A certificate of deposit is a special type of savings account that requires you to deposit a fixed amount of money for a specified period of time. This period can range from a few months to several years depending on the terms of the CD. CDs are also called "time deposits" because you must leave your money in the account for a set period. The end of this period is known as the maturity date, at which point you can withdraw your money or reinvest it in a new CD.
One of the most significant advantages of CDs is that they typically offer higher interest rates than regular savings accounts. The rate on a CD is fixed for the full term, so you know exactly how much interest you will earn over the life of the deposit.
Current CD Rate Environment: Short-term CD rates are currently higher than longer-term rates — an inverted yield curve environment. This means a 12-month CD may actually pay more than a 5-year CD right now. Compare current CD rates →
How Do CDs Work?
When you open a CD, you deposit a fixed amount of money for a specified term. The longer the term, the higher the CD rate will generally be — but that is not always the case in the current rate environment.
At the end of the CD term, you have several options:
- Withdraw your principal and interest in full
- Reinvest the proceeds in a new CD
- Roll the CD over automatically with the same terms and conditions
Early Withdrawal Penalty: If you withdraw your money before the maturity date, you will typically pay a penalty. The amount varies by institution and CD term, but is commonly equal to several months of interest earned. Always review the penalty terms before opening a CD.
CDs are considered very safe investments because they are insured by the FDIC or NCUA. If a bank or credit union fails, you will receive your money back up to the applicable insurance limit (currently $250,000 per depositor, per institution, per ownership category).
You can compare live, verified CD rates from banks and credit unions nationwide using our CD rate tables. Our data is sourced directly from over 8,500 financial institutions and updated daily.
Types of CDs
There are several types of CDs to choose from depending on your savings goals, timeline, and deposit amount. Here are the most common:
Traditional CD
A fixed-term deposit that pays a fixed interest rate for the full term. The most straightforward CD option available at virtually every bank and credit union.
High-Yield CD
Pays a higher-than-average rate, typically offered by online banks and credit unions. May require a larger minimum deposit or longer commitment. See our highest CD rates.
No-Penalty CD
Allows you to withdraw your money before the maturity date without paying an early withdrawal penalty. Rates are typically slightly lower than traditional CDs in exchange for this flexibility.
Jumbo CD
Requires a larger minimum deposit (typically $100,000 or more) but may pay a higher rate. Check our jumbo CD rates to compare current offers.
IRA CD
A CD held within an Individual Retirement Account (IRA). Combines the tax advantages of an IRA with the fixed-rate security of a CD — a popular option for conservative retirement savers.
Callable CD
Can be redeemed by the issuing bank or credit union before the maturity date, usually when interest rates drop. May pay a higher initial rate to compensate for this call risk.
Variable-Rate CD
Pays an interest rate that can change over the life of the CD, typically tied to an index. Provides some exposure to rising rates but reduces the predictability of a traditional fixed-rate CD.
Brokered CD
Sold through a brokerage firm rather than a bank or credit union directly. Can be traded on the secondary market before maturity, offering more liquidity but introducing market price risk.
Choosing the Right CD
When choosing a CD, the most important factors are the interest rate, term length, minimum deposit requirement, and the early withdrawal penalty.
CD Rate
The CD rate determines how much interest you will earn over the life of the deposit. Rates can vary significantly between institutions — even for the same term — so it pays to shop around. Some banks and credit unions offer tiered rates that pay more for larger deposit amounts.
It is important to understand that CD rates are typically fixed for the full term. If rates rise after you open a CD, you will not benefit from the increase. This is one reason CD laddering (covered below) is such a popular strategy — it allows you to capture rising rates as shorter-term CDs mature.
CD Term
Choose a CD term that aligns with your expected timeline for needing the funds. Common terms range from 3 months to 5 years. If there is any chance you will need the money sooner, consider a shorter term or a no-penalty CD rather than risk paying an early withdrawal penalty.
Minimum Deposit
CD minimums vary widely. Some online banks offer CDs with no minimum deposit, while jumbo CDs typically require $100,000 or more. Higher-tier rates at many institutions kick in at $10,000 or $25,000 deposits.
Institution Safety
Always verify that the institution is FDIC-insured (banks) or NCUA-insured (credit unions). You can check an institution's insurance status and financial health through sources such as the FDIC's BankFind Suite or the NCUA's research tools. Our bank and credit union reviews also cover institution safety ratings.
Use Our CD Calculator: Before opening a CD, use our free CD Calculator to see exactly how much interest you will earn over any term and deposit amount. Our CD Ladder Calculator can also help you model a laddering strategy.
CDs are often used alongside other savings vehicles for maximum flexibility. A high-yield savings account or money market account provides liquid access to funds while CDs lock in a guaranteed rate. Depending on your goals, a combination of both may serve you best.
CD Laddering: A Smarter Savings Strategy
CD laddering is an investment strategy that involves purchasing multiple CDs with different maturity dates. The goal is to balance the higher rates of longer-term CDs with the flexibility to access a portion of your money on a regular basis.
How a CD Ladder Works
Instead of investing a lump sum in a single long-term CD, you divide your money across several CDs with staggered maturities. As each CD matures, you can withdraw the funds or roll them into a new longer-term CD, keeping the ladder going.
Example: $10,000 CD Ladder
Split $10,000 evenly across five CDs with maturities of 1 through 5 years.
| CD | Amount | Term | Matures |
|---|---|---|---|
| CD 1 | $2,000 | 1 Year | Year 1 |
| CD 2 | $2,000 | 2 Years | Year 2 |
| CD 3 | $2,000 | 3 Years | Year 3 |
| CD 4 | $2,000 | 4 Years | Year 4 |
| CD 5 | $2,000 | 5 Years | Year 5 |
When the first CD matures after one year, you can reinvest the proceeds in a new 5-year CD. You now have a rolling ladder where a CD matures every year for the next five years, giving you annual access to a portion of your savings while keeping the rest invested at competitive long-term rates.
Why Ladder?
- Rate flexibility: As CDs mature, you can reinvest at whatever the prevailing rate is at that time, capturing rate increases instead of being locked into a single rate.
- Liquidity: You always have a CD maturing in the near term, reducing the need to break a CD early and pay a penalty.
- Reduced risk: Spreading maturities across multiple terms smooths out the impact of rate fluctuations over time.
Use our free CD Ladder Calculator to model your own ladder with custom amounts, terms, and rates. You can also read our full guide: CD Rate Trends & History.
