Best CD rates for September 2021

Written by
Matthew Goldberg
Reviewed By
Greg McBride, CFA

Best available rates across different account types for Sunday, September 19, 2021

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Bankrate's guide to choosing the right CD rate

Bankrate's experience on financial advice and reporting

At Bankrate, we regularly survey approximately 4,800 banks and credit unions in all 50 states to provide you with one of the most comprehensive comparisons of interest rates. All of the CD accounts below are insured by the FDIC at banks or the NCUA at credit unions. When selecting the best CD account for you, look for the highest yield while also considering introductory rates, minimum balances and accessibility.

We strive to help you make smarter financial decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. The top banks listed below are based on factors such as APY, minimum balance requirements and broad availability.

Top CD rates by term

Note: The APYs (Annual Percentage Yield) shown are as of Aug. 31, 2021. The APYs for some products may vary by region.

Best 3-month CD rates

Bank Rate Minimum Deposit To Open
Bethpage Federal Credit Union 0.40% APY $50
Navy Federal Credit Union 0.40% APY $1,000
TIAA Bank 0.35% APY $1,000

Best 6-month CD rates

Bank Rate Minimum Deposit To Open
Quontic Bank 0.55% APY $500
First Internet Bank 0.45% APY $1,000
Limelight Bank 0.45% APY $1,000

Best 9-month CD rates

Bank Rate Minimum Deposit To Open
Navy Federal Credit Union 0.50% APY $1,000
TIAA Bank 0.45% APY $1,000
TAB Bank 0.40% APY $1,000

Best 1-year CD rates

Bank Rate Minimum Deposit To Open
Comenity Direct 0.70% APY $1,500
Delta Community Credit Union 0.65% APY $1,000
Quontic Bank 0.60% APY $500

Best 2-year CD rates

Bank Rate Minimum Deposit To Open
Delta Community Credit Union 0.80% APY $1,000
Quontic Bank 0.75% APY $500
Comenity Direct 0.75% APY $1,500

Best 3-year CD rates

Bank Rate Minimum Deposit To Open
Quontic Bank 1.00% APY $500
Delta Community Credit Union 0.95% APY $1,000
Pentagon Federal Credit Union 0.85% APY $1,000

Best 4-year CD rates

Bank Rate Minimum Deposit To Open
VyStar Credit Union 0.90% APY $500
Suncoast Credit Union 0.85% APY $500
First Internet Bank of Indiana 0.85% APY $1,000

Best 5-year CD rates

Bank Rate Minimum Deposit To Open
Delta Community Credit Union 1.15% APY $1,000
Quontic Bank 1.11% APY $500
Pentagon Federal Credit Union 1.10% APY $1,000

The Federal Reserve and CD rates

The Federal Reserve's interest rate decisions can impact the rates that banks offer on CDs. When the Fed raises or lowers the federal funds rate, banks typically respond by moving savings and money market account yields in the same direction. CDs tend to track Treasurys closely. In 2019, a year when the Fed lowered rates three times, CDs generally decreased before or after a Fed rate cut.

Two emergency Fed rate cuts in March 2020, and decreasing Treasurys last year, caused high-yield CDs to decrease.

If you’re concerned about rates potentially decreasing or want to lock in a fixed yield, a CD may be right for you. Savings accounts and money market accounts generally have variable rates, meaning your yield can decrease. Introductory rates on those accounts are an exception to this rule. Intro rates may give you a fixed rate during the introductory period, though there may be certain requirements to keep this rate.

National average interest rates for CDs

Learning about the average interest rates is a great way to get an idea of the CD rate environment. But you should aim to get a CD with a yield much higher than the average. The top CD yields are typically available at online banks.

National average research methodology

The "Bankrate.com National Average," or "national survey of large lenders," is conducted weekly. The results of this survey are quoted in our weekly articles and national media outlets. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We've conducted this survey in the same manner for more than 30 years, and because it's consistently done the way it is, it gives an accurate national apples-to-apples comparison.

Here are the current average rates for the week of Sep. 15, 2021, according to Bankrate's weekly survey of institutions:

CD Term CD National Average APY
1-year 0.15%
2-year 0.20%
3-year 0.23%
4-year 0.26%
5-year 0.28%

Note that those are average APYs. See the table at the top of the page for APY comparisons.

Best CD rates from top banks

Before applying for a certificate of deposit, be sure to read expert advice and tips below to ensure a financially safe decision. Here are Bankrate's top picks for banks with the best CD rates:

Marcus by Goldman Sachs: 6 months – 6 years, 0.15% APY – 0.80% APY; $500 Minimum Deposit to Open

Best CD Rates from marcus by goldman sachs

Overview: Marcus is the consumer banking arm of investment firm Goldman Sachs. It offers a range of savings products and personal loans. That includes a number of CD options and a high-yield savings account. And like other online banks, its rates are highly competitive. Marcus often is found within the group of banks offering the highest CD rates across all terms. In fact, Marcus guarantees that you'll receive the highest rate it offers on a CD within 10 days of opening an account, as long as you deposit $500 during that time. So, if you purchase a CD and the bank's rate goes up within 10 days after you purchase, you'll receive the higher rate.

Perks: In addition to high yields, Marcus' CDs offer a wide range of terms — from six months to six years — providing plenty of flexibility. And its 10-day guaranteed rate on CDs means you won't miss out on a higher return. On a high-yield CD, you can add to it during the first 30 days – even if you’ve reached the $500 minimum requirement.

Marcus by Goldman Sachs now has an app available on iOS and Google Play, where you can view your account balance.

What to watch for: Since it's an online bank, Marcus doesn't have any branches. Marcus also doesn't offer a checking account. If you're looking for a full-service bank, you may be better served elsewhere. On its high-yield CDs, if you withdraw from a CD early, Marcus has a penalty of 90 days of simple interest on a CD that has a term less than 12 months, a penalty of 270 days of simple interest on a CD ranging from one year to five years and a penalty of 365 days of simple interest on a CD with a term longer than five years.

If you’re concerned about early withdrawal penalties, Marcus has a no-penalty CD. This CD has three terms to choose from: seven months, 11 months or 13 months. You’re able to withdraw from a Marcus no-penalty CD beginning seven days after the day you fund the CD. But you can’t make a partial withdrawal.

Also, once the balance on your no-penalty CD hits the minimum balance requirement of $500, you can’t add to this CD.

Synchrony Bank: 3 months – 5 years, 0.15% APY – 0.85% APY; No Minimum Deposit to Open

CD interest rates by synchrony bank

Overview: Synchrony Bank, formerly known as GE Capital Retail Bank, offers a number of depository products for consumers, including CDs, money market accounts and savings accounts. As an online bank, it has limited branches. It also doesn't offer a checking account. But it does consistently offer some of the best rates available on CDs, with terms ranging from three months up to 60 months. And Synchrony has a highly rated customer service department available by online chat or by phone seven days per week. Customers of Synchrony get access to loyalty perks, including complimentary identity theft resolution services and travel and leisure discounts. "Diamond customers" get a dedicated customer service number, access to webinars, three free wire transfers per statement cycle and unlimited ATM reimbursements.

Perks: High rates are undeniably one of the biggest perks of CDs offered by Synchrony. But Synchrony also frequently offers CD specials that come with specialty terms. Those specials often come with high rates and provide an alternative to the typical CD terms. In addition, you won't find a monthly service fee at Synchrony Bank.

What to watch for: Synchrony Bank isn't a full-service bank. It doesn't offer a checking account. That means you won't have much liquidity. But sometimes that can be a good thing, if you're looking to keep your hands off your cash while it grows.

Synchrony has early withdrawal penalties on its CDs. If you withdraw early from a CD with a term of 12 months or fewer, you’ll pay a penalty of 90 days of simple interest at the current rate. If you made an early withdrawal on a CD with a term of more than a year but fewer than four years, you’d incur a penalty of 180 days of simple interest at the current rate. If you broke a Synchrony CD with a term of more than four years before it matured, you’d pay 365 days of simple interest at the current rate.

