A certificate of deposit — commonly called a CD — is a savings product offered by banks and credit unions. You deposit a fixed sum of money for a set period of time, called the term, and the institution pays you a fixed interest rate in return. When the term ends, you get your original deposit back plus the interest you earned. That is the entire concept. The simplicity is part of the appeal.
CDs are available at thousands of institutions — traditional brick-and-mortar banks, online-only banks, and federally chartered credit unions. Deposits at banks are insured by the Federal Deposit Insurance Corporation (FDIC), while credit union deposits are insured by the National Credit Union Administration (NCUA). Both agencies cover up to $250,000 per depositor, per institution, per ownership category. That insurance is provided by the issuing institution and the federal agency — not by any comparison or education platform.
How CD rates are quoted: APY versus interest rate
When a bank advertises a CD, you will see two numbers: the interest rate and the annual percentage yield, or APY. The interest rate is the raw percentage the bank pays. The APY reflects the effect of compounding — how often earned interest is added back to your balance to earn more interest. Because APY accounts for compounding, it is the more useful number for comparing products. Always compare APYs, not raw rates, when shopping.
What happens to your money during the term
Once you open a CD and fund it, the money is essentially locked in place. You cannot add to it or withdraw from it without triggering a penalty (unless you have a special product like a no-penalty CD — more on that below). The bank uses your deposit as part of its lending pool and compensates you with a predictable return for agreeing to leave the money alone.
Interest is typically compounded daily or monthly and credited to your account at the same frequency or at maturity, depending on the bank's terms. Some institutions let you have interest payments transferred to a linked checking account periodically, which can be useful if you want regular income from a larger deposit.
Early withdrawal penalties: what they really cost
Early withdrawal penalties are the main drawback of a standard CD. A typical penalty for a 1-year CD might be 90 to 180 days of interest. For a 5-year CD, penalties of 150 to 365 days of interest are common. If you withdraw very early in the term, some penalties can even eat into your principal. Before opening any CD, read the penalty disclosure carefully and ask yourself honestly whether you will need this money before the maturity date.
CD types worth knowing about
- Standard CD: Fixed rate, fixed term, penalty for early withdrawal. The most common type.
- No-penalty CD: Lets you withdraw the full balance after a short holding period (often seven days) without a fee. Rates are usually slightly lower than comparable standard CDs.
- Jumbo CD: Requires a higher minimum deposit — traditionally $100,000 — in exchange for a potentially higher rate. The premium over standard CDs has narrowed at many institutions, so always compare.
- Bump-up CD: Allows you to request one rate increase if the bank raises its CD rates during your term. Useful in a rising-rate environment.
- Brokered CD: Purchased through a brokerage firm rather than directly from a bank. Can offer competitive rates and tradability on the secondary market, but carries different risks and complexity than a direct bank CD.
- Add-on CD: Lets you make additional deposits after the initial funding, which is unusual for CDs.
When a CD makes sense — and when it does not
A CD is a strong choice when you have a specific savings goal with a known timeline — a home down payment in 18 months, for example — and you want a guaranteed rate of return rather than a variable one. The rate certainty is the key value: you know exactly what you will earn, regardless of what the Federal Reserve does during your term.
A high-yield savings account, by contrast, pays a variable rate that can rise or fall at any time. If rates are expected to climb, a savings account lets you capture that upside. If rates are falling, a CD locks in today's higher rate. Neither product is universally better — the right choice depends on your timeline, liquidity needs, and rate outlook. Our guide at /secure-returns/learn/high-yield-savings-vs-cd/ walks through the decision in detail.
How to shop for the best CD rates
CD rates change constantly in response to Federal Reserve policy, competition among banks, and each institution's funding needs. The rates available today may be meaningfully different from what was available last month. That means periodic comparison shopping is essential, not just a one-time exercise.
When comparing, look beyond the headline APY. Check the minimum deposit requirement, compounding frequency, early withdrawal penalty structure, and whether the rate is promotional (and therefore may not be available for renewal). Online banks frequently offer among the highest CD rates because they operate with lower overhead than branches, but local banks and credit unions sometimes run limited-time promotions that rival or beat national averages.
- Decide on your term before you shop — don't let a flashy rate on the wrong term distract you.
- Gather at least three to five APY quotes for the same term from different institution types: your current bank, an online bank, and a local credit union.
- Confirm the minimum deposit and penalty terms in writing — not just the headline rate.
- Verify the institution is FDIC- or NCUA-insured before depositing.
- Confirm the current rate directly with the institution on the day you open the account, since rates can change without notice.
Because live rates shift daily, the most practical starting point is a real-time comparison tool. You can see current CD rates across a range of terms and institutions at /preview/secure-returns/compare/ — always confirm any rate you find there directly with the offering institution before funding an account.