What is No Penalty CD? Pros and Cons of No Penalty CD:
Certificate of Deposit is a good investment option for the extra money. You can earn impressive interest on your Deposit Account with any bank. But you must know about maintenance fee and penalty related to CDs. Most banks charge some fee on Certificate of Deposit and they also impose penalty on early withdrawal of CD.
No Penalty CD is far better than regular CD Account. Because the depositor can earn interest and does not lose anything for early withdrawal. Various banks of US have come with the new concept of Certificate of Deposit with no penalty scheme. It means you don’t need to pay any penalty or lose interest when you decide to withdraw your fund before maturity of CD.
What is No Penalty CD?
No Penalty CD is a Certificate of Deposit which is not chargeable to any penalty for withdrawal of funds before the CD Maturity Term gets over.
A Certificate of Deposit generally comes with a specific maturity term i.e. a predefined period of time. When you invest your money by opening a CD Account, you should not withdraw the money until it reaches to maturity. Because you can lose last 90/180 days interest earned on CD if you withdraw your money before the CD matures.
Pros and Cons of No Penalty CD
When open a Certificate of Deposit, it has some terms and conditions. According to our experts’ opinion, most people lose earned interest when they break their CD before maturity. That is why we recommend you to invest your money in No Penalty CD, because it provides good interest rates and does not charge any penalty for breaking the CD before the maturity date. The No Penalty CD has many benefits and limitations as follows:
PROS – Benefits of No Penalty CD
Attractive Interest Rate: Certificate of Deposit always offer higher interest rate that savings account.
No Penalty – No Problem: When you invest your money in No Penalty CD, you don’t need to pay any amount as penalty for early withdrawal of funds.
No Locked Money: With No Penalty CD, you have anytime access to your funds. It does not lock your money for a fixed period like a regular CD.
No Interest Loss: When you break a regular CD, the bank retains your CD Interest of 90 to 180 days. This interest loss is known as Penalty for Early Withdrawal of CD. But this does not happen with No Penalty CD, you won’t have any interest loss for breaking it before maturity.
No Opening Charges, No Maintenance Fee: Many US Banks are offering a No Penalty CD without any charges for opening the CD Account. Moreover, these banks don’t take any maintenance fee for your No Penalty CD Account. It is a win-win opportunity for you to invest your valuable money into a No Penalty CD Account.
FDIC Insured Deposit: Most banks are covered under FDIC Deposit Insurance. Therefore your No Penalty CD is also FDIC Insured. It means that you won’t lose your deposit money or interest even if the bank defaults and goes into liquidation. FDIC insures your deposit plus interest up to $250,000 per deposit account.
Chance to Switch to Higher Rate CD: The CD Rates are often changed by banks. When you have No Penalty CD, you can break it anytime and invest your money into a CD with higher interest rate.
For Example: It may happen that the CD Rate is 6% when you invest and it is raised to 8% after six months. If you have normal CD, you have to pay the interest earned as penalty for breaking the CD. But you don’t lose anything when you break a No Penalty CD and open a New CD Account which pays you higher interest than the earlier one.
CONS – Drawbacks of No Penalty CD
Good Interest Rate But Not Highest: No Penalty CD offers good interest earning, but there are many good offers with higher interest rates. Some banks offer much high interest on regular CD which you should consider before investing your money.
No Multiple Deposit Option: When you open a regular CD Account, the bank may give you an option for multiple deposits. It means you can add money to your CD on quarterly basis or as per rules. But No Penalty CD does not give you this option, you have to invest whole amount of CD at once.
No Partial Withdrawal Allowed: This is one of the worst drawback of No Penalty CD. When you need half of the money invested in regular CD, you need to pay penalty, but you can do partial withdrawal. With No Penalty CD, you have withdraw whole funds and close the CD Account. It does not give you partial withdrawal option.
Best No Penalty CD Rates
No Penalty CD is always a good option to invest your savings without any risk. But the important task is to find out the best CD rates for a No Penalty CD. Here we provide several bank names and their Best No Penalty CD Rates as follows:
- Ally Bank provides 11-Month No Penalty CD with 2.30% APY and No Minimum Deposit Condition.
- CIT Bank provides 11-Month No Penalty CD with 2.05% APY and $1000 as Compulsory Minimum Deposit.
- Marcus by Goldman Suchs provides 13-Month No Penalty CD with 2.35% APY and $500 as Compulsory Minimum Deposit.
You should visit your respective bank branch and consult the bank executive to open a No Penalty CD Account.