A no-penalty CD is exactly what it sounds like -  a certificate of deposit that doesn't charge an early withdraw penalty.

If you're familiar with CDs, you'll know that they all have a term length - ranging from 3 months up to 72 months or more. Typically, if you want to withdraw your money early, you'll be charged a penalty - interest you lose. On a short-term CD, it could be the full amount of interest!

Penalty-free CDs are changing that - in most cases, you can withdraw your money anytime without penalty. This makes these more akin to a high-yield savings account - and sometimes with higher yields!

Best Penalty-Free CD Rates For 2022

Here are the certificate of deposits that don't charge early withdrawal penalties, that offer higher-than-average rates while allowing for some flexibility.

Before You Open A Penalty-Free CD Account

No penalty CDs are great tools to use for your savings. In fact, many people use these as an alternative to savings accounts since you can probably earn slightly more interest with them. However, there are things that you should know about opening a no withdrawal penalty CD.

• Withdrawal Terms - While we try to highlight the best no-penalty CDs here, you still should check the withdrawal terms. Some CDs may advertise themselves as "no penalty", but in reality, there may be time limits before that takes place, or even factors like when it's allowed. Read the fine print!
• Initial Deposit - Some CDs may require a large initial deposit. On our list, most are anywhere from $0 to $1,000, but it's not uncommon to see $5,000 or more. Make sure you keep an eye out. If you have a large amount to deposit, consider a Jumbo CD.
• Max Limit - Some banks may offer promotional CDs that have maximum limits. Similar to minimums, you want to make sure you don't exceed any maximums and lose interest.
• Term Limit - You might wonder why there is a term limit when there is no penalty? This is how long the bank is willing to pay that rate for. It could work in your favor when rates fall, or it could work against you when rates rise. 
• Funding - Make sure you understand how to fund your CD. With most online banks, you simply setup direct ACH withdrawal from your existing bank. However, depending on your bank, there may be other options.

Top Features In Certificate Of Deposit Accounts

While every person wants something different in a certificate of deposit, these are some features that make sense to consider.

• APY - This is the biggest factor to consider for most people. You want the account that is going to pay the highest interest rate (or APY, annual percentage yield). 
• Minimum Balance Requirements - Depending on how much money you have to deposit, you want to make sure that the CD aligns with your budget.
• FDIC or NCUA Insurance - You want to make sure that your money is protected. All of the banks on our list are FDIC-Insured. 
• Ease Of Use - Finally, you want to make sure that your account is easy to use and transfer money into (and out of when you need it).

We believe that all of no-penalty CD accounts have the best features you can find. But that doesn't mean you shouldn't shop around. 

Don’t Forget To Consider Alternatives

The big benefit of a no-penalty CD is simply the fact that you can withdraw the money at any time. This basically operates like a high-yield savings account or money market.

As such, you want to compare the best CD rates with the best high yield saving or money market account rates as well. The goal is always to maximize how much interest you earn. We have a couple excellent guides to this here:

• Best Savings Accounts
• Best Money Market Accounts

Another alternative that you may consider, especially if you have a lower balance, is a high-yield checking account. These accounts typically pay high interest, but only on limited balances (say, up to the first $5,000). However, the interest rates can be very high - upwards of 4% or more. If you have a lower balance, this can be a great alternative. Here's our guide:

• Best High Yield Checking Accounts

While no-penalty CDs might not have as good of interest rates compared to regular 12-month CDs, the fact that you can withdraw your money at any time is appealing. If you're shopping around for a great savings product, these should be at the top of your list.

No-Penalty CD FAQs

Here are some of the more common questions we get about no-penalty or penalty-free withdrawal CDs.

What are no-penalty CDs?

They are CDs that do not charge a penalty for early withdrawal. This means that you can withdraw your funds at any time, without any fees or penalties.

Why are no-penalty CDs a good option?

They are a good option because you know that you can access your funds without any penalties if you need to. This can be helpful if you need to access your funds quickly for an emergency. 

Are there any downsides to no-penalty CDs?

The only downside to no-penalty CDs is that they often have lower interest rates than other CD options. However, this may be worth it if you need easy access to your funds in case of an emergency.