By BankingMyWay Staff

Certificate of deposit (CD) investments balance safety and interest with a lack of liquidity. Investors forfeit unrestricted access to their money for a specified period in exchange for a guaranteed return. With traditional CDs, accessing money early means incurring stiff penalties. But liquid CDs allow owners to withdraw their money from a CD before the CD has matured without penalty.

Rules for liquid CDs vary between banks. Some banks limit customers to one or two withdrawals over the term of the CD. Other banks require high initial deposits or impose penalties such as lowering the interest rate if your CD falls below a pre-determined balance. Be sure to read the fine print before buying a liquid CD.

The convenience of access to your money is an attractive feature, but it will cost you in lower interest rates. Interest rates on liquid CDs are noticeably less than on comparable traditional CDs. Despite this, liquid CDs typically offer higher interest rates than most standard money market or savings accounts.

If you’re planning on investing a large portion of your savings into CDs, choosing liquid CDs will protect you from sustaining large early-withdrawal penalties in the event of an emergency. If you have substantial emergency fund savings, however, and do not predict the need to withdraw funds from a CD, it’s better to go with a regular CD.

If liquidity is a major concern for you, you may want to consider the CD laddering strategy. This strategy of buying CDs with different maturities allows you access to a portion of your CD investment on a regular basis and helps protect against market fluctuation. (For more on CD laddering, read this article.)

For more on liquid CDs:

"Picking the Best No-Risk CDs"
"No-Penalty CDs Are Far from No-Brainers"

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