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

Key takeaways:

• No-penalty certificates of deposit are like other CDs with fixed rates and terms, but you can remove the money early without a fee. (When you do, though, you have to remove the full amount.) Regular savings accounts are even more flexible, but their rates can change at any time.

• Choose a no-penalty CD for a predictable return and the option to withdraw the full amount without a fee before the CD's term ends.

• Stick to a regular savings account if rates aren’t much different from those on no-penalty CDs and you plan to make ongoing contributions or multiple withdrawals instead of moving everything as a lump sum.

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

• A no-penalty CD, much like a standard CD, comes with a fixed rate and term length. That means that you are guaranteed to earn that rate for the duration of the certificate’s term. The key difference: You can take your money out — the full amount only — before the end of the term without paying a fee. Standard CDs, meanwhile, charge early withdrawal penalties. The best rates on no-penalty CDs tend to be comparable to those of online savings accounts.

• 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 is up, you must pay a penalty that’s generally several months’ to a year’s worth of interest.

• 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 protect you in falling-rate environments.

When to choose a no-penalty CD

You want to avoid a decline 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. (Check out NerdWallet’s article on 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 up to six 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

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