Certificates of deposit (CDs) are short- to long-term investments designed to help you reach your financial goals faster. Compare CD rates by term length to find the one that meets your savings goals.
In addition to looking at the best interest rates, you should also weigh other important factors including:
Know what’s in store for your money with the help of a CD calculator
Online banks typically offer the highest CD rates available, but many credit unions offer competitive rates as well. Nationwide brick-and-mortar banks tend to offer comparatively low CD rates, though some regional banks provide CDs with relatively high rates. Finding the highest CD rate also comes down to how long you want to lock your money away for.
Yes, locking your money away is often worth the higher interest rates you’re unlikely to find with other accounts. However, CD rates have plummeted due to the pandemic, so now might not be the best time to invest. History suggests that that interest rates will rise, so it might be a smart move to wait until the pandemic is over before opening a CD.
A certificate of deposit is a type of savings account that has a pre-determined fixed rate and term. You agree to your institution’s advertised rate when you open your CD. But you can’t easily access your money until the term expires. Many banks offer terms of six months to five years or more.
You can only deposit money when first opening your CD — you can’t top it up. You can only withdraw money from your CD with no penalty after your term ends. You can choose to reinvest a portion or all of your money into another certificate of deposit or withdraw your balance. But if you withdraw funds before the CD’s maturity date, you may have to pay an early withdrawal penalty that can equal the interest your money has earned over three months or more. If you think you might need to withdraw money, consider opening a no-penalty CD or savings account instead.
Yes, Your CDs are safe as long as they are kept with an FDIC-insured institution. In general, CDs are insured for up to $250,000, though some banks offer an even higher limit.
Here are the different types of CDs you can invest your money in:
1. Brokered CDs. You buy brokered CDs through a brokerage firm instead of a bank. You can typically lock in a higher CD rate than you would with a bank or credit union. But these CDs aren’t federally-insured and broker fees could eat into your earnings.
2. No-penalty CDs. The biggest drawback to a regular certificate of deposit is early withdrawal penalties. With a no-penalty CD, you don’t pay a fee if you pull your money out early. But these accounts typically have lower APYs than regular CDs and you may have to withdraw your entire account balance.
3. Jumbo CDs. These CDs are “jumbo” because they have opening deposits of $100,000 or more. They typically have higher APYs than regular CDs, although this isn’t always the case.
4. IRA CDs. With an IRA CD, you open up an IRA with a bank or credit union and have all the money in that account put into a CD. It offers a guaranteed return, but it shouldn’t be your only retirement account.
5. High-yield CDs. These CDs have higher rates than regular CDs. They’re typically offered by online-only banks with lower overhead.
6. Bump-up CDs. CDs have locked-in rates, which can be good or bad depending on market performance. With a bump-up CD, you can elect to be “bumped up” to a higher CD rate if rates increase during your term. But these CDs typically have lower APYs than regular CDs, so market rates may need to increase significantly for it to be worthwhile.
7. Variable-rate CDs. These CDs act similarly to savings accounts where the rates automatically increase or decrease depending on market fluctuations. A variable-rate certificate of deposit may be a good idea if you think interest rates will rise, but you could lose out on growth if they fall.
8. Negotiable CDs. These CDs are ideal for institutional investors because they typically require deposits of $1 million or more, although some may have minimum deposits as low as $100,000. You typically can’t access money in a negotiable CD before maturity, but you can sell it on the secondary market if needed.
9. Business CDs. Open a traditional or high-yield CD for your business and put your company on the path to meeting its goals.
10. CD ladders. This isn’t a type of CD, but rather a strategy you can use when buying CDs. Instead of putting all your money in one CD, you spread it out over multiple CDs with different terms, that way you get access to your money on a rolling basis.
11. Add-on CDs. These CDs let you continue contributing to your investment throughout its term. However, this type of CD can be hard to find, and banks that do offer this option generally impose restrictions.
Compare the pros and cons of investing in a certificate of deposit to see if it’s the right move for you.
Here are some potential questions to ask yourself to determine if a CD is right for you:
Interest rates fluctuate often, and those for CDs are no exception. Despite advertising fixed certificate of deposit rates, many banks allow for some negotiation for a better deal — especially if you’re rolling your matured account balance into a new CD.
As your CD nears maturity, speak with a bank representative about stronger rates on a new CD. If you’re signing up for a new CD, ask if the bank is willing to negotiate the advertised rate.
Compare CD rates from these popular banks:
A CD gives you a fixed interest rate in return for investing your money for a fixed amount of time. For example, if you opt for a 12-month CD, you lock away your funds for one year and you can’t withdraw the money. In return, your bank awards you a competitive interest rate that’s traditionally higher than a savings account.
You can elect to receive interest payments monthly or all at once after your CD reaches maturity. You can often elect which US bank account you’d like to receive your interest payments into.
Although rates vary by provider, here’s the national average according to the Federal Deposit Insurance Corporation (FDIC) as of June 2021.
| CD Term | Average CD rate |
|---|---|
| 1 month | 0.03% |
| 3 months | 0.07% |
| 6 months | 0.09% |
| 12 months | 0.14% |
| 24 months | 0.17% |
| 36 months | 0.20% |
| 48 months | 0.22% |
| 60 months | 0.27% |
Yes, 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.
The interest you earn is taxed at the same marginal tax rate that applies to the rest of your income. If you receive interest after your CD reaches maturity, you’ll claim the interest in the financial year that your account matures and you receive your interest.
Compare savings accounts based on your tax situation
A CD isn’t your only option when it comes to saving money. A savings account, treasury bond or money market account may make more sense based on your needs and goals.
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, look into a certificate of deposit. These safe investment tools guarantee a return on your investment, though with a potential disadvantage of penalties and fees if you’re not able to wait until your CD fully matures.
If you decide to open a CD, shop around for the best CD rates, features and fees from reputable banks and credit unions before signing up.
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