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My bank offers a a 2.25% savings account. They also offer a 2.35% no penalty CD. This sounds like a straight upgrade with no downsides (ignoring a 7 day minimum holding period). This sounds too good to be true, is there some catch I'm missing?

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    What is the rate for a CD of the same term with an early termination penalty? – quid Feb 4 at 19:19
  • .1% isn't a huge difference, and I expect the extra effort to cash it out would more than make up for it. – Kevin Feb 4 at 19:22
  • @quid obviously more, 2.75 for the same term, but the comparison isn't interesting because of the early termination – David Grinberg Feb 4 at 19:48
  • @DavidGrinberg, and what is the penalty? The bank I use the penalty is only 90 days of interest. So if you ask me the interesting comparison is between the real CDs and liquid savings relative to your expected minimum holding period. I keep somewhere in the neighborhood of 50% of my emergency fund in a CD ladder for this reason. – quid Feb 4 at 20:02
  • The interest schedule is a little different between these as well -- for savings it is probably compounded daily+paid monthly, while no-penalty CDs are commonly compounded daily+paid at redemption or renewal. Could make the interest taxable in a different year. – Ben Voigt Feb 4 at 22:01
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Your question indicates you are probably not comparing these two products well. In addition to interest rate you need to consider:

  • Minimum Investment
  • Holding period
  • Penalty for early withdrawal

What is the minimum investment for the 2.35% CD? Do you have that amount? If so, then you might want to go for it. This bank seems to be attempting to generate new business by offering excellent rates.

At the time of this writing 2.25% is the best rate for brokered 3 month CDs, and you have to go 9 month CDs to get 2.4% (that can be traded and not surrendered). This bank's savings rate is beating Ally, Synchronicity, (both 2.2%) and Amex (2.1%).

Is the CD you are quoting only open to new customers? Do they only let you have one of those CDs? If that is the case, you might want to leave some in savings to prevent closing out the CDs early.

Keep in mind that the difference you are talking about is $10/year on $10,000. It is just not life changing money, and as Kevin points out the work you may have to do to earn that extra money may not be worth your effort.

  • I'm looking at this: marcus.com/us/en/savings/no-penalty-cds. $500 min, 7 day holding, open to all. Looks like a straight upgrade over their normal savings account rate of 2.25 – David Grinberg Feb 4 at 20:29
  • The question explicitly is considering holding period (7 days minimum) and penalty for early withdrawal (none). – Ben Voigt Feb 4 at 21:59
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If your rate of 2.25% is variable, then if interest rates go up to 2.45% you don't automatically benefit from those rates using the no-penalty CD (though you could cash out your no-penalty CD and reinvest at those rates).

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    True, but you do have that option, plus you also have protection (for the term of the CD) against rates going down. The no-penalty CD clearly wins here. – Ben Voigt Feb 4 at 21:57

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