If you withdraw interest that’s been earned and credited during the CD’s current term, you won’t incur a penalty.

Barclays Bank: 3 month – 5 years, 0.10% APY – 0.25% APY; No Minimum Deposit to Open

Best CD rates from barclays

Overview: Barclays is popular for its credit cards and personal loans, but it's also a strong contender in the category of deposit accounts. In fact, the bank offers a full suite of products, including a slew of online CDs and an online savings account. Its rates are competitive across the board. In the U.S., its banking operation is only online. That means Barclays can save on overhead costs and consistently pass that savings on to customers by offering some of the top available rates on CDs and savings accounts. The bank's CD terms range from three months to 60 months and require no minimum deposit, something that's hard to find out of a high-yield CD.

Perks: Competitive interest rates and no minimum deposit requirement make CDs from Barclays hard to beat. You'll also get the benefit of an online banking experience and no hidden monthly fees.

What to watch for: Barclays, like many other online-based banks, isn't a full-service banking institution. It doesn't have a checking account, ATM network, mobile app or branch locations. If you're comfortable banking online, and only want to use Barclays for its savings products, credit cards or personal loan features, it can be a good fit. Otherwise, you might want to look elsewhere. And though Barclays CD rates are competitive, you may be able to lock in a higher rate from other online institutions.

At Barclays, there’s a penalty of 90 days of simple interest on the amount withdrawn early from a CD with a term of two years or fewer. A Barclays CD that has a term longer than two years will have an early withdrawal penalty of 180 days of simple interest on the amount withdrawn before maturity. Barclays doesn’t offer a no-penalty CD.

Comenity Direct: 1 year – 5 years, 0.70% APY – 0.90% APY; $1,500 Minimum Deposit to Open

Highest CD rates from Comenity Logo

Overview: Comenity Bank is best known for its co-branded, private label and business credit card programs. Comenity Bank and Comenity Capital Bank partner with more than 160 retailers worldwide on those credit cards. Comenity Direct was created in 2018. And in April 2019, Comenity Direct launched a High-Yield Savings Account and five CDs.

Perks: Comenity Direct has competitive yields on five terms of CDs, and its CDs are FDIC-insured and interest accrues and compounds on a daily basis. Comenity Direct made its April 2019 debut by offering top-tier yields on all of its CD selection.

What to watch for: Comenity Direct has an early withdrawal penalty on its CDs. The penalty on CDs from a year to three years is 180 days of simple interest and 365 days simple interest on terms four years and longer. Partial withdrawals of principal aren’t allowed.

Citizens Access: 1 year – 5 years, 0.10% APY – 0.25% APY; $5,000 Minimum Deposit to Open

Highest CD rates from citizens access

Overview: Citizens Financial Group, which has roots dating back to 1828 via High Street Bank, launched Citizens Access – its direct bank – in July 2018. Citizens Access debuted among some of the highest-yielding accounts and is still near the top of the leaderboard.

Perks: Citizens Access takes pride in its fee-free approach. Its CDs also give you the option of having your interest credited toward your principal or you can transfer it to another account.

What to watch for: If you withdraw from your Citizens Access CD before it matures, a CD with a term of one year or shorter will be subject to a penalty of 90 days of interest on the CD balance. A long-term CD at Citizens Access will receive a penalty of 180 days of interest on the CD balance if there is an early withdrawal.

American Express National Bank: 6 months – 5 years, 0.10% APY – 0.55% APY; $0 Minimum Deposit to Open

Best CD rates from american express bank

Overview: While American Express is perhaps most known for its credit cards, the company also provides savings accounts and CD options to consumers. The FDIC-insured national bank offers attractive rates on all of its savings products. Its CD rates are often the top-paying in the country. As an extra bonus, it doesn't have any fees or minimum balance requirements.

Perks: Extremely competitive interest rates, no minimum balance requirements, no fees and an easy application process make CDs from American Express hard to beat. American Express also offers a wide range of terms to fit your needs, whether you're looking for a short 6-month deposit account or a longer 60-month option.

What to watch for: Like some other similar banks in the space, American Express doesn't have a checking account option or an ATM card. Checks need to be mailed in. And customer support is limited to the phone. If you're looking for a full banking experience, you might be better served at another bank.

If you withdraw from an American Express CD that has a term of less than one year before it matures, you’ll incur a penalty of 90 days of interest on the amount withdrawn. CDs with a term of a year but shorter than four years will incur a penalty of 270 days of interest on the amount withdrawn if the amount is taken out before that CD matures. A CD that’s at least 48 months long but shorter than 60 months will have a penalty of 365 days of interest on the amount withdrawn. And a CD with a term of five years or longer will have a penalty of 540 days of interest applied if you withdraw your principal balance or if the account is closed before it’s set to mature.

American Express doesn’t offer a no-penalty CD.

Amerant Bank: 1 year – 5 years, 0.10% APY – 0.20% APY; $10,000 Minimum Deposit to Open

CD interest rates from Amerant Logo

Overview: Amerant is the largest community bank headquartered in Florida. Established over 40 years ago, the FDIC-insured institution has banking offices in Florida and Texas. Amerant offers competitive APYs on CDs and a range of term options. However, offers shown are not available in Florida or Texas.

Perks: Amerant offers competitive APYs on its CDs with term options from one year to five years.

What to watch for: To earn interest on Amerant’s CDs, you must open an account online with at least $10,000. The maximum total dollar limit per customer is $500,000. Special rates are offered only online and for a limited time. CD rates mentioned are not available in Florida or Texas unless specified.

Ally Bank: 3 months – 5 years, 0.15% APY – 0.80% APY; No Minimum Deposit to Open

CD interest rates from ally bank

Overview: Since changing its name from GMAC Bank to Ally Bank in May 2009, Ally Bank has become well-known for offering high-yield savings products to consumers. It not only offers a suite of high-yield CDs, including a raise-your-rate CD and no-penalty CD, it also provides an online savings account, money market account and a checking account. CDs terms from the bank range from three months to five years, offering some flexibility. In addition to its savings products, it also provides credit cards, auto financing, home loans and investment products. If you're searching for a full-service online banking experience, Ally is worth consideration.

Perks: Ally's CDs consistently offer competitive rates. Ally also doesn't charge any maintenance fees. Online and on its app, Ally posts how long the wait time is for a customer service representative via telephone.

What to watch for: Notably, Ally doesn't require a minimum deposit to open a CD. If you withdraw from an Ally High Yield CD that has a term of two years or fewer before it matures, you’ll incur a penalty of 60 days of interest. If you have a CD between 25 months and three years, you’ll be charged a penalty of 90 days of interest if you withdraw from it early. An early withdrawal from a CD of 37 months to four years will cost 120 days of interest, and withdrawing from a CD that’s 49 months or longer will cost you a penalty of 150 days of interest.

You can withdraw your money from an Ally no-penalty CD only after the first six days of funding their 11-month CD.

Capital One: 6 months - 5 years, 0.10% APY - 0.80% APY; $0 Minimum Deposit to Open

Best CD rates from capital one 360

Overview: Capital One is often associated with credit cards, but it also provides a range of depository and lending products to consumers through Capital One, an online banking subsidiary. Capital One offers a wide range of CDs, a savings account, a savings IRA and a checking account. Yields from Capital One tend to be competitive. In fact, CD rates from the bank are consistently among the top nationally available options. Along with stellar rates, Capital One's banking products come with the security of being insured by the Federal Deposit Insurance Corp.

Perks: High yields and low fees make CDs from Capital One top contenders. And it offers a wide range of term options, from six months to 60 months. But Capital One also provides quality banking tools for money management and excellent customer service. In fact, it has a number of Capital One Cafes spread throughout the country.

