Why you should open a no-penalty CD right now

If you’ve kept up with interest rate changes over the past several months, you may already know the benefits you can get from saving in a high-interest account today. But deciding which type of account to open — especially when rate hikes could soon reach their peak — can be a challenge for any saver. 

High-yield savings accounts are great options for short-term savings, since you can access your money at any time and earn upwards of 4% or even 4.5% APY. Certificates of deposit (CDs), on the other hand, may offer upwards of 5% APY but require you to keep in your money in the account for the full term — which means you could lock in a rate too early and miss out on potential higher rates to come.

If you’re on the fence, a no-penalty CD may offer a happy medium between the two. This account type has plenty of advantages of its own and could be ideal as we approach a potential end to rate hikes.

Check your CD options here to see how much more you could be earning.

Why you should open a no-penalty CD right now

No-penalty CDs are similar to traditional CDs. When you open your account, you’ll agree to a term length and a fixed interest rate, then deposit a sum of money. When the term ends, you’ll receive your initial deposit and the interest you’ve earned. The main difference is that no-penalty CDs offer a lot more flexibility. You can access your money and withdraw at any time (after an initial waiting period) with no penalty. Upon withdrawal, you’ll get your full balance and any interest you’ve earned so far.

There are a few reasons why no-penalty CDs are a great way to save right now — whether you’re concerned about rates falling in the future or you’re anticipating another rise. 

For one, you can withdraw from the no-penalty CD and move your cash if rates do rise again. This is beneficial if you’re waiting for long-term CD rates to rise. 

Shorter-term CDs are paying more than long-term now, due to the inverted yield curve, says Cathy Curtis, CFP and founder of Curtis Financial Planning. “At this time, I would not purchase a longer-term CD as the yield curve is likely to revert back and rates will be higher on longer term CDs,” she says. “In this case, it makes sense to save in a high-yield account and wait for CD rates to rise.”

You can get the same benefit with a no-penalty CD: Earn high interest now, and take advantage of the opportunity to switch to a long-term CD at a future top rate.

On the other hand, no-penalty CDs also make sense if you’re worried about rates falling in the near future. High-yield savings accounts carry variable interest rates. So while they may be slightly higher right now, there’s no guarantee that you’ll still earn that top rate in six months or one year’s time. A no-penalty CD with a fixed interest rate could help you maintain today’s high rates for as long as possible — while leaving the door open to access your money when you need it. 

Explore the best CD rates available right now.

No-penalty CDs to consider

If you’re thinking about a no-penalty CD for your savings as the interest rate environment evolves, here are a few of today’s top options:

CIT Bank: 4.90% APY

CIT Bank offers one of the highest no-penalty CD rates we’ve found, at 4.90% APY. The term length is 11 months and there’s a $1,000 minimum deposit required, but no monthly fees. If you need to withdraw your money before the term ends, you can do so starting seven days after your funds are deposited.

Ally Bank: 4.25% APY

The no-penalty CD from Ally Bank comes with 4.25% APY on an 11-month term. There’s no minimum deposit requirement or monthly fees, and you can withdraw your principal and interest any time after the first six days of opening. Ally is currently offering an added loyalty bonus for CDs, too. If you renew your CD to any new CD with the bank, you can get a 0.05% interest rate boost on your new CD’s rate.

Marcus by Goldman Sachs: 4.25% APY

Marcus’ no-penalty CD earns 4.25% APY. The account has a 13-month term length and requires a $500 minimum deposit to open. There are no monthly fees, and you can make a withdrawal starting seven days after you fund your account.

While there is plenty of benefit to a no-penalty CD today, short-term CDs are still great options for the money you know you won’t need to access — and some short-term CDs offer upwards of 5.20% APY today. Compare today’s top CD rates here to find the best one for you.

The bottom line

Whether you anticipate banks lowering variable rates on high-yield savings accounts or you’re holding out for a rate peak to lock in a long-term CD, now is a great time to consider a no-penalty CD option. You’ll get the chance to lock in a competitive rate while keeping your options open in case rates do continue to rise. Whether the Federal Reserve decides to hike rates again or pause, you’ll be in a good position to benefit from a growing savings balance.

Learn more about the best CD rates now here and start earning more interest.