What is a callable CD?


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Certificates of deposit are a good option for risk-averse investors. They offer a guaranteed rate of return as long as you don’t withdraw your money before the CD matures. One type of CD is a callable CD. Callable CDs can offer higher returns than what standard CDs offer for the same maturity. However, you will want to read the fine print first because there are some risks.

What is a callable CD?

Banks and brokerage firms offer callable CDs. When you take out a callable CD, you will agree to a certain term limit and receive a fixed interest rate in exchange.

Callable CDs can come with higher rates than what you would receive with a standard CD. However, there’s a reason for that. These CDs come with something known as call features that let the issuer of the CD reserve the right to call or redeem a CD after a certain period of time. In other words, savers are taking on a risk.

You’re most at risk for having the bank take back the CD early if interest rates suddenly drop. It’s less likely your CD will be called if interest rates go up.

If your CD is redeemed before it reaches maturity, you will still receive your full principal and interest earned. However, you won’t earn all the interest you initially planned for and will have to reinvest your money somewhere else — potentially at a lower rate.

How callable CDs work

Callable CDs work like traditional CDs: you open one at a financial institution or a brokerage firm.

You may earn a higher rate than you would on a traditional CD, but the issuers of a callable CD reserve the right to redeem it early. For example, a bank or brokerage firm could call a 36-month callable CD after a year. If you put your savings in a traditional CD, you wouldn’t take on this risk.

Use Bankrate’s CD calculator to learn how much interest you could earn on a CD.

Where to open a callable CD

You can open a callable CD through a bank or brokerage firm. Make sure that the issuer you choose has a solid reputation for working with customers.

Since there is always the possibility that you will need to withdraw cash before the CD matures, check to see what kind of early withdrawal fees the issuer charges.

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Pros and cons of callable CDs

Callable CDs can be a solid option for anyone looking for a low-risk investment opportunity. However, there are drawbacks as well. Be sure to consider the following pros and cons before opening a callable CD.


Higher interest rate

One of the biggest benefits of a callable CD is that it typically pays a higher interest rate than what standard CDs offer.

Fixed interest rate

Like traditional CDs, one of the advantages of callable CDs is that you will earn a fixed interest rate over the life of the CD. So if interest rates suddenly drop, you’re locked in at a fixed rate. However, the issuer could redeem the CD early. 

You don’t lose anything

There are risks with callable CDs, but it’s still a reasonably safe investment. Even if the issuer redeems the CD early, you won’t lose out on your original investment.


The CD may be called early

Callable CDs pay a higher interest rate because they come with a higher level of risk. That is why professor and certified financial planner Brandon Renfro doesn’t necessarily recommend callable CDs to new investors. “For novice investors, callable CDs add a layer of complexity that isn’t usually necessary,”  Renfro says. “If the CD is called, you’ll have to shop around for another CD, and it will likely be at a lower rate. With a non-callable CD, you don’t have that unexpected hassle.”

Less liquid

Just like traditional CDs, there is some risk if you don’t keep the account open until maturity. If you cash out a CD before it comes due, you will likely have to pay the issuer a penalty fee.

[COMPARE: Best 1-year CD rates]

Bottom line

Callable CDs may be a good option for low-risk investors that are looking to earn higher returns on a CD. There is a chance the CD will be redeemed before it reaches maturity, but you won’t risk losing your original investment. It’s not a huge disadvantage if the CD is called early, but you’ll need to shop around for the highest rate available, and it could very well be lower than what you just had.

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