What to watch for: Capital One's highest yields are the one-year CD and the 18-month CD. After these competitive APYs, the yields begin to drop off starting with the two-year CD. Capital One CDs with a term of a year or shorter have a penalty of three months’ worth of interest. Capital One CDs with terms longer than a year have a penalty of six months’ worth of interest.

PurePoint Financial: 6 months – 5 years, 0.15% APY – 0.25% APY; $10,000 Minimum Deposit to Open

Best CD rates from purepoint financial

Overview: PurePoint Financial is a hybrid digital bank and a division of MUFG Union Bank, N.A. PurePoint Financial is a member of the Mitsubishi UFJ Financial Group Inc, which according to PurePoint’s website is the fifth largest bank in the world, based on total assets. As PurePoint says on its website, "And while we’re a new brand, we’re not new to banking."

Perks: PurePoint Financial offers nine terms of regular CDs and three terms of no-penalty CDs. Most customers should find a term that’s right for them.

What to watch for: PurePoint Financial has high minimum balance requirements. So you'll need at least $10,000 to open any PurePoint Financial account.

PurePoint Financial has an early withdrawal penalty of 181 days of simple interest if you withdraw from a CD before it matures. It also has three no-penalty CDs available, at terms of 11, 13 and 14 months.

You’re able to withdraw your balance on a no-penalty CD within the first six days after funding it, but you’d incur a penalty of 181 days of simple interest. The no-penalty-withdrawal period begins seven days after you fund this CD.

Investors eAccess: 6 months – 10 months, 0.15% APY; $500 Minimum Deposit to Open

Best rates on CDs from investors eaccess

Overview: Investors eAccess is the online-only division of Investors Bank. It offers two certificates of deposit products: A six-month, no-penalty CD and a 10-month CD. The bank also offers a money market account. Like many online banks, Investors eAccess’ CD rates are competitive. Additionally, the minimum balance requirements are low.

Perks: Investors eAccess’ six-month no-penalty CD won’t penalize you for closing your account before your term ends, giving you more liquidity compared with traditional CDs. The bank’s 10-month CD isn’t a no-penalty account. Both accounts require only a $500 minimum deposit to open, making the top yields highly accessible. Interest on both CDs compounds daily.

What to watch for: You can’t make partial withdrawals from the six-month CD, so you’ll have to close the account if you need to access your money. However, any interest you’ve earned can be withdrawn at any time without closing the account. You can’t make a penalty-free withdrawal until at least seven days after you’ve funded the CD.

If you need to withdraw from your Investors eAccess 10-month CD before it matures, you’ll incur a penalty of 90 days of simple interest.

CIT Bank: 6 months – 5 years, 0.30% APY – 0.50% APY; $1,000 Minimum Deposit to Open

Best CD rates from cit bank

Overview: CIT Bank is a nationwide direct bank, and is a division of CIT Bank, N.A. CIT Bank was founded in 2009. CIT Bank, N.A. is a subsidiary of CIT Group, Inc., a financial holding company founded in 1908.

Perks: CIT Bank offers a variety of products. These include a checking account, money market account, two savings accounts and an 11-month no-penalty CD. It also has eight terms of CDs to choose from. These range from six months to a five-year CD.

What to watch for: At CIT Bank, term, jumbo, ramp-up and ramp-up plus CDs with a term up to one year incur a penalty of three months of simple interest on the amount withdrawn before maturity. If you make an early withdrawal from one of these CDs with a term more than one year and up to three years, you’ll incur a penalty of six months’ worth of simple interest on the amount you withdraw.

Finally, an early withdrawal on one of these CDs with a term of more than three years at CIT Bank would incur a penalty equal to 12 months’ simple interest on the amount withdrawn.

You can’t withdraw from CIT Bank’s no-penalty, 11-month CD during the first six days after CIT Bank has received your deposit. You can withdraw the total balance and interest earned from this no-penalty CD starting seven days after CIT Bank has received your money.

CIT Bank CDs renew to the same term automatically, except for the 13-month CD and the 18-month CDs. Upon maturity, the former automatically renews as a 1-year CD and the latter renews as a 2-year CD.

Summary of best CD rates for September 2021

Bank 1-year APY 3-year APY 5-year APY Minimum Deposit
Marcus by Goldman Sachs 0.55% 0.65% 0.80% $500
Synchrony Bank 0.50% 0.75% 0.85% $0
Barclays Bank 0.25% 0.25% 0.25% $0
Comenity Direct 0.70% 0.85% 0.90% $1,500
Citizens Access 0.10% 0.15% 0.25% $5,000
American Express National Bank 0.20% 0.45% 0.55% $0
Amerant Bank 0.10% 0.20% 0.20% $10,000
Ally Bank 0.55% 0.65% 0.80% $0
Capital One 0.20% 0.60% 0.80% $0
PurePoint Financial 0.25% 0.25% 0.25% $10,000
CIT Bank 0.30% 0.40% 0.50% $1,000

Note: The APYs (annual percentage yields) shown are as of Aug. 31, 2021. Bankrate's editorial team updates this information regularly, typically biweekly. APYs may have changed since they were last updated and Bankrate's editorial team may occasionally update these APYs after that update. The APYs for some products may vary by region.

The best no-penalty CD rates

If you’re looking for a fixed annual percentage yield (APY) but aren’t sure when you’ll need to access some of your money, a no-penalty CD can be a good compromise. It may give you a higher yield than a savings account or money market account. And the no-penalty CD's APY is generally fixed.

A no-penalty CD might be a good option during uncertain times. This applies to both the uncertainty of the economy due to coronavirus and the uncertainty of future rates.

A no-penalty CD can help savers concerned about maintaining as high a yield as possible despite the future direction of rates. If rates go down, no-penalty CDs generally have fixed yields, which means you’ll benefit from the higher rate you locked in on your existing CD. And if rates skyrocket, you can withdraw your money without paying a penalty and roll that money into a higher-yielding no-penalty CD. Compare the best no-penalty CDs to find the right one for you.

If you’re sure you’re not going to need your money for a certain period of time, a regular CD might earn you a higher APY. But you’ll likely incur a penalty if you make a withdrawal before the CD matures.

Marcus by Goldman Sachs: 7 months – 13 months, 0.25% APY – 0.45% APY; $500 minimum deposit (7-month no-penalty CD is 0.45% APY)

Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA. Marcus offers three no-penalty CD terms. Marcus also offers regular CDs that do have a penalty for early withdrawals and a savings account.

Marcus made its debut in October 2016 with just unsecured personal loans before it began offering a savings account and CDs under the Marcus by Goldman Sachs brand in November 2017.

Ally Bank: 11 months, 0.50% APY; $0 minimum deposit

Ally Bank started in 2004 and is headquartered in Sandy, Utah. In 2009, GMAC Bank was transformed into Ally Bank. Ally Bank exceeded 1 million Ally Bank customer accounts in 2012 and currently has 1.5 million customers.

Besides its no-penalty CD, Ally Bank also offers a checking account, a money market account, term CDs, and two terms of a Raise Your Rate CD.

CIT Bank: 11 months, 0.30% APY; $1,000 minimum deposit

CIT Bank is CIT’s national direct bank. CIT Bank, N.A. is a subsidiary of CIT Group Inc.

Besides its no-penalty CD, it also offers eight terms of regular CDs and four terms of jumbo CDs.

In addition to its CDs, CIT Bank offers two savings accounts and a money market account. CIT Bank also launched its eChecking account in November 2019.

PurePoint Financial: 11 months - 14 months, 0.10% APY – 0.15% APY; $10,000 minimum deposit (11-month no-penalty CD is 0.15% APY)

PurePoint Financial is a division of MUFG Union Bank, N.A. It offers nine regular CD terms and three terms for its no-penalty CDs. All PurePoint Financial savings products require a $10,000 minimum deposit.

What to know about CD rates

Continue reading to learn more about certificates of deposit. Bankrate regularly analyzes banks, gets insights from top financial experts, and compiles industry data to provide the information you need to make an informed financial decision when selecting a CD. Our team has also interviewed financial professionals to give you expert advice on choosing the best CD rates. Check out tips below from financial planning experts.

