Save smart by locking away your savings at higher rates than your typical account.
A certificate of deposit is a short-term investment tool designed to help you reach your financial goals faster. But not all savers are the same, and neither are all CDs. By comparing what’s out there, you’re bound to find the competitive interest rates and terms that suit the savings objectives you’ve set for yourself.
Our top pick: American Express® Personal Savings CDs
Compare CD rates from the Big Four
How do the country’s big-name banks compare among one another? Take a look at what you could see for a $50,000 certificate of deposit for a term of 12 months.
|Nationwide banks||12-month interest rate|
|Citigroup Certificate of Deposit||0.25%|
|Wells Fargo Standard CD||0.10%|
|Bank of America Standard Term CD||0.07%|
|Chase Bank Certificate of Deposit||0.02%|
Compare leading CD rates from other banks
You could find that a nontraditional or online bank offers more competitive interest rates.
Ask for unadvertised term deposit rates
Interest rates fluctuate often, and those for CDs are no exception. Despite advertising fixed CD 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.
What is a certificate of deposit?
A CD is a type of savings account that comes with fixed interest rates and set maturity terms. You agree to your bank or credit union’s interest rate when opening your CD, and you can’t easily access your money until the CD matures — or the term you’ve signed up for expires. Many banks offer terms of six months to five years or more. But locking your money away is often worth the higher interest rates you’re unlikely to find with other accounts.
CDs are safe tools that can jump-start your savings. But if you find yourself needing to withdraw your money before the term is over, you face penalties that can equal the interest you’ve gained over three months or more.
After your CD term ends, you can often choose to reinvest a portion or all of your money into another CD or withdraw your balance.
Are CDs a good way to save money?
Yes. CDs are widely considered a safe investment tool, offering a guaranteed return that’s often protected by the FDIC. Because your money is locked away, banks typically offer higher interest rates than those for everyday savings accounts.
If you have savings that you know you won’t need immediately, you can maximize your interest with a CD. Locking your money away can also stop you from dipping into your cash while working toward a financial goal. Faced with steep penalties and fees for withdrawing early, you’re encouraged to let your money grow untouched.
What are the downsides of a CD?
A main downside is that you can’t access your money before your CD’s maturity date unless you’re willing to pay a fee. Depending on your bank, those fees could wipe out the bulk of interest you’ve earned on your nest egg.
Before signing up for CD, note too the overall economic environment. If the market is experiencing a periods of low interest rates, a CD may not be as effective as other investment types if accumulating wealth is your goal.
How do I compare CDs?
To find a CD that best suits your needs and financial goals, weigh what’s important to you among factors that include:
- Interest rates. Ask how often interest is calculated on your deposit, including whether it compounds. If rates are expected to decrease over the term of your CD, look into a longer term to lock in today’s higher rate.
- Available terms. If you’re thinking about a big purchase in the next few years — like buying a home — focus on shorter terms that can free your cash for a hefty down payment.
- Potential fees. You never know what life will throw at you. Ask about fees or penalties for early withdrawal, just in case you’re unable to wait out the term.
- Required minimums. Taking advantage of a CD is generally easy, but your bank could require $500 or more to get started.
- Protections and management. Learn whether your deposit is protected by the FDIC, and ask about account management tools that allow you to check on your balance over your term.
- Options at maturity. Know what to expect when your term ends, including whether reinvesting your balance into another CD comes with stronger interest rates.
How do I close my certificate of deposit?
When your CD reaches maturity, you can withdraw all of your funds as you would with a traditional bank account. Your bank may offer an option for you to reinvest some or all of your balance at a stronger interest rate. Read the terms and conditions of your CD or speak with a representative to learn what maturity means for your money.
Are certificates of deposit taxable?
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.
Why do I need to give notice to withdraw funds?
When you sign up for a CD, your bank counts your CD’s amount as part of its on-hand cash reserve. Your bank uses this reserve to pay out its customers’ many withdrawal requests and other transactions.
If you request to withdraw your funds before your CD’s maturity date, that money could strain the bank’s cash reserves. It’s why many banks require at least seven days’ notice before allowing withdrawals, especially for amounts of $5,000 or more. However, in cases of extreme financial hardship, your bank may waive this rule.
Certificates of deposit vs. savings accounts
Though a CD is similar to a traditional savings account, they differ in how you’re able to access your money. With your typical savings account, you can deposit money or withdraw your cash whenever you’d.
However, CDs require you to leave your balance alone over the certificate’s term. If you find yourself needing the cash before your account reaches maturity, you’ll pay a fee that can equal many months of the interest you’ve earned.
Are interest rates for savings accounts generally higher than certificates of deposit?
No. You’ll likely see higher interest rates for CDs, though ultimately it depends on the interest rate environment. By agreeing to restrict your access to your money for a set period of time, you’re often rewarded with higher CD rates that increase with the length of the term.
Certificates of deposit vs. treasury bonds
For stronger returns but at a slightly higher risk, consider investing in a treasury bond. With most treasury bonds, you invest in increments of $100 and earn interest at set increments while owning them.
On average, corporate and government bonds earn higher interest rates compared with certificates of deposit. But for that higher return, you could wait up to 30 years for your bond to mature. And your money isn’t typically protected by the FDIC.
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.
Compare the rates, features and fees on certificates of deposit from reputable banks and credit unions around the corner and online before signing up.