How to Choose the Best CD for You (2024)

If you have money you’ve earmarked for a coming expense such as a new car or college tuition, a certificate of deposit is a great way to earn interest until you need the cash.

CDs—sometimes just called “certificates” or, in the case of credit unions, “share certificates”—fill a space between conventional bank accounts and conservative investments such as bonds. With a CD, you essentially loan money to a bank or credit union for a set period. In exchange, the bank gives you a fixed return on your deposit.

For years, CDs paid next to nothing and fell out of favor. In fact, people well into their 30s and even 40s, probably paid CDs little mind until recently. With interest rates rising over the past couple of years, however, savers have given these products a fresh look—or in the case of Millennials and Gen Z, a first look.

“People who have been investing for a long time remember when 5% was more common,” says Kathy Carey, director of private wealth research at financial services firm Baird. “People are getting some really good rates right now, better than we’ve seen in a long time.”

You can buy CDs at traditional bricks-and-mortar banks, digital banks and credit unions. In our experience, digital banks and credit unions tend to offer better CD rates than traditional banks, especially bigger banks.

What is a CD?

CDs share some features with savings accounts but are quite different in other ways.

You get a guaranteed rate of return, often at a higher yield than you could earn with a savings account, and the security of deposit insurance. The trade-off is that you agree not to withdraw the money until the CD matures after a predetermined duration, ranging from a few months to five years or longer. Banks use the money they get from CDs to do things like make loans, so they impose early-withdrawal penalties to discourage savers from taking that money back out before maturity.

At maturity, you have the option of rolling the funds into a new CD or withdrawing your principal along with interest earned.

How to choose a CD

Choosing the best CD for your needs is a little more complicated than choosing a high-yield savings account, because there are a few more moving parts to consider when you evaluate CDs. You need to take into account the yield, the maturity term, any fees or other penalties, along with making sure your money will be protected by government deposit insurance.

Look for high yields

A CD’s APY, or annual percentage yield, is likely going to be the first feature you consider. The best CD rates you can get are now in the neighborhood of 5.5%—enough to easily top the current rate of inflation.

Traditional CDs have fixed rates of return, unlike the variable rates that characterize high-yield savings and money-market accounts. Historically, longer-dated CDs have offered higher returns because banks have had to compensate people more generously in return to hanging onto their money for longer. But this isn’t the case right now.

Some banks offer what they call “bump” or “bump up” CDs, which give you an opportunity to increase the APY once or more during the term. These CDs can be useful in an environment where interest rates are rising, since your money won’t be locked into a lower rate for the entire duration of the term.

Another variation on fixed-term CDs is what banks often call a “flex” or “flex index” CD. This CD has a variable rate, similar to a high-yield savings account, although likely with a higher rate of interest. The rates on CDs are pegged to a metric such as the prime rate or a U.S. Treasury security yield, which means the APY could fall if interest rates decline before the CD matures.

Make sure to check if a CD is a callable CD. This means the financial institution can end your term early—likely if rates drop significantly—so you won’t get the amount you’d planned to receive.

Decide what term you want

Unlike a high-yield savings account that lets you deposit and withdraw money with few limitations, a CD has a set maturity term during which you agree to lock up your money. This means that in addition to an eye-catching yield, you’ll also want to make sure that your choice of CD has a maturity date that lines up with when you expect to need the money.

For instance, if you have a expense coming up in a little over a year, a one-year CD gives you an opportunity to earmark those funds—and avoid the temptation of spending that cash on something else—while earning interest.

Often, banks’ and credit unions’ best CD rates will be on promotional CDs that have odd-numbered or offbeat maturity terms, such as seven months rather than six, or 14 months instead of one year. These oddball maturities can be a boon for yield seekers, but the terms make it difficult to integrate these CDs into a CD ladder, which is a strategy of buying CDs with maturities at regular intervals, such as quarterly or annually.

