When it comes to saving money, there are many different options available to consumers. Two popular choices are savings accounts and no penalty CDs.
Savings accounts offer easy access to your money and can provide a small amount of interest, while on the surface, no penalty CDs should offer higher interest rates.
In this comparison, we will take a closer look at the features and benefits of both savings accounts and no penalty CDs to help you determine which option may be the best fit for your financial goals.
No Penalty CDs vs. Savings Accounts Rates: Comparison
The rates of no penalty CDs are and savings account are quite similar. On some banks such as Citi and Ally, no penalty CD rate is higher. However, Marcus and Synchrony offer higher rates on their savings accounts.
Savings accounts are essential; you can find them in almost any bank. The banks mentioned here usually offer higher rates than other banks and credit unions.
Regrettably, no-penalty CDs are not widely available as only a few banks offer them. These accounts are found at financial institutions such as Synchrony, CIT, Ally, Marcus, and Citi. It's worth noting, however, that the interest rates on these accounts tend to be relatively high, but the difference in rates compared to 6-month CDs is usually minimal.
A positive aspect is that a sum of $500 is likely to fulfill the minimum deposit requirement for the majority of financial institutions.
Financial Institution | No Penalty CD | Savings Account | Min Deposit |
|---|---|---|---|
0.25% (11-month)) | 4.65% | $0 / $0 | |
3.50% (11-month) | Up to 4.85% | $1,000 / $100 | |
4.50% (11-month) | 4.20% | $0 / $0 | |
4.50% (13-month) | 4.40% | $500 / $0 | |
0.05% (12-month) | 4.30% | $500 / $0 | |
N/A | 4.25% | $0 | |
N/A | 4.25% | $0 | |
N/A | 3.00% | $5 | |
N/A | 4.30% | $0 | |
N/A | 5.00% | $100 | |
N/A | 4.25% | $0 |
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No Penalty CDs Vs. Savings Accounts: How They Compare?
Both no penalty CDs and savings account offer more flexibility when it comes to deposits and withdrawals, as account holders can add or withdraw money from the account at any time without any penalty fees.
The main difference is when interest rates changes and how it affects these tools. CDs interest rate is fixed and you get the same rate until your CD mature, On the other hand, a savings account's APY is subject to variation. This implies that the account's APY can increase when the Federal Reserve increases interest rates. Conversely, it can decrease when the economy is faltering, and the Fed lowers interest rates.
In case the interest rate goes up, the savings account automatically gets the higher interest, and the rate is updated based on the changes. However, that's not the case with CDs – if you have no penalty CD, you should withdraw your fund and deposit it again in order to enjoy higher rates. This may take time when you lose some interest and is also not so convenient.
In case the FED rate goes down, the interest on the savings accounts will go down as well. On the other hand, CD investors will continue to get the same (higher) rate until they mature, which means the new rate won't impact their savings.
Therefore, this is the main consideration investors should make.
I Want To Stay Flexible. Which One Is Better?
When it comes to flexibility, while they are both flexible – due to the variable interest rate on savings accounts, choosing a savings account may be a good idea, especially if you think the FED rate will stay on the same levels in the near future.
If you think the FED is going to decrease its rate in the next couple of months and you want to lock the higher interest rate, then a no-penalty CD may be a better option. With no penalty CD, you can lock your money for a longer period – Marcus offers 13 months CD which is the higher term between the options above, Citi offers 12 months and the rest offer 11 month when it comes to no penalty CDs
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