What is a certificate of deposit (CD)?

A certificate of deposit (CD) is a time-deposit account offered by banks and credit unions. You deposit a lump sum for a fixed term at a fixed annual percentage yield (APY). At the end of the term — called the maturity date — you get your principal back plus the interest earned. CDs are insured by the FDIC at banks and the NCUA at credit unions, up to $250,000 per depositor.

How CD rates and terms work

CD terms typically range from 3 months to 5 years. Longer terms generally (but not always) pay higher rates. The rate is fixed at the time you open the CD — you lock in that APY for the full term, which is advantageous when rates are expected to fall. If market rates rise after you open a CD, you won't benefit unless you open a new one. Online banks and credit unions often offer the most competitive CD rates.

• Fixed APY locked in for the full term — predictable, no market risk.
• Terms range from as short as 3 months to as long as 5 years (some banks offer longer).
• Minimum deposit requirements vary — some CDs start at $500; others at $1,000 or more.
• FDIC/NCUA insured up to $250,000 per depositor — same as savings and checking.

Early withdrawal penalties

The main tradeoff with CDs is liquidity. Withdrawing funds before the maturity date triggers an early withdrawal penalty — typically 90 days' to 12 months' worth of interest, depending on the term length. The longer the term, the steeper the penalty tends to be. The CFPB notes that you should only put money in a CD that you're confident you won't need before it matures.

CD laddering: how to stay flexible

A CD ladder is a strategy where you split your savings across multiple CDs with staggered maturity dates — for example, 6-month, 1-year, 18-month, and 2-year CDs opened at the same time. As each one matures, you reinvest or access the funds. This keeps some money available throughout the year while still earning competitive fixed rates on the rest.

CD vs. high-yield savings account

A high-yield savings account offers more flexibility — you can add or withdraw funds at any time (subject to bank policy). A CD typically pays a higher rate but locks your money in. The right choice depends on whether you need access to the funds before the term ends.