When shopping for a CD, earning a top rate is smart to prioritize. But if there's any chance you'll need to cash in the CD early, you'll want to choose one that not only pays an attractive rate, but also has a relatively mild early withdrawal penalty. Doing a little bit of homework here is critical, as penalty policies vary 飞颈诲别濒测—and the last thing you want is to be surprised by having most of your earnings eaten up by an especially harsh penalty.
Fortunately, it's not hard to evaluate this as all of our daily rankings of the best CD rates include details on the early withdrawal penalty for each CD. Not only that, but all of the options you find in our rankings are available nationwide and from federally insured banks and credit unions.
Never Open a CD Without Knowing the Early Withdrawal Penalty Policy
Determining how a bank or credit union will calculate your penalty if you find you need to cash out of the CD early is something you need to find out before you open the CD. Don't sign on the bottom line and don't send your funds without making sure the policy has been presented to you.
Most early withdrawal penalties take the form of forfeiting a certain number of months' interest. For instance, a common penalty for 2-year CDs is 6 months' worth of interest. So if, for instance, you cash out after 18 months instead of waiting until the CD matures in 24 months, you would earn 12 months of interest (18 months minus the 6-month penalty).
But not all banks and credit unions use this simple kind of formula. Some will calculate the penalty as a percentage of what you withdraw, or will retain all of your earned interest. Even others might incorporate a fixed fee in addition to a variable penalty for early withdrawals. These types of penalties are a bit harder to predict than those that simply subtract a certain number of months' interest, so it's best to exercise caution when you encounter a more complex penalty policy.
Of course, the best strategy is to only put money in a CD that you're extremely confident you can keep there until maturity, to avoid paying any penalty at all. But financial surprises and emergencies can happen to anyone. So if you want to reduce your risk of incurring a harsh penalty, consider one of these top-paying CDs that charge the mildest penalties in their term.
Best CDs With Mild Penalties for Early Withdrawal
|For details on each CD, click the Length of Term to view our rankings.|
|Bank or Credit Union||Rate (APY)||Length of Term||Early Withdrawal Penalty?|
|TotalDirectBank||5.56% APY||6 months||1 month of interest|
|CIBC (Agility Banking)||5.62% APY||12 months||1 month of interest|
|Consumers Credit Union||5.50% APY||10 months||2 months of interest|
|Limelight Bank||5.60% APY||18 months||3 months of interest|
|All In Credit Union||5.54% APY||18 months||3 months of interest|
|Prime Alliance Bank||5.25% APY||24 months||3 months of interest|
|Prime Alliance Bank||5.00% APY||36 months||3 months of interest|
|Luana Savings Bank||5.11% APY||30 months||6 months of interest|
|U.S. Senate Federal Credit Union||5.23% APY||36 months||6 months of interest|
|First Harvest Credit Union||4.82% APY||48 months||6 months of interest|
|Department of Commerce Federal Credit Union||4.60% APY||48-59 months||6 months of interest|
|First Harvest Credit Union||4.89% APY||60 months||6 months of interest|
|Latino Community Credit Union||4.65% APY||60 months||6 months of interest|
|Self-Help Federal Credit Union||4.65% APY||60 months||6 months of interst|
|Utah First Credit Union||4.65% APY||60 months||Up to 6 months of interest|
What About No-Penalty CDs?
A no-penalty CD is a type of specialty certificate that simply doesn't charge a penalty, no matter when you withdraw. While this sounds like an excellent choice, usually it isn't. The reason is that no-penalty CDs almost always pay much lower rates than you can earn from a top-paying nationwide CD. So even if you end up having to withdraw early and pay a penalty, by starting with a leading rate you often will still do better than you would have with the no-penalty CD's inferior earnings.
On rare occasion, you may encounter a no-penalty CD that's paying a very competitive rate. Certainly, if the rate is attractive compared to other offers you've seen for that term, then there is nothing wrong with choosing the no-penalty option. Just be sure to read the fine print to ensure that their definition of no-penalty matches what you are expecting.
Keeping Ample Money in a Savings Account Can Help You Avoid a CD Penalty
A smart strategy is to carefully think through the amount and CD duration that you feel very comfortable committing, with strong confidence you can avoid cashing in early. One way to do this while still earning an attractive rate on your money is to put some of it in one of the nation's best high-yield savings accounts or best money market accounts. Though the rates on these may be lower than what you can earn on a CD—and the rate is not locked in, with the possibility of changing at any time—the trade-off is that you can withdraw more or less at will.
By putting some of your money in a savings or money market account, and another portion in a CD, you create a bit of a buffer in case unexpected expenses pop up. In an emergency, you could withdraw from your savings account first, where you won't incur any penalty. Then only if you use up those funds would you find yourself needing to tap into your CD proceeds.
Rate Collection Methodology Disclosure
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer money market, savings accounts, and CDs to customers nationwide, and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.