A 3-month CD is a short-term investment with a fixed interest rate for three months.
Typically, 3-month CD rates are lower than longer-term CDs, but investors benefit from the flexibility of a shorter term. On the other hand, a no penalty CD offers investors the option to withdraw their money before the CD matures without any penalty fees.
This feature provides investors with more flexibility and accessibility to their funds, which can be an attractive option for those who may need their funds before the CD's maturity date.
No Penalty vs. 3-Month CD Rates: Comparison
A no penalty CD provides you with the freedom to withdraw your funds at any time during the term without facing any penalties. This feature allows you to have more flexibility with your finances and access your funds as needed, without worrying about losing any interest earnings.
However, it's worth noting that not many banks offer no penalty CDs or 3-month CD. As of now, some of the banks that do offer this type of account include Synchrony, CIT, Ally, Marcus, and Citi. Others, like TIAA, Merrick and Chase offer only 3-month CDs.
When it comes to rates, most no-penalty CDs offer higher rates compared to 3-month CDs of the same financial institution. We can see it with Citi, Ally and Synchrony. The minimum deposit required for most banks are quite low.
Financial Institution | No Penalty CD | 3-Month APY | Min Deposit |
|---|---|---|---|
0.25% (11-month)) | 0.25% | $0 | |
3.50% (11-month) | N/A | $1,000 | |
3.75% (11-month) | 2.90% | $0 | |
4.00% (13-month) | N/A | $500 | |
0.05% (12-month) | 0.05% | $500 | |
N/A | 4.00% | $1,000
| |
N/A | 4.35% | $25,000 | |
N/A | 1.50% | $50
| |
N/A | 3.50% – 4.00% | $1,000
|
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What Is The Early Withdrawal Fees For a 3-Month CD?
If you withdraw funds from a CD before its maturity date, you may be charged an early withdrawal fee by the financial institution. This fee is a penalty imposed by the bank or credit union for accessing your funds before the agreed-upon term.
The amount of the early withdrawal fee can vary significantly between different banks and credit unions. For example, for a 3-month CD, TIAA and Ally Bank impose the lowest penalties of 25% of interest earned/60 days of interest, respectively. However, most banks and credit unions typically charge a higher penalty of 90 days of interest.
It's worth noting that the early withdrawal penalty is usually capped at the amount of interest earned on the CD. For instance, if the penalty is calculated as 90 days of interest but you withdraw your funds after 30 days, the penalty will be limited to 30 days of interest. While you'll still earn some interest, your overall earnings may be lower due to the early withdrawal penalty.
Financial Institution | 3-Month CD Early Withdrawal Penalty |
|---|---|
90 days of interest
| |
3 months of interest
| |
60 days of interest
| |
90 days of interest
| |
25% of total interest earned | |
90 days of interest
| |
90 days of dividends
| |
90 days of interest
|
Should I Consider a 3-Month or No Penalty CD?
Deciding between a 3-month CD and a no penalty CD depends on your individual financial goals and circumstances, but in most cases it may be a good idea to consider a no penalty CD (or a savings account), especially if your bank offer this option.
No penalty CDs are not only more flexible – they usually offer higher interest rates than 3-month CDs, as we can see in the tables above.
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