When you open certificates of deposit (CDs), you’ll typically earn more interest than you can with a checking, money market, or savings account. You’ll have to wait for a predetermined term before withdrawing your money penalty-free—CDs are a long-term deposit.
But, in the meantime, you can rest assured that your CD or share certificate is safe if you’ve opened an account with a bank or credit union insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), respectively. Even in the unlikely case of a bank failure, the government will protect deposits up to $250,000. Plus, CDs offer fixed rates, meaning your annual percentage yield (APY) or interest rate stays the same throughout the CD’s term.
CDs: a refresher
CDs are timed investments where you earn a higher interest rate. In exchange, you’ll have to lock up your money for an agreed-upon term—often a year or more, though shorter durations are available.
Most CDs only allow you to make an initial deposit, though some “add-on” CDs let you add more funds. At maturity, you will have earned interest according to the initial terms and can withdraw your money or roll the funds into a new CD.
Most banks offer higher annual percentage yields (APYs) on CDs than on high-yield savings accounts and money market accounts (MMAs). Some of the best CDs boast APYs that top 5%, so you might have to shop around to get better rates.Here are some examples:
| BMO Alto | Up to 5.15% (on a 6-month CD) |
| First Internet Bank | Up to 5.26% (on a 12-month CD) |
| MYSB Direct | Up to 5.20% (on a 9-month CD) |
| TAB Bank | Up to 5.27% (on a 12-month CD) |
| Quontic Bank | Up to 4.50% (on a 12-month CD) |
Top CD rates by term length
By analyzing data from Curinos, we determined the top CD rates in the country based on term length. This data is refreshed every Wednesday, so it’s always up-to-date.
Long-term vs. short-term CDs
Locking your rate at the beginning of the CD’s term could be an advantage; at the time of publication, long-term CD rates are higher than those of shorter terms. Other deposit accounts have variable interest rates, which could rise or fall depending on the overall rate environment. However, that lack of flexibility could be a disadvantage if you’ve locked in a low interest rate.
Either way, CDs offer a fixed return, unlike variable-rate accounts or certain investments. You’ll know exactly how much your funds have grown and when you can access them. CDs are a safe and stable option for investors seeking a modest return as long as you can wait until maturity to access your principal deposit. Depending on the rate environment, they could also be an attractive alternative to bonds.
Since CDs are a long-term savings vehicle, there are often penalties if you need to withdraw your money before maturity. Banks often calculate those CD penalties as a portion of your accrued interest. While some unique “no-penalty” CDs exist, most have an early withdrawal penalty. In some cases, you could pay a higher penalty than the interest you earn, which would eat into your principal if you close the account shortly after opening it.
Are CDs FDIC-insured?
Like other deposit accounts, CDs are insured by the FDIC, a program that protects consumers in case the bank fails. As long as a bank is FDIC-insured, every deposit account is automatically insured up to $250,000 per depositor and ownership category. While bank failures are rare, knowing your deposits are insured adds an extra layer of peace of mind.
Credit unions insure deposits through the NCUA. Credit unions don’t offer CDs but have a similar investment called share certificates that essentially work the same way.
What about online CDs?
Shopping for the best available rates may lead you to an online bank that doesn’t have brick-and-mortar branch locations. Because online banks have lower overhead costs than traditional banks, they could potentially offer better interest rates.
Some online banks offer many of the same products and services as traditional banks, while others may only have a few account options. However, you can open an account online with most online banks by providing a bit of personal information and depositing funds from a linked bank account.
“Just because a bank is online doesn’t mean it’s not safe,” says Bryan Toft, chief revenue officer of Sunrise Banks. “Several online banks and their CDs are very safe, but you will want to make sure that bank has FDIC insurance. You can do that by going to the bank’s website, or you could go to the FDIC website.”
Tips for investing in CDs
If you’re looking for a stable investment that can provide guaranteed returns, certificates of deposit are a great option. Mary Hines Droesch, head of consumer and small business products at Bank of America, notes that “they provide a very good return, dependent on the rate environment, but it’s a guaranteed return. It’s not dependent on how the stock market goes.”
As you look around for a CD that fits your investment strategy, you’ll want to consider several factors, including:
- Ensuring you won’t need the funds. The biggest potential drawback to a CD is the penalty for early withdrawals. Only open a certificate if you know you won’t need the money for a potential emergency before it matures.
- Terms that suit your needs. CD durations range from a few months to five years (though some banks may offer longer terms). If you have a long time horizon, you could lock in a favorable interest rate for a long time. If you think rates may rise further or know you’ll need the funds after a certain time, a shorter CD term might make more sense.
- Current interest rates. CDs are a straightforward deposit account. Since most banks offer similar products, shop around to lock in the best possible rates for the terms you’re considering. Features like large ATM networks or branch access wouldn’t be a consideration for a CD as they might be for a checking account.
- Using multiple CDs. Some investors open several certificates with varying terms instead of a single long-term CD with all the funds they intend to save. Staggering terms with a CD ladder can give you more flexibility, depending on when the deposits mature. A CD bullet or CD barbell are other possible strategies.
- If an early withdrawal makes sense. According to Toft, since interest rates have risen so quickly, older CDs with longer terms and lower rates may not be worth keeping open. “It might make sense to break that CD, pay the penalty, and invest in a higher-rate CD. You might actually make back that penalty and then some.”
The takeaway
A CD is a safe investment that provides guaranteed returns for a fixed term. “It’s a great way for consumers to save money at higher interest rates than you would get from traditional savings,” says Droesch, “and they’re very safe.”
While earnings from a CD may be lower than the stock market’s historical returns, on average, they offer a steadiness and predictability that many investments like stocks simply can’t—and they often have higher interest rates than other deposit accounts.
