Certificates of deposit (CD) are deposit accounts offered by most banks and credit unions. They earn interest like savings accounts, but you’re required to keep your money in the account for a set period. There are many types of CDs, and they all have one thing in common: They earn a fixed interest rate.
A certificate of deposit (CD), or share certificate, is a type of savings account that earns a fixed rate during a specific term length.
By opening a CD, you agree to your institution’s advertised rate and to keep your money in the CD until the term’s end when it matures. Once the CD approaches maturity, you’ll enter what’s called a grace period, which typically lasts between seven to 10 days. During this grace period, you’ll need to decide whether to close out the CD or renew it before the maturity date.
If you cash out the CD, you’ll choose where you’d like the bank to send your money. If you miss your grace period, the bank renews your CD for the same term length but under the most current rate.
With CDs, you’re required to pay taxes on the interest you earn. Like traditional savings accounts, the interest your CD attracts is reported to the IRS. Your bank will send Form 1099-INT for any account for which you’ve earned at least $10 in interest.
A CD gives you a fixed interest rate in return for investing your money for a fixed amount of time. Most CDs have monthly compounding interest, meaning the interest you’ve earned throughout the month is added to your deposit at the end of each month, so you’ll earn interest on your earned interest.
Yes, CDs are safe as long as they are kept with an FDIC-insured institution, which usually insure you up to $250,000.
A CD may be the right savings route for you if …
CDs are rather straightforward, but if you’ve never opened one before, consider these key factors:
CDs have more benefits than downsides, but they’re not for everyone.
A CD isn’t your only option when it comes to saving money. A savings account or money market account may make more sense based on your needs and goals.
CDs are a fairly popular form of savings, with 15% of savers saying they put their funds into a CD.
If you have the time and money to lock away your savings for higher interest rates over a term of six months to five years or more, consider a CD. These safe investment tools guarantee a return on your investment, though with a potential disadvantage of penalties and fees if you can’t wait until your CD fully matures. For more information, learn how to make the most out of CDs.
At CD maturity, you can roll over your money into a new CD or cash it out and move your money to a checking, savings or investing account.
The highest CD rates in Texas are from Ciera Bank, Quontic Bank, Susser Bank, Ally Bank and more. See the full list here.
Some of the highest CD rates in Florida are from Quontic Bank, Bethpage Federal Credit Union, First Internet Bank and more. See the full list here.
Some of the highest CD rates in Michigan are from Flagstar Bank, Quontic Bank, First Internet Bank, Ally Bank and more. See our full list here.
Savings rates are dropping, but you can lock in a high-APY CD without penalties for early withdrawal. Sallie Mae and Marcus CDs top our list.
Finding the best CD rate is vital to ensuring that your savings balance grows to the maximum amount possible in the shortest time.
Raisin’s Sallie Mae CDs offer a big APY for a small opening deposit.
See what the average interest rate was in the US for 3-month, 60-month, 1-year, 3-year and 5-year CDs since 2009 and learn how the economy affects rates.
Money market accounts offer easy access to your money, while CDs lock your savings away for a set time and often have higher interest rates.
