This Is the Only Type of CD I Would Consider Opening in 2024

I'm on the record as saying that I'm not a big fan of CDs, and I won't be opening any certificates of deposit (CDs) in 2024 -- even with APYs at 5.00% and above. The reason for my aversion to CDs is that I value having flexible access to liquid cash savings. I don't want to lock up my money, not even for a few months. And certainly not for less than 1% higher yield than I could get with a good savings account.

However, one fun thing about banking and personal finance is that it's hard to say "never." Everyone's financial situation and goals are different, depending on your stage of life, how much money you have, how you manage money, and what you want to accomplish. Banks create a wide range of products for all kinds of financial needs. Sometimes the banking product that you never thought you needed becomes exactly the right fit.

So with that in mind, if I had to choose one CD to open in 2024, it would be a special kind that offers flexibility and high APYs with no early withdrawal penalties. This special type of CD isn't offered by every bank, but it's called a "no-penalty CD."

Let's look at a few reasons why a no-penalty CD might be the only type of CD where I'd put my money in 2024.

1. No-penalty CDs don't require commitment

Most certificates of deposit require you to commit your money for a certain length of time -- perhaps as little as three months or as long as several years. In exchange for that commitment, the bank will often pay you a higher rate of interest than you might get from a savings account. And CD rates are typically guaranteed for the length of the term -- no matter what happens in the global economy, you'll earn the APY that you were promised.

But there's one big problem: If you pull your cash out of the CD before the term is up, you'll have to pay a penalty for early withdrawal. These penalties can cause you to lose a significant portion of the interest you've earned -- which defeats the purpose of opening a CD in the first place.

Here's my biggest issue with standard CDs: I don't want commitment. I want my cash savings to be available anywhere, anytime. What if I need to pay for a car repair, or a home repair, or a vacation? I consider all of my cash savings to be a possible emergency fund, and emergency savings should ideally be liquid and easy to access. If I wanted to commit my money for several years, I might as well buy stocks.

This lack of commitment is why no-penalty CDs can be a good option. You get some of the upside of a CD (guaranteed rate of interest) without having to lock up your money. And you can pull your money out of the no-penalty CD at (almost) any time, without getting charged an early withdrawal penalty.

2. No-penalty CDs pay high APYs

Depending on your bank, you might find that no-penalty CDs offer higher yields than a savings account. For example, Marcus by Goldman Sachs has a no-penalty CD with 4.70% APY for 13 months, while the Marcus by Goldman Sachs Online Savings Account offers only 4.40% APY (rates available as of March 5, 2024). Sometimes no-penalty CDs can be a better deal -- especially because the APYs on a savings account are not guaranteed. If the Federal Reserve cuts interest rates in 2024, savings account APYs will immediately follow. CDs let you lock in a higher APY for a longer time.

However, be sure to shop around and compare your no-penalty CD options with the best high-yield savings accounts. The best APYs I've seen on no-penalty CDs are at Climate First Bank, a community bank based in Florida, which offers 5.34% APY on its 6-month Penalty-Free CD (rate shown as of March 5, 2024). Currently, the best rates on online savings accounts are 5.30% APY or higher, which is better than most no-penalty CDs.

Bottom line

I probably still won't open a no-penalty CD in 2024 because I still haven't found any that offer a better APY than the best high-yield savings accounts. But if you want some of the good things that come from investing in CDs (committing your money so you won't spend it, guaranteed yield) without the bad things (early withdrawal penalties), a no-penalty CD could give you the best of both worlds.

Before you open a CD, think carefully about what you want that money to accomplish. A no-penalty CD could be a good choice for medium-term investing, meaning you're saving for a goal that's two or three years away, like a down payment on a home, or a vacation fund. Getting a no-penalty CD could help you get a bit of extra yield on your savings while keeping flexibility around withdrawing that cash. But if you want immediate access to your savings, the best high-yield savings accounts could be a better choice than even the best no-penalty CDs.