What is a CD?

A CD, or certificate of deposit, is a type of savings account found at banks and credit unions that pays a fixed interest rate on money deposited. In exchange, you agree to keep the full deposit in the account for a set term. Common terms include three, six, nine, 12, 18, 24, 36, 48 and 60 months.

Generally, the longer the term, or amount of time you agree to lock up your money, the higher the interest rate. When choosing the best CD rate for your financial goals, consider other factors, like minimum deposit requirements and early withdrawal penalties that could eat into your returns.

The biggest risk associated with traditional CDs is the penalty institutions charge for withdrawing money before the CD's maturity date. Traditional CDs come with a fixed-interest rate that's locked in for the entire term, whether it’s six months or five years. And while it's possible to withdraw money before the CD matures, most institutions charge stiff early-withdrawal penalties for doing so. That makes it wise to keep the full deposit in the CD account for the full term. Early withdrawal penalties can often offset any interest earned and some of the principal investment.

Some banks and credit unions, however, offer “specialty” CDs that give you more flexibility. One such CD is a no-penalty account, which gives you the option to withdraw money early without incurring a penalty. The catch? The interest rate paid on no-penalty CDs, and similar types of specialty CDs, is typically lower than a traditional CD.

In addition to traditional and no-penalty CDs, some institutions offer other specialty CD options. These include jumbo CDs, bump-up CDs, callable CDs and zero-coupon CDs.

Overall, certificates of deposit are a safe place to stash cash. They are insured up to $250,000 at banks by the FDIC and at credit unions by the National Credit Union Administration (NCUA), which operates and manages the National Credit Union Share Insurance Fund. CDs also don’t suffer price fluctuations or losses like stocks, bonds and other market-driven investments do in down markets.

How does a CD work?

With a certificate of deposit (CD), you deposit money for a predetermined amount of time and earn interest on those funds. The interest is usually compounded and added to the principal. One of the reasons you get a higher annual percentage yield (APY) is because the bank knows how long you’ll be keeping your money in the CD. The bank also factors in for the risk of early withdrawals by imposing a fee if you access your money before the CD term ends. CDs are popular accounts for longer-term money with capital preservation as the main goal.

Choose your CD length wisely because most CDs, except for no-penalty CDs, charge early withdrawal penalties. The duration of CD accounts typically determines the rate; the longer the term, the higher your APY will usually be.

Once your CD matures, you get your principal back plus any interest earned. Banks generally contact you before your maturity date. Once the CD matures, a grace period goes into effect. During this grace period — which usually is 7 to 10 days — account holders can decide whether they will withdraw the funds in their account or let the CD automatically renew for another term of the same length or open a CD with a new term.

Think carefully about what you’ll do with the money you locked in a CD before it matures. If you have a short-term CD that you end up rolling over year-after-year, you’ll likely end up earning less interest than you would if you had invested in a long-term CD from the very beginning.

When should you get a CD?

First and foremost, getting a CD makes sense when you have the financial stability to lock away some of your cash for a set period of time. That’s because you can face strict penalties for withdrawing money before the CD matures.

That makes a fixed-rate CD a good product for those who don’t like surprises — and want to know their rate of return beforehand. Because they’re low-risk investments, CDs tend to be associated with more risk-averse savers. But people of different ages can benefit from sticking some of their cash into a CD.

"CDs can be a good investment when you are looking to protect principal, meaning you do not want to risk the value going down, but want a better return than what you can get in a savings account," says Juli Erhart-Graves, certified financial planner, and president of Worley Erhart-Graves Financial Advisors in Indianapolis.

On the investment risk spectrum, says Erhart-Graves, CDs tend to be a step above a savings account but a step below an actual bond.

Certificates of deposit work well for short-term financial goals, like savings for a down payment on a house or a new car. Tying up money in a CD for 12 months or two years could be one way to stop yourself from dipping into your savings prematurely.

But due to inflation, using a CD to build wealth over time won’t work in your favor. Historically, inflation has risen over time, which reduces the purchasing power of money earning a yield below the rate of inflation.

“This is why I wouldn’t even recommend that a retiree (put) all their money in CDs,” says Dana Twight, founder and principal of Twight Financial Education.

CD rates have been trending lower for a while since the Fed has lowered its own rates. But banks are still competing for your money; however, this competition may slacken. If you’re considering a CD or might need one in the near term, it makes little sense to delay. The Fed is unlikely to move rates higher for some time, and CD rates may continue to fall more.

That means it’s probably smart to act now if you’re looking to lock in a rate.

If you’ve historically kept a lot of your money in a savings account, now could be a good opportunity to lock in your CD rate. Rates on savings accounts have fallen, too. While some banks are offering savings yields that are currently higher than what you can receive on a CD, it’s a good bet that the rates on savings accounts will continue to decline.

However, you may be able to lock in a yield with a CD before rates fall further. If you do so, you may be able to trade in your low-yielding savings account for a higher-yielding CD.

What term should I select?

CDs come in a range of terms. Typically, the longer the term, the higher the yield. But it's important to consider more than yield when choosing a CD term. Selecting a term comes down to a couple of main factors — your financial needs and the current rate environment.

Think about how soon you'll need the money back. If you know you'll need to use the money for a purchase within 12 months, for example, favor shorter terms, like 3, 6 or 12 months. Keep in mind that traditional fixed-rate CDs often come with steep early withdrawal penalties.

Consider the rate environment as well when choosing a CD term. In a rising rate environment, investing in shorter terms can help you take advantage of current rates and reinvest in higher rates later on.

What happens if you cash in a CD early?

Cashing in a CD early will likely cost you with an early withdrawal penalty.

There can be a way to deduct a CD penalty from your taxes, says Rachel Ivanovich, enrolled agent at Easy Life Management in Carlsbad, California.

“It’s just an above-the-line deduction,” Ivanovich says. “It goes in the adjustments section on the 1040, that if you take the CD out early, and there is a penalty, you can deduct that.”

Why are CDs good for small investors?

CDs are good for small investors because you don’t need a large minimum deposit to open one and they can offer competitive yields. Currently, there are CD options that have no minimum deposit requirement.

CDs are perfect for the investor who has a low-risk tolerance and wants a fixed rate of return. CDs usually have fixed rates for the term, but there are some exceptions. For instance, step-up CDs usually start with a lower APY and gradually increase on an annual basis. Some banks, meanwhile, offer variable-rate CDs.

"A certificate of deposit is a fine choice if you have a specific cash need at a future date. Invest your money with complete safety, a known return and a defined time frame for when you’ll get that money. Seek out the top yields on the maturity that suits your timetable."

- Greg McBride, CFA, Bankrate chief financial analyst.

Are CDs safe?

CDs at either a FDIC-insured bank or at a credit union regulated by the NCUA and insured by the NCUSIF are safe as long as it’s within insurance guidelines. These accounts are safe at online banks, brick-and-mortar banks and credit unions because they’re backed by the full faith and credit of the U.S. government. Just make sure you’re not exceeding the insurance limits. The standard insurance limit is $250,000 per depositor, per insured bank, for each account ownership category at an FDIC-insured bank. For federally insured credit unions, the standard share insurance is $250,000 per share owner, per insured credit union, for each account ownership category.

Are CD rates going up?

It’s very likely that CD rates won’t be increasing in 2021, according to Bankrate’s CD forecast.

Online banks with the top-yielding CDs saw decreases throughout 2020, with the declines starting around March or April of 2019. In July 2021, CD APYs are relatively stable, though there are occasional decreases, and even increases, on APYs.

The Federal Reserve, which directly affects savings account rates and can also influence CD rates, isn’t planning on raising rates until 2023. In 2023, there could be two rate increases.

Plus, banks generally have more than enough deposits right now, which should also keep CD rates low in the second half of 2021.

