Certificate of Deposit (CD)
Definition
A time deposit that pays a fixed interest rate for a specified term (3 months to 5+ years). CDs typically offer higher rates than savings accounts in exchange for locking up your money.
A certificate of deposit is a low-risk savings product where you deposit a fixed amount for a predetermined period at a guaranteed interest rate. In exchange for committing your money for the full term, you receive a higher rate than a regular savings account.
CD terms range from as short as one month to as long as 10 years, with 6-month to 5-year terms being most common. Generally, longer terms offer higher rates, though this relationship can invert during certain interest rate environments. As of 2025, CD rates range from approximately 3.5% to 5%+ depending on the term and institution.
Early withdrawal penalties discourage pulling money out before maturity. Penalties typically range from 90 days to one year of interest, depending on the CD term. Some banks offer no-penalty CDs with slightly lower rates that allow early withdrawal without penalty.
CD laddering is a popular strategy: instead of putting all money in one CD, you spread it across CDs with staggered maturities (e.g., 1-year, 2-year, 3-year, 4-year, 5-year). As each CD matures, you reinvest into a new 5-year CD. This provides regular access to funds while capturing longer-term rates.
CDs are FDIC-insured up to $250,000, making them one of the safest investment options available. They're appropriate for money you know you won't need during the term — emergency funds, known future expenses, or a conservative portion of your portfolio.
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Frequently Asked Questions
Are CDs better than high-yield savings accounts?
CDs lock in a rate, which is valuable if rates are falling. High-yield savings offer flexibility with variable rates. If you don't need the money for the CD's term, a CD may offer a slightly better rate. If you value access, a high-yield savings account is better.
What happens when a CD matures?
When your CD matures, you typically have a 7-10 day grace period to withdraw the funds or choose a new CD term. If you do nothing, most banks automatically roll the CD into a new term at the current rate, which may be higher or lower than your original rate.