Most recently, in early January 2019, Marcus by Goldman Sachs leapfrogged Ally Bank’s 11-month, no-penalty CD earning 2.30% on $25K+ deposits by raising the rate on their 13-month, no-penalty CD to 2.35%. While CIT Bank’s 11-month, no-penalty CD continues to lag at just 2.05%, CIT has instead chosen to compete with their Savings Builder product which in early January also had its APY raised from 2.25% to 2.45% for Savings Builder accounts with balances of $25K+ or with a lesser balance and a monthly deposit.
In many ways these leading no-penalty certificates of deposit have the best features of all deposit account types rolled into one product in a way that’s relatively free of tradeoffs:
- Like a typical CD, they enable you to earn a relatively high interest rate that is guaranteed to not be reduced for the duration of the deposit term. So there is no risk of a bait-and-switch teaser rate that gets lowered after you open the account, as sometimes occurs with savings and money market accounts.
- Unlike a typical CD, they have no early withdrawal penalty (e.g. 6 months worth of interest, even if you’re less than 6 months into the deposit period of the CD). So if you unexpectedly need to access your funds or just become aware of a better investment option you want to pursue, you can withdraw the entire amount of your deposit without incurring a penalty.
The no-penalty CDs covered in this post are not entirely free of constraints, however:
- No partial withdrawals are permitted: If you do choose to exercise the penalty-free early withdrawal option, you have to withdraw your entire deposit amount. It’s generally possible to open more than one CD of the same type at an institution, so you can probably mitigate this constraint to some extent by breaking your total deposit amount into separate tranches, each of which could be withdrawn without touching the other tranches.
- These are not add-on CDs: You are not allowed to add additional funds to a no-penalty CD during its deposit term. However, it should be possible to open additional no-penalty CDs so long as you meet the minimum deposit amount, which is detailed below.
CIT Bank No-Penalty 11-Month CD
CIT’s product is pretty simple. It has a 2.05% APY regardless of the deposit amount, a minimum deposit of $1,000, and you can withdraw your money in full after 7 days from the time of deposit. While the CIT no-penalty CD has no maximum deposit amount, we recommend limiting your aggregate CIT deposits to the federally insured maximum, currently $250,000.
If you happen to already have funds in a CIT no-penalty CD or savings account and you want to take advantage of a rate increase, you can easily role your funds into a new no-penalty CD (or multiple no-penalty CDs if you prefer). In the past I have spoken to a CIT Bank customer service representative about this and he explained that the process should go basically like this:
- Call CIT Bank customer service and explain that you want to roll money in an existing CIT account into a new no-penalty CD account.
- The CIT representative will have you open a new no-penalty CD online, using the usual process. You can do this while you’re on the phone with the CSR.
- One special note: When you get to the step in the process where you’re asked for the source of funds for your new no-penalty CD, you will choose the option to “Mail in a check” and you can indicate on the form that it will be for the minimum initial deposit amount of $1,000. Of course, you won’t actually have to mail in a check as they’ll be funding your new no-penalty CD from pre-existing funds in the amount that you specify over the phone.
- Your new no-penalty CD(s) and deposited funds should be reflected in your online CIT account after 24-48 business hours.
Ally Bank No-Penalty 11-Month CD
Ally’s product is tiered, with the rate depending on the deposit amount. It earns:
- 2.30% APY for deposits of $25,000 or more
- 2.15% APY for deposits between $5,000 and $24,999.99
- 1.80% APY for deposits of less than $5,000
With Ally’s product you can withdraw your money in full after 6 days from the time of deposit.
Marcus by Goldman Sachs: The New Kid on the Block
Near the end of October 2018, Marcus by Goldman Sachs entered the no-penalty CD space with some competitive, though curious, offerings. Their no-penalty CDs are offered in three different durations which, oddly, have increasing rates for increasing durations. While this would be expected for regular CDs with early withdrawal penalties, it’s rather unexpected for no-penalty CDs, since the longer duration works in the favor of the customer by guaranteeing the rate for a longer period of time while still allowing a penalty-free withdrawal at any time. Marcus’ no-penalty CDs can be opened with a deposit as little as $500.
After leapfrogging Ally’s rates in early January 2019 with their 13-month, no-penalty CD, Marcus’ APYs stand as follows:
- 7-month CD currently yields 2.25%
- 11-month CD currently yields 2.30%
- 13-month CD currently yields 2.35%
Other No-Penalty CDs
No-Penalty CDs are fairly rare and the others I found were not at all compelling. For example, Swineford National Bank has a 9-month no-penalty CD with an APY of just 0.15%. The Columbia National Bank has a similar 9-month no-penalty CD with an APY of 0.05%, but with something called “Relationship Banking” the APY is 0.30% — still a hard pass, in my opinion. AgFed Credit Union previously had a 30-month no-penalty CD with a 2.40% APY, but, sadly, that was only available for about a week in June 2018.