Odd terms, especially if you have several CDs, can also be harder to keep track of, says Kathleen Grace, CEO of wealth-management firm Fiduciary Family Office in Boca Raton, Fla. Miss a rollover window and you could be stuck with a much less-desirable yield, she says.

“Typically, they’re rolled over at a much lower rate, not at that same teaser rate, [so] obviously, calendering these things is important,” Grace says.

Consider costs and convenience

While more banks offer CDs with minimal or even no minimum balances, many banks offer CDs starting with investments of $500 or $1,000. Some offer “jumbo” CD rates that may be higher but require a minimum of $50,000 or $100,000.

Banks dissuade people from “breaking” CDs—that is, closing them out and taking their money back before maturity—by charging early-withdrawal penalties. These penalties are generally a portion of the interest you would have earned if you kept the CD until maturity, from a few months’ worth to a year, or even the entirety of your interest earnings.

“The key is knowing what’s going to happen there. Potentially, you could get zero of that interest,” Carey says, adding that finding out these details probably entails combing through some fine print. ”It can really vary from issuer to issuer, and that’s not going to be clear when you pull up a list of yields.”

If you’re unsure about whether or not you’ll need the money before your CD matures, options include putting it in a high-yield savings account instead, or opening a CD at one of the banks that offers no-penalty CDs. As the name suggests, no-penalty CDs let you take money out of your CD before the term is up. The main drawback is having to settle for a lower APY in return for the flexibility. Some banks also make you close out the entire CD if you want to make a withdrawal, so you could be losing out on potential earnings for the rest of those funds.

When shopping for CDs, also consider how you prefer to bank. Many of the best CD rates come from digital banks, which means you have to be comfortable conducting your banking online rather than walking into a branch to conduct a transaction.

Check insurance coverage

While it’s rare for banks to fail, they sometimes do. In that case, you want to make sure your money is protected by the Federal Deposit Insurance Corp., or FDIC, the government agency that steps in and backstops consumer deposits when a bank fails. A parallel agency, the National Credit Union Administration, or NCUA, performs the same functions for deposits held at credit unions.

FDIC insurance covers up to $250,000 per bank, per depositor and per “ownership category.” Ownership categories include different account types such as individual and joint accounts, some trust accounts, corporate accounts and government accounts, as well as certain benefit and retirement accounts.

If you’re opening an account at an online bank or with a new bank whose name you don’t recognize, find out the name of that bank’s parent company. Some digital banks are brands of established bricks-and-mortar banks; in this case, make sure that any deposits you have with the parent institution as well as the subbrand combined don’t go over the deposit insurance limit.

Most banks and credit unions put their FDIC or NCUA membership information on their websites, but you can also check the FDIC or NCUA agency websites to double-check.

Got a money question? Let Buy Side find the answer. Email [emailprotected].

Include your full name and location, and we may publish a response.

More on CDs

  • Best 6-Month CD Rates
  • Best 1-Year CD Rates
  • Best 5-Year CD Rates
  • What Is a CD Ladder and How Do You Build One?
  • How to Choose the Best High-Yield Savings Account for You

Meet the contributor

How to Choose the Best CD for You (1)

Martha C. White

Martha C. White is a contributor to Buy Side from WSJ.

How to Choose the Best CD for You (2024)


How to Choose the Best CD for You? ›

When choosing a CD, you have to decide how long you want to commit to locking up your money. CD term lengths vary, ranging between three months and five years. The length of your CD term is a crucial factor because you typically cannot withdraw your savings, or make any additional deposits, until your CD term is up.

What's the most important factor to consider when choosing a CD? ›

When choosing a CD, you have to decide how long you want to commit to locking up your money. CD term lengths vary, ranging between three months and five years. The length of your CD term is a crucial factor because you typically cannot withdraw your savings, or make any additional deposits, until your CD term is up.

