Savings Accounts vs. No-Penalty CDs: Which Is Better?

Quick Answer

Savings accounts and no-penalty CDs both offer a safe place to store your money, but interest rates and terms can differ.

Man standing in an office checking his savings account on a digital tablet.

No-penalty certificates of deposit (CDs) and savings accounts both provide a safe place to stash your cash and save for a down payment on a house, an emergency fund and more. Choosing between the two may come down to finding the middle ground between a fixed or variable interest rate and deposit limits. Not sure which is best for you? Check out these key differences.

What Is a Savings Account?

A savings account is an interest-earning deposit account held at a bank, credit union or another financial institution. Deposits are guaranteed to a certain amount, making them a safe place to store your money.

The interest you earn, or annual percentage yield (APY), can vary by account and by bank, with high-yield savings accounts typically earning significantly more interest than traditional savings accounts. As of March 2023, the rate on traditional savings accounts was 0.37% APY, while high-yield savings account rates are currently offering 3% or more.

Depending on the terms of your account, interest can be compounded daily, monthly or annually. The longer you have money in a savings account, the more you can earn.

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Pros and Cons of Savings Accounts

Savings accounts at traditional banks, online banks and credit unions are federally insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Other pros and cons of savings accounts include:


  • Interest-earning: Savings accounts pay interest on the money you deposit. High-yield savings accounts can pay higher APYs, sometimes as much as 10 times as high as a traditional savings account.
  • Easily accessible: Savings accounts are easy to open and allow you to access your money at any time. Unlike a traditional CD, the money is liquid and not subject to a specific term.
  • Low risk: Savings accounts are low-risk. They offer returns on your hard-earned cash without the concern you'll lose your money as you might with higher-risk investments such as stocks.


  • Variable rates: Savings rates are typically not fixed, meaning they can change anytime. While this can be good news when interest rates are rising, the opposite is true when they're not.
  • Possible restrictions: Although you have easy access to your money, a bank may restrict how many transactions you can make each month.
  • Potential fees: Although fees and minimums vary among banks and accounts, most traditional and high-yield savings accounts don't charge monthly fees or have minimum balance requirements.

What Is a No-Penalty CD?

A no-penalty CD is a type of savings account where you can generally lock in a fixed interest rate for a predetermined period of time. You make a deposit into a CD, and in return, the bank pays interest on your money, which you receive once the CD matures.

Unlike a traditional CD, a no-penalty CD offers the flexibility to withdraw your money—including interest earned—beginning seven days after funding your account without paying an early withdrawal penalty. However, you can only withdraw the full balance early. Generally, you can't make a partial early withdrawal.

Not all banks or credit unions offer no-penalty CDs. Those that do may require a minimum deposit on the CD and may charge account maintenance fees. The best no-penalty CD rates are currently around 4% APY or higher.

Pros and Cons of No-Penalty CDs

Besides the benefit of no penalty for early withdrawal (after one week), no-penalty CDs have several additional pros, along with a few cons.


  • High APYs: Most no-penalty CDs offer better interest rates than standard savings accounts. However, depending on the bank, you may have to keep your money in a longer-term (about one year) no-penalty CD to earn rates in the 4% range.
  • Flexibility: Although standard CDs aren't liquid, a no-penalty CD lets you withdraw your money after a certain time—usually seven days—without paying a penalty. However, you can typically only withdraw the entire balance early—not just a portion—even if you don't need it all.
  • FDIC-insured: Like savings accounts, most no-penalty CDs are federally insured by the FDIC up to $250,000 per depositor.


  • Potential for lower rates: Although not always the case, standard and high-yield CDs and some high-yield savings accounts earn a higher APY than no-penalty CDs. Rates can differ quite a bit between banks and accounts. Look for a no-penalty CD with a longer term as it may offer a higher yield.
  • Minimum deposits: Some banks require a minimum deposit to open a no-penalty CD.
  • Deposit limits: Like a regular CD, but unlike a savings account, no-penalty CDs do not allow additional deposits after the account is opened.

Savings Account vs. No-Penalty CD

Savings accounts and no-penalty CDs are great places to keep your money safe and build an emergency fund. And while they offer many of the same benefits, they also differ in several ways. Picking the best option to meet your needs may come down to whether you think interest rates will rise or fall.

Savings Account vs. No-Penalty CD
Savings Account No-Penalty CD
Type of interest rate (APY) Variable: Savings account rates can fluctuate over time Fixed: A CD's rate is fixed for the full term; if interest rates decline, you continue to earn the same return
Term length None Varies; usually one year
Access to your funds Anytime Only after 7 days of funding your account or once the CD matures
Partial withdrawals allowed? Yes Not usually
Deposit limits No Once open, you typically can't deposit any more money
Key advantages Immediate access to funds and ability to add contributions Fixed-rate APY and no penalties for early withdrawal after 7 days

The Bottom Line

Both savings accounts and no-penalty CDs provide a safe place to earn some reasonably high interest on your money. Which account is better may come down to your individual needs and when you may need to access the funds. A savings account lets you deposit and withdraw money at any time with no restrictions, while no-penalty CDs typically require that you withdraw the entire amount within seven days (or face a penalty if you take out your money between then and the maturity date). No-penalty CDs currently have higher interest rates than many traditional savings accounts.

No matter your savings goals, reducing your expenses, making a budget and adding to your emergency fund or sinking fund can help you reach your goals—as can a no-penalty CD or high-yield savings account.