How Do CDs Work? Learn How to Save Smarter

CDs lock savings for a fixed period of time in exchange for a generally higher rate than other bank accounts.

Spencer Tierney is a consumer banking writer at NerdWallet. He has covered personal finance since 2013, with a focus on certificates of deposit and other banking-related topics. His work has been featured by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is based in Oakland, California.

Sara Clarke
Assistant Assigning Editor | Banking

Sara Clarke is a former Banking editor at NerdWallet. She has been an editor and project manager in newsrooms for two decades, most recently at U.S. News & World Report. She managed projects such as the U.S. News education rankings and the Best States rankings. Sara has appeared on SiriusXM Business Radio and iHeartMedia’s WHO Newsradio and has been quoted in The Salt Lake Tribune, The St. Paul (Minnesota) Pioneer Press and other outlets. She is based near Washington, D.C.

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How do CDs work?

A certificate of deposit is a type of savings account with a fixed interest rate and term. CDs, called share certificates at credit unions, tend to have the highest rates among federally insured bank accounts. Here’s a breakdown of various factors that make up CDs.

CD rates

Unlike regular savings accounts, most CDs earn the same rate over time. This can be a plus if you lock in a high rate, then see rates across banks fall. And it can be a negative when you’re looking at low rates that may rise soon. Rates are in terms of annual percentage yield.

CD terms

You must choose a specific time frame to open a CD. Terms generally range from three months to five years, and terms can impact both rates and early withdrawal penalties, which are fees charged if you cash out a CD before the term ends. Generally, the longer the term, the higher the rate; penalties tend to be bigger for longer terms. Consider how much time you can keep some cash locked up and learn more about short-term, midrange and long-term CDs .

High CD rates for now

CD rates have started to dip and may continue to fall, especially if the Fed decides to drop its rate. Now might be a good time to get high CD rates, if they work for your savings goals. See where rates are headed in our CD rate forecast .

CD safety

Like other bank accounts, CDs have federal deposit insurance up to $250,000 at banks insured by the Federal Deposit Insurance Corp. and at credit unions insured by the National Credit Union Administration. This means you get your money back, guaranteed, if a financial institution goes bankrupt.

A CD’s main risk is opportunity risk, meaning you may lose out on higher rates if you open a CD right before rates rise. But unlike investing in stocks or bonds, you typically don’t risk losing money from a CD based on factors outside your control, such as financial market performance. Learn more about how CDs are safe .

SoFi Checking and Savings

SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi members with direct deposit are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

EverBank Performance℠ Savings

Barclays Tiered Savings Account

These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.

These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.

on Wealthfront's website

Wealthfront Cash Account

on Betterment's website

Betterment Cash Reserve – Paid non-client promotion

*Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.

Marcus by Goldman Sachs High-Yield CD

4.70% APY (annual percentage yield) as of 08/30/2024

Federally insured by NCUA

Alliant Credit Union Certificate

Annual Percentage Yield (APY) is accurate as of 08/20/2024

Discover® Cashback Debit

Chase Total Checking®

Deposits are FDIC Insured

Chime Checking Account

Discover® Money Market Account

CD opening deposit

Your initial deposit tends to be your only time to add money into a CD. A standard CD has a minimum opening deposit that can range from $0 to $10,000. CDs with much higher minimums, such as $100,000, are typically called jumbo CDs. Be mindful that the $250,000 federally insured limit applies, and choose how much to put into CDs based on your savings goals.

CD maturity date

Unlike any other bank account, CDs mature on a specific day either months or years after you opened it. Many banks automatically renew CDs, but that might not be in your best interest since it’s better to compare rates each time you open a new CD. Consider your choices when CDs mature .

CD penalty

If you break the seal on a CD before the maturity date, you’ll likely pay a penalty worth several months to a year’s worth of interest earned. See a list of a dozen banks’ CD early withdrawal penalties .

CDs at a bank vs. credit union

These two types of banking institutions have different names for this time-based account. Banks call them CDs and the returns you earn interest. Credit unions call them share certificates (or certificates); the returns are known as dividends. This is because credit unions are not-for-profits where the account holders are owners of the credit union. That differs from banks, where account holders aren't considered owners and function more like lenders. Banks borrow account holders' money in deposit accounts such as CDs, and thus pay interest in return for the ability to use it.

Types of CDs

For the most part, you’ll consider CDs with fixed rates, no ability to add more money over time, and a penalty if you access the money before maturity. However, not all CDs have this set of traits. No-penalty CDs, for example, let you withdraw for free whenever you choose. Step-up CDs have the CD rate increase once or twice during a term. Explore these and other types of CDs .

Become a Nerdwallet+ member, open an eligible bank account, and make a direct deposit within 45 days to start racking up rewards.

CD interest works like it does in regular savings accounts. Interest gets compounded over time, meaning that the bank pays you interest on the initial deposit and the accrued interest that the CD earns. Compounding takes place in regular intervals, such as daily or monthly. The only difference between interest in CDs and savings accounts is that CDs have a fixed deposit, while savings accounts allow for ongoing contributions. Learn more about compound interest .

CDs have only one type of fee, an early withdrawal penalty, and it occurs when you withdraw money from a CD before its term matures. The penalty typically ranges from a few months’ to a year’s worth of interest.

