Written By : Terry Turner
Edited By : Lee Williams
This page features 13 Cited Research Articles
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APA Turner, T. (2021, November 12). Liquid CD. Annuity.org. Retrieved December 7, 2021, from https://www.annuity.org/financial-literacy/certificate-of-deposit/types/liquid/

MLA Turner, Terry. "Liquid CD." Annuity.org, 12 Nov 2021, https://www.annuity.org/financial-literacy/certificate-of-deposit/types/liquid/.

Chicago Turner, Terry. "Liquid CD." Annuity.org. Last modified November 12, 2021. https://www.annuity.org/financial-literacy/certificate-of-deposit/types/liquid/.

A liquid certificate of deposit is a type of CD that lets you withdraw money from the CD without having to pay an early withdrawal penalty. While liquid CDs give you access to your money throughout their term, they usually have lower rates than other types of CDs.

Liquid CDs – like other types of certificates of deposit – are a type of savings account. Unlike most other CDs, liquid certificates of deposit do not charge you a penalty if you take your money out prior to the CD’s maturity date.

Alternatives to a liquid CD include other types of savings accounts or money market accounts.

What Is a Liquid CD?

In financial terms, liquid refers to how easily something can be converted into cash without affecting its market value.

A liquid CD allows you to access money in your certificate of deposit at any time and not suffer a financial penalty. This is useful if you think you may need money for an unexpected expense or emergency – or if you find a better investment deal – during the term of the CD.

But a liquid CD may limit how much you can withdraw before penalties kick in.

You can also withdraw money from traditional CDs at any time, but you usually have to pay a steep penalty for early withdrawal. The trade-off is that you may not get as high of a rate of return on a liquid CD as some other CD types.

Pros and Cons of a Liquid CD
Pros
Cons
Withdrawals can happen even shortly after buying a liquid CD.You earn less interest with a liquid CD than you would if you purchased a traditional or other type of CD.
You can take money out – without penalty – to take advantage of a better, higher-interest investment option during the term of the liquid CD.Withdrawing money for a non-emergency expense can defeat the purpose of buying a CD in the first place.
You will have no penalty if you need early access to the money in your liquid CD.Not all liquid CDs allow you to withdraw all the money in your account penalty-free.
Liquid CDs offer more interest than traditional savings accounts.Traditional savings accounts may still provide better liquidity than a liquid CD.

Be sure to read the fine print on any liquid CD – or any other certificate of deposit – you are considering purchasing. There may be limits on the amount you can withdraw penalty-free.

What Are Some Alternatives to Liquid CDs?

Liquid CDs have several alternatives such as money market accounts and traditional savings accounts. You may want to compare these options when considering a liquid CD.

Liquid CD Alternatives
Traditional savings accounts
Traditional savings accounts allow you to hold your money that you don’t want to spend on a regular basis. They are typically fairly liquid but they don’t pay as high an interest rate as a liquid CD or other certificates of deposit.
High-yield savings accounts
High-yield savings accounts generally pay up to 25 times as much interest as the average savings account rate. The highest rates are typically through online banks. But these accounts may require a minimum initial deposit, maintaining a minimum balance and you may have to pay account fees.
Money market accounts
Money market accounts – also known as a money market deposit account – are savings accounts available through banks and credit unions. They pay interest based on current interest rates in the money markets – which is typically higher than regular savings accounts. Some institutions may require high minimum balances to open a money market account or avoid fees.
An emergency fund
This is money you stash away – in any kind of account – that you can tap in the event of an emergency. Common financial literacy advice is to set aside an amount equal to three months of your normal spending. You and your family should also set standards for what constitutes an emergency prior to setting up an emergency fund.
CD ladders
CD ladders is a savings strategy in which you purchase multiple certificates of deposit with staggered maturity dates. This allows you to take advantage of higher interest rates and routinely having access to your invested money as different CDs hit their maturity dates.

Liquid CDs offer more flexibility than other types of CDs. You should consider your financial situation and goals before purchasing a liquid CD. Understand why you’re considering a liquid CD and ask yourself if another alternative may be a better option for you.

How Do You Withdraw Money From a Liquid CD?

To withdraw money from a liquid CD, you’ll need to contact the bank, credit union or other financial institution where you bought the certificate of deposit.

The seller can walk you through the process for your particular CD.

Some sellers only allow one penalty-free withdrawal during the CD’s term, so make sure you are aware of the rules for the CD you purchased. You may also have a limit on how much you can withdraw from the CD before penalties kick in.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 12, 2021

13 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Consumer Financial Protection Bureau. (2016, March 18). What Is a Money Market Account? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-915/
  2. Discover. (n.d.). How Are CD Interest Rates Determined? Retrieved from https://www.discover.com/online-banking/banking-topics/how-are-cd-interest-rates-determined/
  3. Federal Deposit Insurance Corporation. (2021, October 18). National Rates and Rate Caps. Retrieved from https://www.fdic.gov/resources/bankers/national-rates/
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  5. Federal Deposit Insurance Corporation. (2019, October). Liquidity and Funds Management. Retrieved from https://www.fdic.gov/regulations/safety/manual/section6-1.pdf
  6. Gravier, E. (2020, November 29). 5 Factors to Pay Attention to When Choosing the Best CD for Your Money. Retrieved from https://www.cnbc.com/select/how-to-choose-certificate-of-deposit/
  7. Gravier, E. (2020, November 8). You Can Earn More Interest When You Put Your Money in a CD – Here Are the Different Types Offered. Retrieved from https://www.cnbc.com/select/types-of-certificates-of-deposits-cds/
  8. Indiana Money Wise. (n.d.). Saving Money. Retrieved from https://securities.sos.in.gov/moneywise/budgeting/saving-money/
  9. U.S. Consumer Financial Protection Bureau. (2016, August 15). What Is a Certificate of Deposit (CD)? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-certificate-of-deposit-cd-en-917/
  10. U.S. Office of the Comptroller of the Currency. (2021, April). I Cashed My Certificate of Deposit (CD) Before It Matured, and the Bank Charged Me an Early Withdrawal Penalty. Can It Do That? Retrieved from https://www.helpwithmybank.gov/help-topics/bank-accounts/certificates-of-deposit/cd-early-penalty.html
  11. U.S. Securities and Exchange Commission. (2015, November 9). High-Yield CDs: Protect Your Money by Checking the Fine Print. Retrieved from https://www.sec.gov/reportspubs/investor-publications/investorpubscertifichtm.html
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  13. U.S. Securities and Exchange Commission. (n.d.). Equity-Linked CDs. Retrieved from https://www.sec.gov/fast-answers/answersequitylinkedcdshtm.html