Are CD's With No Penalties a Good Thing?

There are certificates of deposits (CD's) available that do not accrue penalties for money withdrawals. These types of CD's also offer the consumer convenience and the option to benefit from better interest rates than your standard savings account. No-penalty Certificate of Deposits have been available to the consumer for many years and they are a popular choice amongst bank customers.

Getting the Guarantee

With the current state of the economy, a no-penalty CD will provide you with a guaranteed interest rate, as well as the ability to have convenient access to your cash, unlike a typical money market account where the interest rate can change. Along with the plus side of making withdrawals from your CD account without penalty, there is a downside because often the interest rate on a no-penalty CD account is much lower than with a regular CD account.

If you are looking for a place to keep your money safe, a no-penalty CD is a good choice but it is in your best interest to explore all of the options available to you first before taking action. If you are specifically looking to open a no-penalty CD account, you may find that different financial institution will refer to them by different titles. Each bank will also offer different terms and restrictions. Essentially, the only common factor between each facility when it comes to no-penalty CD's is that you can take out your money without having to pay a fee for the transaction.

Variation of Terms

Each bank will require a different amount of initial deposit. Commonly, the average deposit will range from $1,000 - $5,000. The terms and stipulations for minimum balances will change from bank to bank. It is important you read the fine print and understand the conditions before agreeing to commit to any one bank. Some banks will only allow you to open a no-penalty CD to customers who already have established a checking or savings account at the same institution.

Investigate the Time Period

There are also other regulations imposed by banks that may affect the time period of withdrawals without penalty. Some banks will allow you to access your cash after only a seven day waiting period. There are others that require you to wait an extended period of time - say, 90 days - after opening the account before you are allowed to withdraw funds without penalties being imposed. Depending on any needs you may have to access the money, you want to be sure you open an account that will work with your own financial requirements.

Research the Source

As you are shopping for rates and terms, keep in mind that such information changes frequently and you will need to be diligent about the information you are reading if it does not come from the banking institution's website or promotional materials directly. Check with the banks you are interested in dealing with and be sure to ask any question you may have about the in and outs of having a CD account. Be certain the terms and conditions regarding the no-penalty CD's are understood and applicable to your situation.

While a no-penalty CD offers liquidity, which is important to consumers during these economic times, it will always come down to what is right for the individual consumer. Terms and conditions that seem right for one person will not always be the best choice for another. Investing your money involves a lot of personal decision making so explore what is out there before committing.

Debra Dragon is a freelance writer for DepositAccounts.com. She writes about how to make your money work better for you through various deposit accounts, including savings accounts, interest checking accounts, IRAs, and money market funds.

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