Impact of COVID-19 on certificates of deposit

The coronavirus pandemic has damaged the nation's economy. Around 42 percent of people say their income isn’t where it was before the pandemic, according to a Bankrate survey conducted in November 2020 and published in December 2020.

Lost jobs, furloughs and reduced work hours have taken a tremendous toll on spending — and saving.

In response to the crisis, the Federal Reserve dropped its benchmark interest rate to near zero and is expected to hold it there through 2023. Yields on certificates of deposit tumbled as a result.

“The sharp economic plunge due to the pandemic has brought interest rates to record lows, so CD investors are taking it on the chin," says Greg McBride, CFA, chief financial analyst for Bankrate.

This scenario is especially tough on seniors. “Retirees dependent upon interest income are most directly affected,” McBride says.

There is good news, however. Many Americans are receiving a third round of stimulus checks. But for more than 6 in 10 Americans, a $1,400 stimulus check won’t last them three full months, according to a recent Bankrate survey. Most Americans plan to put their stimulus money toward bills (45 percent) and necessities (36 percent).

Also, 28 percent of Americans are planning to save the stimulus funds and 11 percent intend to invest the stimulus money.

Despite low yields, CDs still have advantages. Unlike the volatile, unpredictable stock market, a CD offers guaranteed returns.

“While the return on a CD isn’t much more than a top-yielding savings account, it provides certainty of knowing what you’re going to earn over the term," McBride says. "If you don’t need the money for 12 months, you can lock in a rate of return.” You will need to lock up your money for the entire term, however. If you withdraw the money before the maturity date, you generally will have to pay a penalty fee.

CD strategies during COVID-19

CDs can work to your advantage even when rates are low. They still pay more than traditional savings accounts.

“Generally, CDs are ideal in a declining rate environment, or as a way to lock in a higher rate on a longer term if you don’t think rates will increase any time soon," said Nicole Straub, vice president of deposits at Discover Financial Services, in an email.

Typically, the longer the term, the higher the yield. Though in 2021, you might not notice too much of a difference between the yield on a one-year CD and a five-year CD at some banks, for instance.

Laddering multiple CDs — where you buy multiple CDs at once that mature at different intervals — will give you more flexibility. If you find a better investment, you can take advantage of it.

And your ladder doesn't have to include CDs from the same bank. Shop around for better APYs. Online banks tend to pay higher yields because they have lower overhead.

But the best strategy in this economic crisis is to find the CDs that work best for you. CDs come in many varieties and you may find the product that suits you best doesn't offer the highest APY.

“How to use CDs in your personal savings strategy differs for each person, whether we are in the middle of a pandemic or not,” Straub says. “CDs should be considered once you have enough liquid savings should someone lose their job or an unexpected expense arises.

“So, when deciding the best strategy for you, first evaluate your liquid savings, then decide how long you are comfortable having money locked up. And make sure you do your research before you pick a company that offers CDs."

What to consider when choosing a CD

Start by thinking about your financial goals and why you want to open a CD. If it's to save for the purchase of a vehicle in a year, for example, you may want to choose a CD with a 12-month term. That way it will mature at the same time you're ready to buy your new car.

It's also important to consider the interest rate you're getting, how often the interest compounds and whether you're more comfortable with a CD from an online bank or from a traditional institution with branches. Keep in mind that online banks typically offer higher rates as they have less overhead and pass along those savings to customers.

Consider the type of CD you want as well. There are many different kinds of CDs that can be useful in various situations. For example, a no-penalty CD could be useful if you need access to your cash and want to withdraw your money without incurring a penalty.

Before you choose a CD, weigh the pros and cons to ensure you're making the right investment choice for your financial situation. Here are some of the pros and cons of CDs:

Pros

  • Longer-term CDs typically have a higher APY than money market accounts or savings accounts.
  • CDs are a good place to keep money that you want to save and don’t want to easily touch and spend.
  • Deposit insurance covers accounts at FDIC banks up to at least $250,000. And at an NCUA credit union, your money is federally insured to at least $250,000.
  • A CD can diversify your savings plan with a guaranteed rate.
  • If you keep your money in a CD for the full term, your principal is safe.

Cons

  • Your money is in an account for potentially a long period of time.
  • Many CDs have early withdrawal penalties.
  • If rates rise substantially, your money is stuck in a lower-yielding CD and the early withdrawal penalty may negate any benefit of taking the money out and putting it into a higher-yielding CD.
  • You could potentially earn greater rates of return in the stock market or by investing in other securities.

Types of CDs

Financial institutions offer a wide range of CDs to fit different financial situations. Take time to consider which type of CD is best for you.

Traditional CDs

Traditional CDs are the most common and have a fixed APY for the CD’s term.

These CDs usually don't let you deposit additional funds before the CD matures. They also tend to have strict early withdrawal penalties.

When this CD makes sense: You know exactly when you need the money and there’s no chance you need it before. Great for CD ladders or another CD investing strategy where timing is important.

No-Penalty CDs

Traditionally, CDs are known as time deposit accounts. Standard CDs typically come with early withdrawal penalties: If you withdraw from a CD before it matures, you’ll usually incur a penalty that’s equal to a certain amount of interest earned during a period of time. For instance, a bank may impose a penalty of 90 days of simple interest on a one-year CD if you withdraw from that CD earlier than a year. However, some banks offer no-penalty CDs — also known as liquid CDs — which allow you to withdraw your money early without having a penalty fee cut into your interest earnings. A bank may require that you wait at least some time, generally around six or seven days, before you’re able to withdraw from a no-penalty CD. If the institution lets you withdraw money during that time period, you may incur a penalty. Some banks may not allow a partial withdrawal from your no-penalty CD. Generally, you aren’t able to add to no-penalty CDs. No-penalty CD rates tend to be lower than regular CDs but can be higher than some savings accounts or money market accounts.

When this CD makes sense: You’re mostly confident that you won’t have to withdraw the money before the CD matures, but you might have to tap it. You’re willing to give up a little return for a flexible withdrawal.

Jumbo CDs

Jumbo CDs generally require savers to deposit $100,000 or more. The phrase “jumbo CDs” isn’t that common these days. But some banks still offer them. Generally, you can find the same or even higher APYs in CD products that aren’t considered jumbo CDs. But some jumbo CDs reward customers for these large deposits with a higher yield.

When this CD makes sense: A jumbo CD is a good option if you can get a little extra yield for depositing more money and you’re sure you won’t need to access your money during the term of the CD.

Brokered CDs

CDs sold through brokerage firms are known as brokered CDs. You need a brokerage account with an institution in order to qualify for one of these certificates of deposit. Brokered CDs sometimes carry higher rates than traditional CDs from your local bank, but they also carry more risk. That's because they can be traded like bonds, and if you decide to sell before the maturity date, you could end up taking a loss. You’ll want to verify these banks are FDIC-insured.

When this CD makes sense: You can get a somewhat higher yield by being able to sit through the ups and downs of the market. A brokered CD is a good option if you’re sure you won’t need to touch the principal before it matures, therefore avoiding the risk that you’ll take out the money when the CD dips.

Callable CDs

Callable CDs carry more risk than traditional CDs, but they tend to offer higher interest rates. The risk is that the bank issuing the CD can "call" your CD before it fully matures, limiting the amount of interest you might earn. For example, if you purchase a three-year CD with a six-month call-protection period, the financial institution could call the CD back after the first six months. You will get your full principal and interest earned; however, you would need to reinvest your money, likely at lower rates.

When this CD makes sense: If rates are not expected to fall further over the life of the CD, a callable CD could make sense. Otherwise, if rates dip significantly outside the call protection period, the bank will likely call in its CD.

Bump-up CDs

These types of CDs allow you to request that the bank increase your rate during the CD term under certain conditions. Institutions that issue this CD option usually only allow one bump-up per term. For example, imagine purchasing a three-year CD at a given rate, and one year into the term, the bank offers an additional half-point rate increase. With a bump-up CD, you're allowed to request a rate increase for the remainder of the term. The disadvantage is that bump-up CDs often pay lower initial rates than traditional CDs. But bump-up CDs can be useful tools in certain environments.

