Traditional bank CDs come with penalties for early withdrawals that can be costly and confusing. Though these penalties can be quite burdensome for those account holders that want to withdraw their funds before the term to maturity has been reached, most certificate account holders pay very little attention to the amount of these penalties. Fortunately, there are a number of banks that promote a more unconventional certificate of deposit product that vanquishes the standard early withdrawal penalty, the no penalty CD.
No penalty CDs dispense with traditional early withdrawal penalty fees, allowing the depositor to withdraw the full amount of their CD deposit after only seven days without incurring any penalties. Unconventional CDs such as the no penalty CD however, often come with a caveat or two.
The most common limitations with the no penalty CD are lower interest rates compared to similar term certificates and shorter terms to maturity.
Most no penalty CDs have a term of one year or less. After all, banks are not going to offer one of their highest yielding savings products, certificates of deposit, without some benefit for the bank. Early withdrawal penalties are a means of keeping the bank’s customer’s account captive allowing the bank to better manage their costs of funds. A long term certificate without an early withdrawal penalty would be a foolish product for a bank to offer.
Lower interest rates on no penalty CDs is, perhaps, the more crucial tradeoff found on these accounts that frequently keeps prospective savers and investors at bay. Account holders will typically have to accept a much lower interest rate in exchange for the right to withdraw their funds penalty free.
Fortunately, there are market opportunities when banks start competing for depositor funds and heavily promote the no penalty CD products. When banks compete for depositor funds, some of the rates and terms promoted on the no penalty CD products compare favorably with traditional certificates and the customer will not only obtain a competitive, fixed rate of return but the depositor does not have to endure the risks with that come with locking up their funds a prolonged period of time since there is no penalty for taking the money back.
No penalty CD and the CD rates earned on these products can be a very valuable savings opportunity for a variety of investors and bank customers. As always, astute banking customers should search and compare all of the available highest yielding CD rates before committing to a new account.
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