD.

Understanding the ins and outs of each account type is vital to maximizing your savings while maintaining flexibility. Below, we look at each option to help you determine whether a no-penalty CD or high-yield savings account is better for you.

Key takeaways

• No-penalty CDs provide a guaranteed return for the length of your term.
• The interest rates on high-yield savings accounts are variable and depend on current market rates.
• You can withdraw funds during a no-penalty CD’s term, but restrictions may apply.
• High-yield savings accounts allow multiple monthly withdrawals and transfers, depending on your bank's rules.
• Both account types offer greater flexibility than a traditional CD and generally higher APYs than a conventional savings account.

No-penalty CD vs. high-yield savings account: A quick comparison

	No-penalty CD	High-yield savings account
Intended purpose	To earn a guaranteed APY on a fixed amount and still be able to withdraw funds without penalty	To earn higher interest on your savings balance than with a traditional savings account
Interest rates	Fixed APY for the CD term	Variable interest rate that changes based on rates set by the Federal Reserve
Fees	Generally, no monthly maintenance fees	Varies by bank, but several options have limited or no monthly maintenance fees
Term length	Varies, but usually between 7 and 15 months	N/A
Minimum balance/deposit	Often around $500 to $1,000, though some have no minimums	Varies by bank, though some have no minimum deposit or monthly balance requirements
Accessibility	Allows penalty-free withdrawals but may restrict when and how you access your funds	Lets you make deposits and withdrawals whenever you like within the limits of your specific bank
Insurance	Generally insured by the FDIC and NCUA	Generally insured by the FDIC and NCUA

What is a no-penalty CD?

A traditional certificate of deposit (CD) provides a set annual percentage yield (APY) over a fixed length of time (or term), though it charges penalties for withdrawing funds before the term ends. A no-penalty CD, sometimes called a liquid or flexible CD, provides a guaranteed APY for the CD term and allows withdrawals within certain limitations without penalty.

Each bank sets rules for no-penalty CDs. While some don’t allow partial withdrawals and require you to take the full balance, others only allow one withdrawal per quarter or limit the total dollar amount withdrawn. Plus, you typically can’t add additional funds to a no-penalty CD after the account is set up, but some banks do allow additional deposits up to a certain amount.

Both traditional CDs and no-penalty CDs generally require a minimum deposit. However, no-penalty CDs generally have shorter term options, often ranging from seven to 15 months.

Although many banks offer competitive rates, no-penalty CDs typically don’t earn as high APYs as traditional CDs. As of June 17, 2024, the Federal Deposit Insurance Corporation (FDIC) listed average CD rates of 0.23% to 1.86% depending on the term.

Like with other deposit accounts, FDIC or National Credit Union Administration (NCUA) insurance usually covers traditional and no-penalty CDs as long as the bank or credit union holding the account is a member.

Pros and cons of no-penalty CDs

What is a no-penalty CD good for?

A no-penalty CD can be a good option if you’re fine with limited flexibility during the CD term. However, people just starting to save or focusing on building an emergency fund may want to consider other savings products. This account might be the right choice if you:

• Have a set sum: If you know you’ll have $5,00 or $10,000 that you won't need for a few months or a year, using a no-penalty CD can help you earn a higher APY yet have an exit strategy if an emergency comes up and you need to make a withdrawal.
• Want to lock in a rate: No-penalty CDs provide a guaranteed APY for the term length, which is helpful if banks later lower their APYs on savings accounts and new CD terms. If rates increase, a no-penalty CD allows you to withdraw funds from your current account and move them into a new CD with a higher APY.
• Can leave the funds for the whole term: While a no-penalty CD can offer peace of mind that you can access your money without penalty, it's wise to leave your funds for the length of the CD term and earn as much interest as possible.

Our recommended no-penalty CDs

You may have to search a little more to find a no-penalty CD compared to a traditional CD, but there are some good ones available with various term lengths and competitive rates.

Ally Bank: The no-penalty CD at Ally earns 4.00% (as of 10/28/24) APY for an 11-month term and doesn’t require a minimum deposit. While you can withdraw your funds without penalty, you must take the full balance and wait until after the initial six days of account funding. Ally does not allow additional deposits. Member FDIC.

Visit Ally Bank

Marcus by Goldman Sachs: With a 4.70% (as of 07/01/24) APY and a $500 minimum deposit, the Marcus no-penalty CD offers a higher return than most. After the first seven days of account funding, you can withdraw your account balance without penalty. However, Marcus doesn’t allow additional deposits. Member FDIC.

