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5/28/2025 post by Ken Tumin on X regarding the value of No-Penalty CDs

RichardW
  |     |   793 posts since 2019

On 5/28/2025 Ken posts on X:

“Today’s savings account rate cut at Marcus (3.75% > 3.65% APY) shows the value of No Penalty (NP) CDs.

If you have a savings account at Marcus, an NP CD can be an easy way to boost your cash yield without losing liquidity (that would happen with standard CDs).

Marcus is one of several digital banks that now offer No Penalty CDs. Ally Bank first popularized NP CDs more than 15 years ago. The NP CD model allows for a full penalty-free withdrawal (principal + interest) after 6 days from when the CD is funded.

Example Use Case for a No Penalty CD: If you had $20k in your Marcus savings account on Apr 1st, you would have been earning 3.75% on the $20k. On Apr 1st, you could have opened the Marcus 13mo NP CD (4.15% APY) with $10k and kept $10k in the savings (3.75%).

Today, $10k in that NP CD continues to earn 4.15% while the $10k in the savings now earns 3.65% (new 13mo NP CDs now pay 3.90% APY). Like traditional CDs, the rate is locked until maturity. If you don’t need more than $10k, just keep the NP CD until it matures.

If you need more than $10k for expenses, the NP CD can be broken with no penalty. Funds can be quickly moved back into the savings account. Note, like most NP CDs, the Marcus NP CD can only be closed. Partial withdrawals aren’t allowed.

You could earn more by moving your money to a higher-rate savings account or money market fund. However, if you want to keep your money at your current bank (Marcus, Ally, CIT, etc.), NP CDs can be an easy way to boost your overall cash yield with little loss in liquidity.”

https://x.com/KenTumin/status/1927827191015842182

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racecar
  |     |   599 posts since 2014
A Tip for both No-Pen CDs and Regular CDs too:
Instead of opening up "a CD", break the amount of that CD up into multiple smaller ones. Doing so will give you so much more flexibility, whether it's a No-Pen CD or a normal one.

If it's a No-Pen CD: most places will only give you the option of closing the CD if you want it without penalty, you usually can't take multiple NP withdrawals from the same CD. So if you opened one $25k NP CD and later need/want $5k without penalty, you'd be forced to close the whole CD and give up (presumably) a good rate just to get at that $5k. But if you opened up 5 NP CDs @ $5k each instead, you'd only need to close one of them and could keep the others going.

The same goes for normal CDs. Say you have $80k. Don't open up a CD for $80k, split it up into 4 CDs of $20k (or similar).

For the places that do NOT allow any partial early withdrawals: if you opened up an $80k CD and ever need say $15k for an emergency (or a better rate comes along or whatever) you'd be forced to close out your entire $80k CD -- and pay the penalty on the whole $80k. But if you split them up, you'd only need to close out one $20k one instead.

For places that DO allow partial early withdrawals: I still do this, because I've seen places change their terms enough times -- why risk it when it only takes a few more minutes to split them into smaller ones? The Bank/CU doesn't care and it gives so much more flexibility.

The only reason NOT to do this would be if doing so lowered your rate (ie, if you no longer met the deposit threshhold for the rate). Otherwise, any decent-size CD I always split up into smaller ones that equal the same amount. Doing it this way has helped me many times through the years.
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deplorable_1
  |     |   2,228 posts since 2020
That's a good idea racecar I have been doing that for a while now. Many on here will probably not want the extra work of multiple CD's but it's pretty easy to track. I even use this strategy with no penalty CD's in case you need to access cash more than once. It's bit more work but you can feel safe locking up more cash this way in case you ever need to access it quickly.
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