Are No-Penalty CDs Worth It?

No-penalty CDs offer fixed interest rates -- around the 3.50% to 4.00% APY range right now -- without the early-withdrawal fee that most CDs impose. That means you can cash them out early without giving up several months' worth of interest.

High-yield savings accounts also let you withdraw cash at any time, but their rates can change at any time, too. No-penalty CDs give you a guaranteed rate and easy access to your money.

But are they the right fit for your savings?

Pros and cons of no-penalty CDs

It's important to understand some of the limitations of no-penalty CDs. Here's a quick look at what you're signing up for:

When a no-penalty CD makes sense

No-penalty CDs work best when you've got a chunk of cash that you don't need right now -- but there's a decent chance you'll need later.

For example:

• You're saving for a home renovation in six to 12 months but don't know the exact timeline.
• You have cash set aside for a home down payment and want a fixed interest rate, but the purchase could happen anytime in the next year.
• You find a killer promotional rate, much higher than your high-yield savings account's.

Keep in mind, ​​most no-penalty CDs require you to withdraw the entire balance if you need access. That means you can't just take out $500 here or $1,000 there -- it's all or nothing.

So if you're thinking about depositing a large amount, it only makes sense to put in money that you might need to withdraw early in its entirety. That way, you're not forced to yank out too much and lose out on future interest.

Check out today's top CD rates available now.

Why I still like a hybrid savings strategy

I'll be honest: I'm a big fan of high-yield savings accounts (HYSAs). I keep most of my short-term savings and emergency funds in one because I love the freedom to move money around as needed.

That said, I'm not opposed to splitting my savings between an HYSA and a traditional CD. Any cash I might need on short notice goes in my HYSA. Then I use CDs for cash I absolutely won't need for a set time.

Here's how that might look in real life. Let's say you've got $30,000 in cash savings. You could split up your money like this:

• $10,000 in an HYSA paying 4.00% APY
• $10,000 in a 12-month CD at 4.20% APY
• $10,000 in a 24-month CD at 3.50% APY

This setup lets you earn a bit more on the cash you definitely won't need for the next year, while also giving you access to what you do need. Odds are, you won't need all $30,000 at once -- so locking up part of it isn't that risky.

And if rates start falling fast, you've got some protection built in.

The bottom line

No-penalty CDs are great for specific goals that have a variable timeline in the next year or so. You can lock in a solid rate, but still withdraw all your cash when you need to without a fee.

But they're not as flexible as an HYSA, where you can move money in and out anytime. Traditional CDs can also make sense for multi-year goals.

You don't have to go all-in on one strategy. Just pick a mix that works for you.

If you're sitting on idle savings, now's a great time to make that money work harder. Start earning more with a top-rated HYSA today.