Our pick for CDs: CIT Bank Term CDs
0.3%
6-month APY
- No maintenance fees
- $1,000 minimum to open
- Daily compounding interest
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Our pick for CDs: CIT Bank Term CDs
0.3%
6-month APY
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.
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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 comes with fixed interest rates and set maturity terms. 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 you’ve gained 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 nine different types of CDs you can invest your money in:
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.
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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.
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.
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.
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.
Yes, some banks and credit unions allow you to use your CD as collateral for a personal loan. This is usually cheaper than paying early withdrawal fees on your CD. You can learn more with our article on how CD loans work.
The federal interest rate is a factor banks use to determine their own interest rates on a range of financial products. The federal rate aims to keep inflation at 2%, which means an interest rate of 2% or weaker could mean your investment won’t keep up with inflation.
Certificates of deposit, like other investments, are ideal when federal interest rates are high. But in periods of low interest rates, you might want to look into other types of investments offering stronger rates of return.
It depends on the market. If federal interest rates are high, a certificate of deposit should reflect a higher interest rate that you’ll find with an everyday or traditional savings account.
It depends on the bank. Most allow you to open a savings account even if you’re not a resident of the US. However, banks reserve the right to deny your application if you aren’t able to supply documents or information it requires.
It depends on how long of a term you’re signing up for. Shorter CDs (under one year) usually pay interest upon maturity. With longer CDs you’re able to choose between monthly, biannual or annual interest payments. When shopping around, keep in mind that some banks will charge different interest rates depending on how often interest is paid out.
Yes. You can use our CD calculator to find out how much interest your CD will earn.
Cassidy Horton is a writer for Finder, specializing in banking and investments. She has a Bachelor of Science in Public Relations and a Master of Business Administration from Georgia Southern University. Cassidy enjoys educating people about financial services, exploring the Pacific Northwest and watching endless reruns of The Office.
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