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Certificate of deposits (CDs) are geared toward savers who want to dive into investments without any risk. CDs are short- to long-term investments designed to help you reach your financial goals faster. But not all savers are the same, and neither are all CDs. By learning how to compare CD rates, you’re bound to find the competitive interest rates and terms that suit the savings objectives you’ve set for yourself.
Compare CD rates
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.
Some of the top CD providers we compare
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 — which is when 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.
Large CDs of $100,000 or more are considered jumbo CDs, and some providers have created separate products specifically tailored to such large sums, often with higher interest rates than regular CDs.
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.
Types of CDs
Here are nine different types of CDs you can invest your money in:
- 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.
- No-penalty CDs. The biggest drawback to a regular CD 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.
- 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.
- 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.
- High-yield CDs. These CDs have higher rates than regular CDs. They’re typically offered by online-only banks with lower overhead.
- 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.
- Variable-rate CDs. These CDs act similarly to savings accounts where the rates automatically increase or decrease depending on market fluctuations. A variable-rate CD may be a good idea if you think interest rates will rise, but you could lose out on growth if they fall.
- 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.
- 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.
The pros and cons of investing in a CD
- Guaranteed returns. When you invest your money in a CD account, you’ll get a guaranteed return when the deposit matures. You’re also protected against any interest rate drops because your account’s rate is locked in.
- Attractive interest rates. CDs allow you to earn a better interest rate on your money than savings accounts do.
- Plenty of choices. Banks and credit union all over the country offer CDs, giving you the ability to compare CD rates before choosing an account.
- FDIC insurance. Just like most other bank accounts, CDs are usually insured by the FDIC up to its limits (normally $250,000 per person per bank).
- If interest rates go up, you lose out. Even if the bank’s interest rates rise while your money is locked away in a CD, your rate stays the same.
- It’s hard to access your funds. If you want to access your funds before the end of the term, you’ll need to give your bank advance notice and usually pay a fee.
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.
Find the best CD rates by term length
Is a certificate of deposit right for me?
Here are some potential questions to ask yourself to determine if a CD is right for you:
- Do I have an emergency fund in place? If you already have some type of rainy day fund, you can rely on it if you need money before your CD matures. If you don’t already have one, consider putting three to six months’ worth of expenses in a savings account before you open a CD.
- How much money do I have saved? You’ll typically need at least $500 to $1,000 to open most CDs, although some banks may require deposits as low as $0 or as high as $10,000. For short-term CDs, it’s okay to lock away smaller amounts of money — say $500 or more. But for long-term CDs, you’ll get the most bang for your buck if you save up at least $1,000 before you open the account.
- How soon will I need the money? Generally, you’ll earn a higher interest rate the longer you lock your money away. If you’ll need your money in less than a year, compare CD rates to see if they’re higher than a high-yield savings account. You may find out that you can earn more interest in a savings account than you could in a three or six-month CD.
- Will I need to access my money before the CD term expires? If you know you won’t need your funds until a specific date, a CD can be a great way to lock in a high interest rate. But if you’re not quite sure when you’ll need your money, you may want to either use a CD ladder so you have frequent access to your money or skip using a CD altogether.
The importance of high CD interest rates
As they are specifically designed to help you save money, certificates of deposit offer a higher rate of fixed interest than you’ll find on a savings account. The interest rate is locked in for the entire term, offering the consistency of earning a fixed interest rate and protecting you against any interest rate drops.
But while a fixed interest rate offers security, it also means you’ll miss out on rising interest rates. Even if the bank’s interest rate goes up, the fixed rate on your account stays the same until the deposit matures.
Finding the best CD rates means more interest to grow your savings balance. Let’s take a look at a case study to demonstrate just how much difference a slightly higher interest rate can make.
George's certificate of deposit
George has $10,000 he would like to invest in a CD for a maximum of two years. He knows this’ll guarantee him a fixed return on his investment and he likes the security that CDs offer. George decides to compare CD rates between his bank and its main competitor to find the best interest rates.
George’s bank offers an interest rate of 2.25% and compounds interest monthly, which means at the end of 24 months, George’s $10,000 deposit will have earned $459.84 of interest.
Meanwhile, the competitor bank offers an interest rate of 3% on CDs of $10,000 or more, which allows George to earn $617.57 in interest. By choosing the second account with the better interest rate, George can save an extra $157.73.
|Feature||CD from his bank||CD from competitor|
|Term||24 months||24 months|
|Minimum deposit amount||$5,000||$10,000|
|Total balance at end of term||$10,459.84||$10,617.57|
Historical CD rates
Average CD rates fluctuate over time. For example, in the early 2010s, CD rates were steadily declining, but in 2014 they began to rise again. The chart below shows the national average over the last several years:
|Date||National average for 12-month CD||National average for 60-month CD|
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.
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.
Can I borrow against my CD?
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.
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.
CDs 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.
CDs 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 CD rates, features and fees from reputable banks and credit unions around the corner and online before signing up.
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