When this CD makes sense: A bump-up CD could be a good option if rates are expected to rise significantly during the term of the CD. Otherwise, you’re likely accepting a lower rate for little potential upside.

Step-up CDs

Like bump-up CDs, step-up CDs give you the opportunity to move up to a higher yield if rates rise. The difference is that with step-up CDs, banks automatically increase rates in the CD at certain intervals. You don't have to request a rate increase. Like with bump-up CDs, the disadvantage is that you'll generally get a lower initial rate. There's also no certainty that you would end up with a better return than if you had parked your savings in a traditional CD with a higher yield instead.

When this CD makes sense: A step-up CD may be a good option if rates are expected to move up substantially during the term of the CD. However, this rise may already be priced into a traditional CD, so it may be simpler and more rewarding to go with a traditional CD from the start.

Add-on CDs

Generally, CDs allow you to only make a single initial deposit. That's not the case with add-on CDs. These products give you the option to make multiple deposits during the term. The exact number of additional deposits you can make varies by institution.

When this CD makes sense: An add-on CD could be a good choice if you’re likely to have more money to add to the account and you’re getting a good rate from it. If rates are likely to rise, however, you could simply add new money to another higher-yielding CD.

Zero-coupon CDs

Zero-coupon CDs allow you to buy the CD at a discount to its value. When the CD matures, you receive the full value of the CD. In this way, they are similar to zero-coupon bonds. Let's say you purchase a $20,000 zero-coupon CD for $10,000. You won't receive interest payments during the term. Instead, you get $20,000 when the CD matures in addition to the accrued interest in a lump sum. These are typically long-term investments, making them ill-suited to those who are seeking a short-term timeline.

When this CD makes sense: You’re able to lock up your money for the term and don’t need to access it at all.

IRA CDs

An IRA CD is a CD that's held inside an individual retirement account. These types of CDs offer guaranteed returns. And traditional IRAs are tax-deferred accounts, which means you don't pay taxes on earnings until you withdraw the money. However, you won’t get rich on these investments as the return potential on cash historically has been lower than stocks and bonds.

When this CD makes sense: You have an IRA and need a risk-free option for your money that still earns some yield. This could be an option if you need to hold cash in your account, for example, as you approach retirement and need to reduce your overall portfolio risk.

Should you open a CD for your child?

Whether you should open a CD for your child depends on when the money is going to be used. If you won’t need the money for a set amount of time, a CD could be a great way to grow your child’s savings. If the goal is to earn a fixed APY, that would also be a reason to consider a CD. However, if this is money that you’re looking to gain a potentially higher rate of return, you may want to look at investment options. But these potential gains could have risk of principal, so it all depends on what the money is being used for, your time horizon for the money and whether you want a guaranteed rate of return or a riskier investment. If it’s unclear when your child might need the money, consider a savings account or money market account.

What you can and can't do with a CD

You can typically earn a higher APY with a CD than most savings accounts or money market accounts. That interest is usually compounded on a daily, monthly, quarterly or annual basis. It is usually credited to your account on a monthly, quarterly, semiannual or annual basis. You can re-evaluate the CD after the term expires. You usually have a grace period between the CD’s maturity date and renewal date. This allows you to renew it, change the terms or withdraw and close it. You usually can’t add money to CDs until they mature. In most cases, can withdraw from a CD at any time, but this may result in an early withdrawal penalty. So this is something to avoid, if possible.

CDs and taxes

Are you taxed on a CD when it matures?

Yes, you will be taxed on the interest earned on a CD that contains non-qualified money – money that you already paid income tax on. However, if the money is in a traditional IRA CD, you will pay taxes when the money is withdrawn. This is because traditional IRAs are tax-deferred accounts.

In some cases, you can deduct your CD on your taxes. If you’re eligible to contribute to a traditional IRA CD, you may be eligible for a full deduction up to your contribution limit or a partial deduction. Your modified adjusted gross income, your marital status and whether you’re covered by a retirement plan at work are some of the factors that will determine if you’re eligible for an IRA deduction.

Does cashing a CD count as income?

Interest earned from CDs is an example of taxable interest, according to the Internal Revenue Service. When you earn $10 of interest or more, you should receive Copy B of Form 1099-INT or Form 1099-OID. Even if you don’t receive a 1099, all taxable and tax-exempt interest must be reported on your federal income tax return. Also, interest may be called dividends.

If your CD is a regular bank CD that you opened using funds that have already been taxed, the return of principal shouldn’t be taxed again, Easy Life Management’s Ivanovich says.

One exception to this would be, for instance, if the funds were rolled over from a 401(k) into a traditional IRA CD and those funds have never been taxed. If you’re withdrawing from a traditional IRA CD in that situation, the money that you withdraw will count as income.

What causes CD rates to rise?

The yields on Treasurys, competition among banks, eagerness to secure deposits and the ability to lend money for a higher rate are some factors that cause CD rates to increase. So, if Treasury yields rise, it’s likely that some banks may raise rates.

“Banks take the deposits that we give them and lend them back out,” says Adam Stockton, director of consumer pricing at Novantas. “So, to the extent that banks can get better returns on lending the money out for a longer duration, they can offer better rates to consumers on CDs for locking in their money for a longer duration."

Do CD rates differ by state?

Generally, online banks tend to keep rates consistent across states. If a bank has a brick-and-mortar location in a certain state, it may not offer an online account in that state.

“Most of the purely online banks offer the same rates across the country,” Stockton says. “With that said, there are certainly some banks who will do promotions from time to time or have a special (offer) locally.”

It’s possible for a bank to have different rates in different markets because different markets have different competitive conditions, Stockton says.

"All of the community banks and credit unions are typically different in different markets,” Stockton says. “And so banks overall have to compete with whoever's in each of their local markets. So it may make more sense to have a higher rate in some markets where they're competing against some really aggressive community banks or credit unions that maybe aren’t in their other market.”

What to know about CD ownership

CDs can be owned or titled in different ways. They can be owned by an individual or held jointly. A joint account just means two or more people. It doesn’t necessarily mean just two people.

At some banks, you may be able to have your CD titled as payable on death (POD) to a specific beneficiary. This means that upon your death, the funds go to your beneficiary or beneficiaries. Some POD accounts may avoid probate. But even if the funds avoid probate, they could still be a part of your taxable estate.

A joint account or a POD account may help you get additional FDIC insurance. A joint account has a coverage limit of $250,000 per co-owner. Each co-owner’s shares of every joint account at the same insured bank are added up and insured up to $250,000, according to the FDIC. Always check with your bank to make sure your money is fully insured.

PODs fall under the Revocable Trust Account section at the FDIC. Generally, the owner of a revocable trust is insured up to $250,000 for each different beneficiary if the proper requirements are met.

What to know about CD compounding

The nature of CD compounding

An APY already includes the effect of compounding. That’s one of the reasons you should always compare APYs rather than comparing interest rates.

CD compounding versus other savings account products

Generally, CDs, savings accounts, money market accounts and interest-checking accounts all either compound interest on a daily, monthly, quarterly or annual basis. Daily is the most common – followed by monthly.

But the APY already includes the effect of compounding in it. So, as long as you compare APYs – and not interest rates – you’ll be able to get an apples-to-apples comparison of which account will earn you the most interest over time.

Can you keep depositing into a CD?

Traditional fixed-term CDs typically don't allow additional deposits, but certain non-traditional types may. It depends on the institution and the type of CD being offered. For example, some banks may offer a variable-rate CD with the ability to make ongoing deposits, but not all variable-rate CDs allow for that perk. And while it is possible to find CD accounts that allow for additional deposits, savers may have to sacrifice some yield in order to get that benefit. CD accounts with this feature also tend to come with restrictions, like minimum or maximum amounts for each additional deposit, minimum opening deposits and constraints on when you can deposit.