Visit Marcus

Climate First Bank: Climate First Bank, which focuses on improving climate change, has one of the longest no-penalty CD terms currently available – 12 months. It offers a 5.00% (as of July 11, 2024) APY on a $500 minimum deposit.

Climate First Bank also offers a Flex CD with a 15-month term that allows you to make additional deposits and a one-time withdrawal of up to half of your initial balance. Member FDIC.

Visit Climate First Bank

What is a high-yield savings account?

A traditional savings account allows you to securely save money while earning a little interest on deposited funds. While an HYSA offers the same secure savings functions, it provides a much higher APY than a traditional account, which the FDIC reported earned 0.45% on average as of June 17, 2024.

The APY on a high-yield savings account is variable, meaning it can go up or down based on current market conditions. While you know exactly how much interest you’ll earn over the term of a no-penalty CD, a HYSA rate can change based on rates set by the Federal Reserve.

While many of the best banks offer savings accounts, you’ll often find HYSAs at online banks. Since online banks don’t have the overhead costs of traditional banks, they can pass those savings down to customers through higher interest rates.

Like no-penalty CDs, some HYSAs require a minimum deposit to open. HYSAs may also charge monthly maintenance or other fees. However, you can find accounts with limited or no minimum deposit requirements or fees. Both account types usually include deposit insurance as long as the bank or credit union is an FDIC or NCUA member.

Unlike no-penalty CDs, HYSAs generally allow unlimited access to your funds, although some banks may limit the number of withdrawals (typically six) you can make in a month. These savings accounts also let you make ongoing deposits.

Pros and cons of high-yield savings accounts

What is a high-yield savings account good for?

In many cases, an HYSA is a great place to keep money you need to access quickly, especially in an emergency. This account may be best if you:

• Need short-term savings: Financial emergencies can pop up quickly, so it's wise to keep some funds accessible so you don’t have to rely on credit cards. A HYSA keeps your emergency fund available for quick access.
• Want flexibility: An HYSA allows you to keep earning a higher return, but unlike a no-penalty CD, it doesn’t lock your funds up for months or a year. This is useful if a better opportunity arises.
• Have a limited amount to start saving: HYSAs generally have much lower minimum balance requirements, if any, than no-penalty CDs. And unlike no-penalty CDs, they allow multiple deposits over time, which can help you build up your savings balance slowly and methodically.

Our recommended high-yield savings accounts

There are many online savings accounts to choose from, including these recommended options.

SoFi®: SoFi® offers a savings account that currently offers up to a 4.20% APY with direct deposit and has no account fees.¹² It doesn’t require a minimum account balance and provides mobile access through its online app. It offers Vaults to help you save for specific goals and automatic savings transfers, which can help ensure you stay on track with your savings goals. Member FDIC.³

Visit SoFi® | Read our SoFi® review

CIT Bank Platinum Savings: CIT currently offers 4.55% APY on balances of at least $5,000 and only requires a $100 minimum deposit to open an account⁴. Lower balances earn an APY of 0.25% (as of 11/13/24). CIT Bank doesn’t charge account opening or maintenance fees. While it may not be the best choice for those with less than $5,000, you can earn the same (or slightly higher) APY as a no-penalty CD yet maintain more flexibility. Member FDIC.

Visit CIT Bank | Read our CIT Bank Platinum Savings review

One: One is a financial technology company that partners with the FDIC-insured Coastal Community Bank. Its savings account offers a 1.00% (as of 10/10/24) APY if you keep a minimum daily balance of $5,000 or receive at least $500 in eligible direct deposits per month.⁵ One does not charge monthly fees or overdrafts, and some customers may qualify to earn up to 3% cash back on Walmart purchases with the One card.

Visit One | Read our One review

Which savings product is better for you?

Choosing between a no-penalty CD and a high-yield savings account doesn’t have to be complicated. As you research banks and savings products, ask yourself the following to help decide between the two.

• How quickly will I need this money?
• What are the APYs on each account I’m looking at?
• What are the minimum balance requirements?
• Are there any fees?
• Can I make additional deposits?
• What are the withdrawal rules?

Having both a high-yield savings account and a no-penalty CD may make sense in many cases. You might use your high-yield savings account to build your savings balance to handle most emergencies and cover short-term goals. After you’re secure, you could move money into a no-penalty CD to earn a potentially higher, guaranteed APY.

FAQs

Bottom line

No-penalty CDs and high-yield savings accounts provide better returns than traditional savings accounts and more flexible access to your money than conventional CDs. As you research both options, consider the offered APYs, minimum account balance requirements, and any fees or penalties associated with each account. You should also read all account disclosures, fee schedules, and withdrawal rules before you open either type of account.