What Is a Certificate of Deposit (CD)?

A certificate of deposit (CD) is a type of savings account designed to help you grow your money at a high interest rate over a set period. It’s ideal for those who want a low-risk way to earn more interest than a regular savings account.

While your money is in the CD, you typically can’t deposit more money or withdraw funds early without paying a penalty, making it a good option for short to medium-term savings goals.

Completely new to banking? Get to know the basics here.

Pros and Cons

✔ Guaranteed return in which you know exactly how much you'll earn
✔ Higher interest rates than regular savings accounts
✔ Potentially lower-risk option for short- or medium-term savings goals compared to stocks, bonds, or mutual funds

✖ Withdrawing money early usually comes with penalties
✖ Most CDs don’t allow additional deposits after the initial investment
✖ Less flexibility if you need access to funds unexpectedly

CD Rates Today

Top CD rates today average 3% to 5% APY, roughly 10x higher than a standard savings account. (APY measures the total amount of interest earned on an account over the course of a year, meaning the higher the APY, the more money you can earn.)

Certificate of deposit (CD) interest rates typically follow the Federal Reserve’s federal funds rate. They are expected to go down as inflation cools and the Fed lowers rates. Locking in a CD rate now could be a smart move to secure a higher return before rates potentially drop.

CD Terms

"CD term" refers to the length of time your money is held in the account. Common CD terms include one, three, six, and 12 months, with some banks offering terms up to five years. The interest rate on a CD can vary based on the length of the term.

Long-term CDs generally offer the best CD yields, with better interest rates than one- to six-month CD rates. While short-term CDs may have slightly lower rates, they can still be advantageous if you’re looking for quicker returns and more immediate access to your funds.

When your term ends, you might have the option to renew. Do a CD rates comparison to see if current rates are still aligned with your savings strategies.

How CD Accounts Work

A CD account is a type of savings account where you deposit a fixed amount of money and earn interest over a set period. Most CDs don’t allow additional deposits after the initial one.

If you deposited $5,000 into a high-interest CD at 4.5% APY for 12 months, you’d earn $225 in interest by the end of the term. During that time, you wouldn’t have access to withdraw any of the $5,000 without incurring a penalty. However, once the 12 months are over, you could withdraw both your original $5,000 and the $225 in interest you've earned.

Need a savings account for more frequent deposits and withdrawals? View the top high-yield savings accounts of 2024 here.

CD vs. Savings Account

CDs and savings accounts each serve different purposes depending on your financial goals. The best high-yield CD accounts typically offer higher interest rates than regular savings accounts, but they require you to lock in your money for a set period.

If your goal is to set aside funds and grow money with high-interest, CD accounts are a great choice. If your goal is to store excess money with the flexibility to deposit and withdraw as needed, savings accounts may be a more suitable option.

Curious about what other investment opportunities are available to you? Read more.

CD Account Requirements

Different types of CDs have their own deposit requirements and interest rate opportunities. Knowing these differences can help you find great CD rates that align with your financial goals and situation.

• Standard CDs typically start with a minimum deposit of $500, though some may go lower
• High-Yield CDs provide better interest rates than regular CDs, but typically come with higher minimum deposits ranging from $500 to $5,000
• Jumbo CDs offer some of the best CD rates, with significantly larger deposit requirements between $50,000 and $100,000+

To find the best CD account rates, compare financial institutions including banks, credit unions, and brokerage firms. Many online banks offer some of the best high-yield CD rates/best jumbo CD rates due to lower overhead costs.

How to Open a CD

Opening a CD is a simple process. Start by deciding on the amount you want to deposit and the length of time you wish to keep the money in the account. Then, compare different certificate of deposit rates to find the most favorable terms.

Many financial institutions now offer the convenience of opening a CD online, making it easier to secure competitive certificate of deposit interest rates. Be sure to review the terms carefully, especially any penalties for early withdrawal.

Is Opening an Account Online Safe?

Online financial institutions take account safety seriously, complying with federal regulations and undergoing strict security audits. The best online banks employ state-of-the-art encryption and advanced security technologies to safeguard your personal and financial information from unauthorized access.

Every CD account featured on our page is fully insured by the FDIC, meaning your funds are protected in the event of a bank failure. Practice good security habits to further protect your account by routinely updating passwords and monitoring account activity. Learn more about online bank accounts here and the 10 key features of online banking that make it an increasingly popular option.