Certificates of deposit (CD) are a savings tool that usually offers higher interest rates than traditional savings accounts. CDs are low-risk and have fixed rates and terms that can provide predictable returns at maturity.
What to Consider When Shopping for a CD
Considering your savings goals will help determine what rate, term, and type of CD is best for you.
CD Rate and APY
The interest rate is the rate of interest earned on your deposit. The Annual Percentage Yield (APY) is the interest that your CD pays in a year, including compounding interest – the money you earn on both the principal amount deposited and the interest you’ve earned. Financial institutions can compound interest daily, monthly, or quarterly.
CD Terms
Standard CD terms are 6-, 12-, 18-, 24-, 36-, 48- and 60-month durations. Financial institutions also offer promotional CDs that typically pay higher rates outside these standard terms. The terms are important because this is how long your funds must remain in the account before you can withdraw them, without incurring an early withdrawal penalty.
CD Types
Fixed-rate CDs are the most common type of CD. However, other types of CDs provide features such as no-penalty, bump-up, and add-on that can also help you achieve your financial goals in the time you want to save.
FDIC or NCUA Insurance
We recommend you open a CD with a FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) insured bank or credit union. CD accounts covered by FDIC or NCUA are insured up to $250,000 per depositor/owner, per bank, or credit union.
CD Maturity
Be proactive and decide what happens when your CD reaches maturity. Here are several options:
- Auto-close at maturity and instruct the financial institution to deposit the money into another account (i.e. savings account) or distribute funds back to you. You can take the funds to open another CD at a different bank or credit union or otherwise use the funds.
- Auto-renew at your financial institution for a consecutive term. Note: If you open a promotional CD, it may roll into a standard CD generally at a lower rate. CD rates are based on a bank or credit union’s current offerings — which could be higher or lower than what you originally earned.
- Utilize the maturity grace period, typically 7-14 days, after your CD matures. You can renew at a different rate and/or term or withdraw your money without penalty.
Where to Find Great CD Rates
Banks and credit unions nationwide offer CDs at different rates and terms. Use websites including CD Valet to shop and compare rates to find the highest-earning CD that matches your savings goals.
How to Open a CD Account
It’s easy to open a CD and depending on the financial institution, you can open your account online, over the phone, or in person. Here’s what you need to open your account:
- One or two forms of ID, depending on the bank or credit union (i.e. driver’s license and passport)
- Social Security Number and Date of Birth
- Contact Information (i.e. name, phone number, physical street and mailing address, and email address)
- Background and security information, such as your job and employer
- Determination of the type of ownership for the CD (i.e. individual, joint with or without rights of survivorship, payable on death, trust)
Funding Your CD
If you’re opening a CD online at a new bank or credit union, you will be requested to provide your routing number and account number. This information will be used to make an ACH transfer from your existing account to your new CD, assuming you are moving money into a different financial institution vs. between accounts at the same institution. Or you may be asked to use a banking authentication platform (i.e., Plaid) to log in to your current institution’s online banking platform to transfer funds securely. But if you’re opening a CD in person, you can fund your CD with cash or a check.