CD interest works like it does in regular savings accounts. Interest gets compounded over time, meaning that the bank pays you interest on the initial deposit and the accrued interest that the CD earns. Compounding takes place in regular intervals, such as daily or monthly. The only difference between interest in CDs and savings accounts is that CDs have a fixed deposit, while savings accounts allow for ongoing contributions. Learn more about

CDs have only one type of fee, an early withdrawal penalty, and it occurs when you withdraw money from a CD before its term matures. The penalty typically ranges from a few months’ to a year’s worth of interest.

When to get a CD

CDs can be worth it for people in specific situations, such as:

Locking up funds for a future purchase: If you have some savings dedicated to a big purchase years away, such as a car or down payment for a home, a CD can keep your money safe and out of reach until the estimated date you’ll need it.

Protecting wealth for several years: If you want to avoid the risks that come with stocks and bonds, especially if you’re close to retirement, you may decide to use long-term CDs. Your money won’t grow as much over time as in stocks, but CD returns are guaranteed and generally higher than those of other bank accounts.

Using CDs for pre-invested funds: If you’re a fan of gradually investing money and you’re sitting on a large sum of cash, you might decide to spread out when you buy stocks or mutual funds using a strategy known as dollar-cost averaging . You can put the cash you’ll eventually invest into CDs to earn more interest than if it were sitting in a regular savings account.

How to open a CD

First, choose your CD based on rate, term and type of CD. Next, choose how to apply — online, over the phone, or at a branch if applicable — and get your identification ready. Read more about the next steps to opening a CD account .

CD vs. savings account

A certificate of deposit generally keeps your money under lock and key for a fixed term and rate and you can’t make additional contributions. In exchange for losing access, CDs tend to have higher rates than other savings accounts.

A regular savings account is more flexible and lets you deposit funds at any time and withdraw money at least several times per month. For more about their differences, see our article on CDs vs. savings .

CD vs. bond

A CD is a federally insured savings account for a term usually up to five years. To withdraw early, you usually pay a penalty.

A bond is a loan to a company or the government for a term that can be as long as 30 years. Unlike most types of CDs, you must sell bonds if you need to access the money before maturity. Learn more about the difference between bonds and CDs .

Types of CD strategies

There are a few ways to get creative with your use of CDs.

A CD ladder involves dividing up an investment into several CDs of different term lengths. When each CD matures, place that money into a new long-term CD so that you take advantage of potentially higher rates offered over time. See our in-depth explainer on CD ladders .

A CD barbell can resemble a CD ladder without middle rungs. You split an investment into long-term and short-term CDs, with the goal of waiting for higher rates before putting all your money into long-term CDs.

A CD bullet strategy consists of one or multiple CDs that have around the same maturity date. The goal is to build savings for a big purchase years away, such as a down payment on a home. Learn more about all three strategies in our guide for how to invest in CDs .

What are CD rates right now?

Here’s a snapshot of national averages compared to high-yield CDs, by term, at some online banks and credit unions.

CURRENT CD RATES: 3-month

Alliant Credit Union

EverBank (formerly TIAA Bank)

National average for 3-month CD

CURRENT CD RATES: 6-month

Alliant Credit Union

National average for 6-month CD

CURRENT CD RATES: 1-year

National average for 1-year CD

CURRENT CD RATES: 3-year

National average for 3-year CD

CURRENT CD RATES: 5-year

National average for 5-year CD

All Bread Savings APYs are accurate as of 08/29/2024. APYs are subject to change at any time without notice. Offers apply to personal accounts only. Fees may reduce earnings. To open a CD, a minimum of $1,500 is required and must be deposited in a single transaction. A penalty will be imposed for early withdrawals on CDs. At maturity, your CD will automatically renew and earn the base interest rate in effect at that time.

If you want a bigger picture of CD rates over the past decade, see our article on historical CD rates . Or, see predictions for where yields may be headed on our CD rate forecast .

What are promotional CD rates?

Some banks have deals on nonstandard terms such as seven-month and 15-month CDs, so you may have some luck finding higher-than-average yields for promotional CD rates .

SoFi Checking and Savings

SoFi members with Direct Deposit or $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either Direct Deposit or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi members with direct deposit are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

EverBank Performance℠ Savings

Barclays Tiered Savings Account

These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.

These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.

on Wealthfront's website

Wealthfront Cash Account

on Betterment's website

Betterment Cash Reserve – Paid non-client promotion

*Current promotional rate; annual percentage yield (variable) is 5.50% as of 4/2/24, plus a .50% boost available as a special offer with qualifying deposit. Terms apply; if the base APY increases or decreases, you’ll get the .75% boost on the updated rate. Cash Reserve is only available to clients of Betterment LLC, which is not a bank; cash transfers to program banks conducted through clients’ brokerage accounts at Betterment Securities.

Marcus by Goldman Sachs High-Yield CD

4.70% APY (annual percentage yield) as of 08/30/2024

Federally insured by NCUA

Alliant Credit Union Certificate

Annual Percentage Yield (APY) is accurate as of 08/20/2024

Discover® Cashback Debit

Chase Total Checking®

Deposits are FDIC Insured

Chime Checking Account

Discover® Money Market Account

See CD rates by term and type

Compare the best rates for various CD terms and types:

How do CDs work?

Learn more about choosing CDs, understanding CD rates, and opening and closing CDs.

Here’s a quick list of CD rates at traditional and online banks and a brokerage:

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Spencer Tierney is a writer and NerdWallet's authority on certificates of deposit. His work has been featured by USA Today and the Los Angeles Times. See full bio.

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