A Certificate of Deposit is a time deposit offered by banks. You lock in your money for a fixed term (3 months to 5 years) at a guaranteed interest rate. In exchange, the bank pays you a higher rate than a regular savings account. CDs are FDIC-insured up to $250,000.
CD Terms and Rates
CDs come in various terms, and typically longer terms offer higher rates. However, this isn't always true — during inverted yield curve periods, short-term CDs may pay more than long-term ones.
Short-Term (3-12 mo)
Lower rates, more flexibility. Good if you expect rates to rise.
Medium (1-3 yr)
Balance of rate and flexibility. Most popular term range.
Long-Term (3-5 yr)
Highest rates, but lock your money. Risk if rates rise.
The CD Ladder Strategy
A CD ladder spreads your investment across multiple CDs with different maturity dates. For example, divide $10,000 into five $2,000 CDs with 1-year, 2-year, 3-year, 4-year, and 5-year terms. Each year, one CD matures. You can reinvest at current rates or withdraw the cash.
CD Ladder Example ($10,000 Total)
After Year 5, you have one CD maturing every year, always earning the highest available long-term rate.
Early Withdrawal Penalties
If you withdraw from a CD before maturity, you'll face a penalty — typically 3-6 months of interest for short-term CDs, and 12-24 months for longer ones. This is the main risk of CDs: your money is locked in. Always keep an emergency fund in a savings account before putting money into CDs.
Plan Your CD Strategy
Use our CD Calculator to compare different CD terms and rates, and our APY Calculator to understand the effective yield on your CD investment.