CDs vs. other savings accounts

CDs vs. IRAs

Generally, CDs are viewed as savings products, while IRAs (individual retirement accounts) are a type of investment account geared toward retirement savings.

There are also hybrid products known as IRA CDs, which are IRA accounts that invest in CDs. Not all CDs can be IRAs, so check with your financial institution.

When it comes to taxes, the interest earned on a traditional CD will be taxed for that tax year if the deposits were made with non-qualified money. In contrast, a traditional IRA is a tax-deferred account, which means taxes will be paid upon withdrawal. A Roth IRA is taxed upfront but allows for tax-free withdrawals. A portion of your retirement money in CDs may help diversify your portfolio. This may be a good option for money that you don’t want in a fluctuating investment product, such as stocks or riskier non-investment grade bonds that offer higher yields.

CDs vs. Traditional Savings Accounts

Savings and money market accounts are more liquid than CDs. That means the funds you store in those types of accounts are easier to access and have fewer withdrawal penalties and limitations. This makes savings accounts better for your emergency fund. You could withdraw the savings you’ve stashed in a CD, but be prepared to pay a penalty if you take your money out before the CD’s maturity date (unless you’ve purchased a no-penalty CD).

CDs vs. Money Market Accounts

The gap between interest rates tied to CDs and savings accounts has narrowed. But CDs are more likely to pay a higher yield than savings accounts or money market accounts.

CDs and money market accounts have some similarities. Both are types of savings products that banks and credit unions offer. Both are considered safe, as long as they’re insured by the FDIC at banks or the NCUSIF at credit unions. Savers opening a CD or money market account might have to meet higher minimum deposit requirements than they would with a savings account.

However, money market accounts offer more liquidity than CDs, often providing the ability to write a limited number of checks per month directly out of the account. Some money market accounts offer a debit card. Those liquidity features aren't something you'll find with CDs.

In exchange for less liquidity, however, CDs typically offer a higher interest rate than money market accounts.

CD vs. Investment Accounts

CDs are a form of investment product. Investment accounts, or brokerage accounts, are financial accounts that house your investments. You can find brokerage accounts at a number of investment companies, mutual fund companies or brokerage firms, such as Vanguard or Charles Schwab.

Brokerage accounts can hold a number of different investments, including CDs, stocks, bonds and mutual funds.

For example, you could purchase a CD through a brokerage and keep it in your investment account. In the same account, you could house a mutual fund and a stock portfolio.

CDs vs. Bonds

Investors have a lot to consider when deciding between a CD and a bond. Traditional CDs from banks are insured by the Federal Deposit Insurance Corporation (FDIC), or from the National Credit Union Share Insurance Fund if you’re getting a CD from a National Credit Union Administration (NCUA) credit union. CDs are safe investments that typically pay a fixed interest rate. In other words, you know how much you’re earning upfront. You’re also guaranteed to receive that amount of interest for the term and get your full principal amount back, as long as you don’t make any premature withdrawals. “They're really only appropriate for short-term needs, simply because they are too low. The rates of return are too low,” says Mari Adam, president and founder of Adam Financial Associates Inc.

If you’re interested in having more flexibility and you want the chance to earn a higher yield, you may want to consider investing in a bond. A bond is a loan you make to a government or a corporation to receive a rate of return. You can sell a bond before it matures without getting hit with an early withdrawal penalty, but you may get back more or less than your original investment if interest rates have moved. With municipal bonds, the interest you earn is often exempt from taxes.

There are many different types of bonds, and some are riskier than others. Bonds aren’t protected by FDIC or NCUSIF insurance like CDs are. And the value of your bonds will vary depending on what’s happening with interest rates. If interest rates are rising, the price of your bonds will likely fall and vice versa.

“(Bonds are) driven by market conditions and market prices,” Adam says. “So you could buy a bond or a bond fund and a year from now it may be worth more than you paid. It could also be worth less than you paid. So you don't have that certainty.”

Some examples of bonds you could invest in include:

  • Bond funds: Pooled investments made up of different types of bonds and other debt instruments.
  • Municipal bonds: Issued by governmental entities like states and counties to pay for different projects and infrastructure.
  • Corporate bonds: Bonds issued by companies and corporations that typically pay higher yields.
  • Junk bonds: Riskier bonds with a greater likelihood of default that pay higher yields.
  • Treasury bonds: Securities issued and backed by the federal government.
  • Zero-coupon bonds: Securities that don’t pay interest and are normally issued at a discounted rate.
  • Foreign bonds: Purchased from foreign entities.
  • Mortgage-backed securities: Bonds backed by real estate loans that are typically pooled.

Before you choose a bond or bond fund, it’s best to do your research and consider the risk, maturity and quality of the bond.

When to stick with a savings account instead of a CD

A savings account is best for either an emergency savings account or for money that you know you’ll need in less than a year. This is because savings accounts are liquid – meaning you can generally access your money at any time. A savings account is best for money that you either expect to use, or for funds that you don’t expect to use but may need quick access to if an emergency or unplanned expense occurs.

A CD is a time deposit, meaning it has a fixed term and generally a fixed APY. You’ll also likely incur a penalty if you withdraw your principal before it matures. Even if your CD earns more than a savings account, a penalty could negate the higher APY.

Generally, CDs are better for funds that have a time horizon of a year or longer because they may help you earn more interest than a liquid savings account. But if liquidity and access is more important for these funds, stick with a savings account to avoid incurring early withdrawal penalties in a CD.

How to build a CD ladder

Laddering is a method to space out maturity dates on your CDs. This investment strategy involves savers buying multiple CDs at once that mature at different intervals. It’s a way to both spread out when the money is available and protect yourself from being stuck in a long-term CD if rates rise.

"Looking for a regular stream of interest income? Consider a CD ladder where your money is diversified over a range of maturity dates, structured so you get to reinvest at consistent intervals."

- Greg McBride, CFA, Bankrate’s chief financial analyst.

Generally, the longer your CD term, the higher your rate of return. One way to grow your savings and earn as much interest as possible is to build a CD ladder. You could buy several CDs with different term lengths at one time, giving you the chance to invest in a longer-term CD with a higher yield and short-term CDs that will mature within a shorter period of time, like six months or one year. For instance, a CD laddering plan of three CDs might have a one-year CD, a two-year CD and a three-year CD. If you have $15,000 to invest, you could invest $5,000 in each rung:

  • $5,000 in a one-year CD
  • $5,000 in a two-year CD
  • $5,000 in a three-year CD

CD laddering can also shield you from interest rate changes. If rates are rising, you’ll be able to take advantage of higher yields when your existing CDs mature. And if interest rates are falling, you’ll be happy that you locked up your savings when your bank was paying a higher rate. Consider keeping your CD ladder focused on CDs with shorter-term maturities during a rising interest rate environment, so you can more quickly take advantage of higher rates. Conversely, locking into CDs with longer terms makes more sense when rates are moving lower because it enables you to continue earning higher CD yields than the market currently offers.

"When rates are declining, you want to go long on your ladder because then you want to tie up that high rate for the longest period of time."

- Dana Twight, Twight Financial Education

Certificate of Deposit FAQs

What is considered a good CD rate?

A good CD rate depends on a few factors, but the true answer is framed by your personal needs. If you need your money in a year, for example, your best CD options will be for a year or less. If you’re able to lock up your money for longer, then you may be able to achieve a higher yield with a longer-term CD. Typically, longer terms pay more.

Knowing for certain that you won’t need your cash for a specific time period also typically allows you to earn a higher rate. The bank is willing to pay you more for the certainty that your money will be there when needed. If you can’t provide that certainty, it may cost you some return if you have to go with a flexible no-penalty CD, for example. But while your choices have narrowed, you may still be able to get a good rate from within that selection.

In general, however, if you’re receiving a rate that’s above average, you’re getting a good rate.

But you don’t have to settle for merely a good rate. With the ability to search nationally on Bankrate, you could achieve one of the best rates across the country when you purchase a CD.

