Who does not want the best of both worlds when it comes to investing? If you want the financial security of a CD but the flexibility of accessing your money without the risk of early withdrawal penalties, a no-penalty CD might by just the thing for you.
CDs are often considered a low risk investment opportunity, as your principal is typically safe because of FDIC protection on each individual account up to $250k (until January 2010). The longer your CD, the higher interest rate you can garner. But if you touch the money prior to its maturity, federal law mandates a forfeiture of a minimum of seven days of interest. Since there are no rules capping the maximum limit, many banks impose higher penalties for early withdrawal.
The option to have no penalties for early withdrawal is going to cost you in the guise of a reduced interest rate. For the luxury of not fully committing to a longer term CD, the investment opportunity will have a substantially lower than average interest rate, thus reducing the earning potential of the investment. If you think you may need to access the money in your CD as you might need the cash to handle expenses or because you may want to invest it quickly into an option with a higher interest rate, the lowered interest rate may be a fair exchange for your no-penalty CD.
It is important to really investigate the terms of a no penalty CD, so you do not get caught off guard unexpectedly. In conjunction with the federal laws, many banks will allow withdrawals after seven days opening the account (that interest will be forfeited). However, some banks may not charge anything but the federally mandated penalty fee, but may make you wait out a 90-day period before refunding your money. Just read all the details regarding your no penalty CD and you will find an investment that suits your needs.
