By Sabrina Karl

When putting your cash into a bank or credit union, there are more choices than plain vanilla savings accounts and conventional certificates of deposit. One hybrid product to consider is a no-penalty CD as it balances the quest for maximum returns with the desire for easy access to your funds should you need them.

No-penalty CDs, sometimes called no-risk or risk-free CDs, are exactly what they sound like. Instead of the early withdrawal fees that traditional certificates charge if you cash in before maturity, you can take all or some of your funds out of a no-penalty CD at any time with no loss of interest or principal.

The one exception is that most no-penalty CDs will require you to lock your funds in for about a week. Then the no-penalty period will kick in.

The trade-off, as you might predict, is you’ll typically earn a lower interest rate for no-penalty certificates than you could earn by fully committing your funds to a traditional term. The difference varies widely by institution, but can be significant.

On the flip side, you can usually earn more with a no-penalty CD than with a simple savings account. That’s what makes the risk-free CDs a hybrid: they typically sit between the earnings potential of savings accounts and standard certificates, while also offering a withdrawal flexibility that lies between the two.

Since most no-penalty certificates have terms around 12 months, they make good sense for savers who want to sock some money away but aren’t certain they can leave it untouched for a year. If instead you want frequent withdrawals of your funds, a high-yield savings account will suit you better, while those with high confidence they can hold their funds in place for a year or longer will earn more with a conventional CD.