No-Penalty CD vs. Savings Account: Which Is Better?

Choosing between no-penalty CDs and savings accounts comes down to rates and access to money. Their rates tend to be comparable, but no-penalty CDs offer one free withdrawal while savings accounts allow greater access. Let’s dive in.

The basics

No-penalty CDs

A no-penalty CD has a fixed rate and term length like a standard CD, but lets you withdraw your money any time after the first few days without a fee. The catch is you have to withdraw the full amount as a general rule. Standard CDs, meanwhile, charge early withdrawal penalties. The best rates on no-penalty CDs tend to be comparable to those of online savings accounts.

Standard CDs

A standard CD locks money away for a specified term in exchange for a fixed rate that is typically higher than that of a no-penalty CD or a savings account, including high-yield options at online banks. As with no-penalty CDs, you can’t add more money to a standard CD over time. If you want to withdraw money from it before the term length ends, you must pay a penalty that can range from several months’ to a year’s worth of interest, or more.

Savings accounts

A savings account earns interest and lets you add and withdraw money over time, although there are limits. (Read more about those limits in NerdWallet’s article about Regulation D.) Savings rates are not fixed; they are variable and can change at any time. Remember: CDs have fixed rates, which work to your advantage in falling-rate environments, but you risk losing out on higher rates during rising-rate environments.

When to choose a no-penalty CD

You want to lock in your rate. Like other CDs, no-penalty CDs have fixed rates that can benefit you if banks drop their annual percentage yields (APYs) on savings accounts.

You want more flexibility than a standard CD but don’t need regular access to funds. No-penalty CDs usually restrict you from dipping into savings with an all-or-nothing rule: When you withdraw, you have to take out the full amount. The account would then close.

» Ready to compare? See our list of the best no-penalty CD rates

When to choose a savings account

You plan to gradually build up your savings. An important part of saving money is contributing more to an account over time, and a savings account is built for this. You can’t add more funds to a no-penalty CD after the initial deposit. (Learn how to make a savings plan for more details.)

You want the flexibility to make withdrawals. You don’t need to forecast when you’ll need money in the future because savings accounts let you withdraw multiple times per month, or more, depending on your bank.

» Want to see more? Check out our best high-yield savings accounts

At a glance: No-penalty CD vs. savings account

Here’s a look at rates for both no-penalty CDs and savings accounts at three online banks, as well as key differences between these account types.

At a glance: No-penalty CD vs high-yield CD

Here’s another look at how no-penalty CDs differ from high-yield CDs, which are standard CDs that have some of the best rates.

Bottom line: Choose the right balance

When considering your next savings vehicle, both a no-penalty CD and a savings account can offer you high rates and flexibility. Choose the option that can bring you closer to your goals.