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What Is a Liquid Certificate of Deposit (CD)?

A liquid CD allows you to withdraw money without penalty before the CD matures. These financial instruments are sometimes known as risk-free or no-penalty CDs.

Traditional CDs typically cannot be cashed out before a certain date, known to investors as the fixed maturity date. The funds in a liquid CD, however, are accessible anytime during the length of the term and can be withdrawn without penalty.

How a Liquid CD Works

Just as the name implies, a liquid CD is very liquid as it allows access to the funds at any time. This access can be extremely important to the investor as some financial institutions allow for penalty-free withdrawals on a weekly or month basis or for a one penalty-free withdrawal during the entire term of the CD.

Liquid CD Example

A bank or credit union may offer a liquid CD with options ranging from 1% interest on a $1,000 deposit to 3% interest on a $10,000 deposit. With a traditional CD, those funds would remain locked up until the term of the CD ends, often anywhere from 3 months to 3 years or more.

Most traditional CDs do allow early withdrawal, albeit with significant penalties as specified in the fine print. The tradeoff is that the traditional CDs will typically offer slightly higher rates over the length of the CD as compared to a liquid CD.

Advantages and Disadvantages of Liquid CDs

There are several reasons why you might want to access the money committed to a CD: If interest rates increase after you've already purchased the CD, you could potentially move the funds into a new CD with a better rate. In addition, you may experience a financial emergency that requires you to quickly withdraw the funds. Whatever the reason, you’ll need to decide if paying penalty fees for early withdrawal from a traditional CD is worth it in your circumstances.

The most significant disadvantage to a liquid CD is the lower rate that comes along with easier access to funds. Because you’re able to pull your money out at any time, the rate is noticeably lower than that of a CD with more strict terms.

What Are the Best Liquid CD Rates?

Liquid or no-penalty CD rates are always changing. It’s best to do your research before parking your money anywhere for any length of time. Click here to see which bank is offering the best value in CDs right now.

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Mark Herman, CFP
Mark Herman, CFP
Expert Certificate

Master of Business Administration (M.B.A.)

Member of the Board, Financial Planning Association of Austin

Mark Herman has been helping friends with financial questions since serving as an Army helicopter pilot. Since then, he’s gained valuable experience in the corporate world before moving on to become a Certified Financial Planner™