Note: Annual percentage yields (APYs) shown are as of April 15, 2022. Bankrate’s editorial team updates this information regularly, typically biweekly. APYs may have changed since they were last updated and may vary by region for some products.
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 – 13 months, 0.35% – 0.75% APY; $500 minimum deposit (13-month no-penalty CD is 0.75% APY)
Marcus by Goldman Sachs is a division 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, 0.60% 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. 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 - 14 months, 0.10% – 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. 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 one 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 were trending lower after the Fed lowered its own rates in March 2020. But so far in 2022, many CD rates have risen following Fed rate hikes in March and May in response to surging inflation. May's rate increase was the largest since 2000.
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 three, six 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.”
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?
CD rates are expected to increase in 2022, 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 expected to remain relatively stable, with occasional decreases, and even occasional increases, on CD APYs.
The Federal Reserve, whose policies directly affect savings account rates and can also influence CD rates, so far has raised rates twice in 2022, and several more are expected before year-end.
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:
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 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.
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 high-yield 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 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.
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 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.
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.
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.
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 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.
strong>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.
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 risk 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, you 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,” Stockton says. “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
APY vs. interest rate
Annual percentage yield includes the effects of compounding on an annual basis. APY is the best way to compare bank accounts, rather than interest rates, which don’t include the effects of compounding, and therefore make it more difficult to know how much interest can be earned in a year.
CD compounding vs. other savings accounts 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 Corp. (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.
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.
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.
Should I put my emergency fund in a CD?
An emergency fund shouldn’t be kept in a CD because withdrawing your money early — for an unexpected expense, for example — could result in a penalty. A high-yield savings account or money market account, which provide easy access and fewer restrictions, are better places for an emergency fund. An FDIC bank or NCUA credit union are the safest places to open a CD, as long as you’re within insurance limits and guidelines.
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
Are there fees associated with CDs?
CDs generally have an early withdrawal penalty for taking your money out before the CD matures. No-penalty CDs are the exception, though they may also impose a penalty, should the funds be withdrawn during the first six calendar days after the account is opened.
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 vs. 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 May 2022
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: 2.55% APY – 5 Year; $500 minimum deposit
- Synchrony Bank Online CD: 2.40% APY – 5 Year; No minimum deposit
- Barclays Bank Online CD: 2.25% APY – 5 Year; No minimum deposit
- Bread Savings (formerly Comenity Direct) Online CD: 2.15% APY – 5 Year; $1,500 minimum deposit
- Citizens Access Online CD: 0.25% APY – 5 Year; $5,000 minimum deposit
- American Express National Bank High Yield CD: 2.25% APY – 5 Year; No minimum deposit
- Amerant Bank Online CD: 1.99% APY – 5 Year; $10,000 minimum deposit
- Ally Bank High Yield CD: 2.00% APY – 5 Year; No minimum deposit
- Capital One Online CD: 2.25% APY – 5 Year; No minimum deposit
- PurePoint Financial High Yield CD: 0.25% APY – 12 Month; $10,000 minimum deposit
- Investors eAccess Online CD: 0.15% APY – 10 Month; $500 minimum deposit
- CIT Bank High Yield CD: 0.50% APY – 4 Year; $1,000 minimum 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, BECU (Boeing Employees Credit Union), Bethpage Federal Credit Union, BMO Harris Bank, Bread Savings (formerly Comenity Direct), BrioDirect, Capital One Bank, Chase Bank, CIBC USA, CIT Bank, Citibank, Citizens Access, Citizens Bank (Rhode Island), 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, 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 and compares regular CDs and no-penalty CDs separately.