No Penalty CDs May Offer An Easy Way to Boost to Your Savings Rates
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No Penalty CDs May Offer An Easy Way to Boost to Your Savings Rates

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Here at BestCashCow, we have been a fan of the No Penalty Certificate of Deposit since Ally began offering it years ago.   It ordinarily offers depositors a slight improvement over a comparable savings rate at the same online bank. Since this product can be terminated easily online with no penalty, it is basically a savings or money market account wearing a  different skin (i.e., a different name). 

In an environment where interest rates are falling, the product is especially good as you lock into a higher rate than savings and have some protection against falling rates.

Interest rates probably won’t fall in 2019, but the product remains appealing as a way to generate a better savings rate.

The two main disadvantages of No Penalty CDs are:

First, you will need to terminate the entire CD in order to make a partial withdrawal (as is the case for most CDs).  Since it can be terminated without any penalty at any time after the first few days, and then a new one can be opened, this is more of a nuisance than a disadvantage for some.

Second, in a rising rate environment, this product only works for those who check rates regularly.  Competitive savings and money market rates - including those offered by the same very online bank - can and do go above the No Penalty rate that you are locked into, and if this happens you will want to terminate the CD and move back to the savings account.  The good news is that if the bank raises the No Penalty rate, you can terminate (again with no penalty) and reopen a new one at the higher rate in seconds.    

Ally Bank is the most prominent player in the No Penalty area and has offered an 11-Month No Penalty CD for years.  The best rate is usually only available for those with $25,000 or more to invest.  Since Ally is currently offering a 1.90% rate for online savings and a 2.10% rate for this product, we think that it is more attractive at the moment than their current savings rate, so long as you have the $25,000 to invest.

CIT entered this market earlier this year with an 11-Month No Penalty CD that offers a 2.05% rate.  However, since CIT is now offering 2.15% in its Savings Builder account, we think that product is better for those meeting its requirements (depositors maintaining a $25,000 minimum balance or who deposit $100 each month).

Marcus began offering its first No Penalty CDs yesterday when they introduced a 13-Month No Penalty CD at 2.15% with only a $500 minimum deposit.   Since Marcus’s online savings rate is now 2.05%, depositors considering opening accounts and existing depositors are likely to find this attractive.

No Penalty CDs aren’t for everyone.   As noted above, you shouldn’t consider them unless you do not anticipate needing the principle often and quickly and you are prepared to follow rates.   But, if you meet these criteria, they just might be worth a look.

BestCashCow lists all online No Penalty CD rates and other special CD rates here.   You may also find No Penalty CDs and other special CD rates from local banks near you here.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
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