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No-Penalty CD (Certificates of Deposit) Rates

Ally Bank [3] was the first online bank to offer a no-penalty certificate of deposit and now it appears that the idea is catching on. Discover Bank will announce tomorrow that they are making their 12 month CD a no-penalty CD, where you can withdraw your funds should you involuntarily lose your job. All new and renewing account holders will get this benefit (existing account holders won’t, I assume because neither party can change the terms before maturity).

What is a No-Penalty CD? If you read my Certificate of Deposit Zoo [4] post last week, then you’ll know that no-penalty CDs are ones where you can withdraw your deposit before the CD’s maturity date without any interest penalty. Normally a CD will charge you 3-6 months worth of interest to close it early, no-penalty CDs let you close your account.

Comparing No Penalty CD Rates

The tricky thing about no-penalty CD rates is that by virtue of it being no-penalty, it’s effectively a 1 month CD. You can cancel it at anytime without penalty, so you can compare a 10 year no-penalty CD to a 3 month traditional CD. If you have a 10 year no-penalty CD (tell me if you know of one!) at 3% and a 3 month traditional at 1%, you will go with the 10 year every single time because you can close it after one month! That’s why no-penalty CDs are so rare!

No-Penalty CD Rates

At the moment, I only know of two online banks offering no-penalty CDs so I will update this list should more banks start offering them:

If you know of any bank with a no-penalty CD that has a rate that tops these guys, please let me know!