How much does a lower rate cost you? Each year a difference of 0.01 percent will cost $0.10 for every $1,000 you have invested. For example, if you have $10,000 invested in a CD earning 0.5 percent APY interest when it could be earning one percent APY, you’re missing out on an extra $50 annually.

Why an online bank may be the best choice for a CD

Online banks tend to offer higher APYs than brick-and-mortar banks. These online-only institutions typically have lower overhead costs and are able to pass the savings along to their customers in the form of higher rates. In addition, unlike your bank located on the corner of Main Street, online banks may need a higher APY to get your attention and earn your business.

What are the alternatives to a CD?

If you're interested in a safe alternative to a CD, you have a few options. Money market accounts and savings accounts, for example, are interest-bearing deposit accounts that can be found at banks and credit unions. Although those accounts typically don't offer rates as high as CDs, they provide more liquidity.

Treasury securities are also historically safe investments, as they are backed by the full faith and credit of the U.S. Treasury, which means there’s virtually no risk of default. Issued by the U.S. government, Treasury securities, ranging from one-month bills to 30-year bonds, are offered in increments of $100 and can be a good option for investors looking for a low-risk return.

Government bond funds can also be a worthy alternative to CDs. These funds invest in debt securities issued and backed by the U.S. government, making them relatively safe, low-volatility investments.

You won’t lose your principal on government bonds that you hold to maturity. In contrast, if you invest in bond funds there is potential downside if bond prices fall, as the value of the shares you purchased could decline as a result. All bonds have so-called inflation risk, which occurs when the rate of inflation is higher than the yield you’re earning on your bond.

CD rates versus inflation

Generally, the top-yielding CDs offer APYs above the inflation rate, but that's not always the case. Beating inflation, or at least keeping up with it, is important. If you’re not, you’re losing purchasing power. This means as time passes, your money won’t be able to buy as much as it does today.

How long can you leave money in a CD?

You can keep your money in a CD and let it renew over and over. CDs generally automatically renew.

“When a certificate of deposit term ends, based on the bank’s policy, it can be automatically renewed, unless the customer says otherwise,” says Rhonda Thomas-Whitley, vice president and regulatory counsel at the Independent Community Bankers of America. “These terms are outlined in the required notices sent to the customers before the CD term expires. Whether a customer can keep having it renew over and over again is up to the bank. Unclaimed CDs can be escheated to the state, subject to those state’s laws.”

To avoid your CD being escheated if it’s considered abandoned property, make sure you keep in touch with your bank and keep a valid mailing address on file.

Do CDs have beneficiaries?

Banks give account holders with CDs the opportunity to name a beneficiary, or a specific person who will inherit your savings in the event that you die. While naming a beneficiary for your CD may be the last thing on your mind, experts say it’s an important step to take.

If you don’t have a beneficiary designated to receive the funds in your CD, your savings will go through probate, the court process for deciding what happens to the property of an individual after their death. If your loved ones have to go to court to determine what happens to your CD, they could wait a long time to claim your funds, depending on the state they live in.

“Even in Florida, which I think is a pretty fast state, it could easily take a year or more, so your assets won't go to your beneficiary until they go through court,” Adam Financial’s Adam says. “The judge decides it's OK. Then they look at your will and they give it to your heir, but that could take a while and a lot of people don't have wills.”

Bottom line: It’s in your best interest to name a beneficiary to receive the money in your CD. Keep in mind that even if you name someone as your beneficiary, the funds in your CD will still belong to you while you’re still alive. And if you’re stuck trying to decide who to name as your beneficiary, avoid choosing a minor.

“Minors generally cannot accept property without a custodian,” Adam says.

How do I know if I'm maximizing my return on my CD?

You can help ensure you’re maximizing your rate by taking the following actions:

  • Conduct a national search for best CD rates. With a national search, you’ll be sure you’re getting the best rate at that period in time. This is probably the single best step you can take to ensure that you’re earning all you can.
  • Rates do change over time, so it’s important to check for the top rate whenever you’re looking to invest in a CD. Putting money in an add-on CD may not be the best option, even if you can do so because a new CD may offer a higher rate.
  • Being able to lock up your funds for a guaranteed period of time will likely earn you a higher rate.
  • Avoid taking an early withdrawal, especially if you’ll be charged a penalty for doing so.
  • If you know you’ll need the money at a certain time, calculate the best rate until that period of time. It may make more sense to go with a no-penalty CD.
  • Check to see how frequently the interest is compounded. The more frequent the compounding, the higher the total return will be. Some banks compound daily.
  • Don’t be fooled by banks that compound more frequently but offer a lower APY. Instead, focus on the APY, because that’s the return that will ultimately go in your pocket.

Using these steps, you’ll have greater certainty that you’re maxing out what you can earn.

Bankrate's Top CD Rates in September 2021

The experts at Bankrate have compiled the best available CD rates into an easy-to-read list so you can compare the highest rates and minimum deposits across top banks.

  • Marcus by Goldman Sachs High Yield CD: 0.80% APY – 5 Year; $500 Min Deposit
  • Synchrony Bank Online CD: 0.85% APY – 5 Year; No Min Deposit
  • Barclays Bank Online CD: 0.25% APY - 12 Month; No Min Deposit
  • Comenity Direct Online CD: 0.90% APY - 5 Year; $1,500 Min Deposit
  • Citizens Access Online CD: 0.25% APY – 5 Year; $5,000 Min Deposit
  • American Express National Bank High Yield CD: 0.55% APY – 5 Year; No Min Deposit
  • Amerant Bank Online CD: 0.20% APY – 18 Month; $10,000 Min Deposit
  • Ally Bank High Yield CD: 0.80% APY – 5 Year; No Min Deposit
  • Capital One Online CD: 0.80% APY – 5 Year; No Min Deposit
  • PurePoint Financial High Yield CD: 0.25% APY – 12 Month; $10,000 Min Deposit
  • Investors eAccess Online CD: 0.15% APY – 10 Month; $500 Min Deposit
  • CIT Bank High Yield CD: 0.50% APY – 4 Year; $1,000 Min Deposit

Banks we monitor

These financial institutions are featured in our CD rate research: Alliant Credit Union, Ally Bank, Amerant Bank, America First Credit Union, American Express National Bank, Axos Bank, Bank 5 Connect, Bank of America, Bank of the West, Barclays, BB&T, BBVA, BECU (Boeing Employees Credit Union), Bethpage Federal Credit Union, BMO Harris Bank, BrioDirect, Capital One Bank, Chase Bank, CIBC USA, CIT Bank, Citibank, Citizens Access, Citizens Bank (Rhode Island), Comenity Direct, Comerica Bank, Customers Bank, Delta Community Credit Union, Discover Bank, E-Trade Bank, Emigrant Direct, Fifth Third Bank, First Citizens Bank, First Internet Bank, First Technology Federal Credit Union, FNBO Direct, Golden 1 Credit Union, Marcus by Goldman Sachs, HSBC, Huntington National Bank, Investors Bank, Investors eAccess, KeyBank, LegacyTexas Bank, Limelight Bank, Live Oak Bank, M&T Bank, MySavingsDirect, Navy Federal Credit Union, PenFed Credit Union, PNC Bank, Popular Direct, Purepoint Financial, Quontic Bank, Radius Bank, Randolph-Brooks Federal Credit Union, Regions Bank, Salem Five Direct, Sallie Mae Bank, Santander Bank, SchoolsFirst Federal Credit Union, Security Service Federal Credit Union, State Employees' Credit Union, Suncoast Credit Union, Suntrust Bank, Synchrony Bank, TD Bank, TIAA Bank, UFB Direct, Union Bank (California), U.S. Bank, USAA Bank, Vio Bank, VyStar Credit Union, Wells Fargo and Zions Bank.

Bankrate doesn’t include callable CDs or brokered CDs on this page. Bankrate compares regular CDs and no-penalty CDs as two different products.