Liquid (No-Penalty) CD

A liquid certificate of deposit is also known as a no-penalty CD. These CDs allow withdrawals without penalties before the CD’s term ends. Having ongoing access to your CD funds can be a good choice for those who want a flexible savings option. However, these CDs typically offer lower rates than traditional ones.

Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Lee Williams
    Lee Williams, Senior Financial Editor for Annuity.org

    Lee Williams

    Senior Financial Editor

    Lee Wiliams is a financial editor for Annuity.org. As a professional writer, editor and content strategist, Lee has strengthened the brand storytelling for global and nationally recognized brands in the higher education, advertising and marketing fields.

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  • Financially Reviewed By
    Thomas J. Brock, CFA®, CPA
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    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Professional

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

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  • Updated: May 21, 2024
  • 4 min read time
  • This page features 13 Cited Research Articles

Liquid CDs – also called no-penalty CDs – are a type of savings account. Unlike most other like other types of certificates of deposit, liquid CDs 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 on these otherwise no-penalty CDs.

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 & Cons of a Liquid CD

Pros

  • Withdrawals can happen even shortly after buying a liquid 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.
  • You will have no penalty if you need early access to the money in your liquid CD.
  • Liquid CDs offer more interest than traditional savings accounts.

Cons

  • You earn less interest with a liquid CD than you would if you purchased a traditional or other type of CD.
  • Withdrawing money for a non-emergency expense can defeat the purpose of buying a CD in the first place.
  • Not all liquid CDs allow you to withdraw all the money in your account penalty-free.
  • Traditional savings accounts may still provide better liquidity than a liquid CD.

Be sure to read the fine print on any no-penalty 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 No-Penalty 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 no penalty 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.
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 no-penalty 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: May 21, 2024