How much does a $10,000 CD make in a year? ›

The national average APY for a one-year CD is 1.74 percent, based on Bankrate research, which shows this average has increased or remained the same since March 2022. If you deposited $10,000 into a one-year CD that pays this national average rate of 1.74 percent, in one year it would be worth a total of around $10,174.

How do I find good CDs? ›

Tips for choosing the best CD
  1. Decide the right term length. ...
  2. Shop for the best rates. ...
  3. Pick a CD with a minimum deposit you can afford. ...
  4. Check for early withdrawal penalties. ...
  5. Choose the right type of CD. ...
  6. Make sure you're doing business at a federally-insured bank or credit union.
Apr 2, 2024

Is it better to have one large CD or several smaller ones? ›

Use Multiple CDs to Manage Interest Rates

Multiple CDs can help you capitalize on interest rate changes if you believe CD rates will change over time. You might put some cash into a higher-rate 6-month CD and the remainder into a 24-month bump-up CD that allows you to take advantage of CD rate increases over time.

What do I need to know before investing in a CD? ›

Some of the variables you might want to consider before opening a CD include APYs, term lengths, fees for early withdrawal and how CD rates compare with inflation. Also, make sure to find a bank that's FDIC-insured, or a credit union that's NCUA-insured, so the money you lock away is federally protected.

What is the difference between a brokered CD and a bank CD? ›

Purchase process: A bank CD is a deposit product, where you begin earning interest immediately upon deposit. A brokered CD is an investment purchased in a securities account similar to the way a security is purchased. With the brokered CD, you don't start earning interest until settlement date of the trade.

Do you pay taxes on CDs? ›

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

Is it better to get CD interest monthly or yearly? ›

Typically the longer the term, the higher the CD rate is. You can earn more interest than short-term CDs with terms longer than a year and up to three years. The national average rate for a three-year term is 1.41% APY, and you can find higher yields at some banks.

What is a good amount of money to put in a CD? ›

While that amount will be different for everyone, you should keep a few things in mind. First, a minimum amount is usually required. Most CDs have a minimum deposit between $500 and $2,500, though some can be lower or higher than this range.

Who is offering the highest CD rates right now? ›

Highest current CD rates (overall)
Institution nameAPYTerm length
Citibank5.13%3 months
Morgan Stanley5.10%18 months
MYSB Direct5.10%18 months
Bask Bank5.00%18 months
31 more rows
4 days ago

Is laddering CDs a good strategy? ›

Building a CD ladder is a great way to earn a higher interest rate on your savings while keeping your money safe and accessible.

Are banks CDs worth it? ›

CDs are one of the safest options for growing your savings, while enjoying some predictable returns. As long as you're saving in a Federal Deposit Insurance Corporation (FDIC)-insured bank, your money is protected up to $250,000 and again, interest is guaranteed. Flexibility.

What is the biggest negative of putting your money in a CD? ›

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Does it matter which bank I buy a CD from? ›

The Bottom Line. Whether you should open CDs at multiple banks is a personal decision, and it's important to research CD options carefully. Take time to compare the best CD rates to see which banks or credit unions pay the most interest.

Can I open a 2 CDs account? ›

There is no limit to how many certificates of deposit (CDs) you can have. In fact, holding multiple CDs can provide a steady stream of ongoing returns. CDs offer a low-risk way to invest. After opening and funding the account, your money will earn interest for the duration of the CD's maturity period.

Which CD term should I choose? ›

Knowing your savings objective will help you determine the length of the CD term you should choose. For instance, if you're saving for a down payment on a home or a wedding, a short-term CD may be the right choice. On the other hand, if you're saving for retirement, a long-term CD might be a better option.

What should be the ideal CD ratio? ›

If the reserve requirements such as the statutory liquidity ratio of 23% and cash reserve ratio of 4% are factored in, the CD ratio should not cross 73%. Thus, 78.52% indicates that banks are borrowing from the market to lend for projects and working capital rather than from lower-cost deposits.

What is a good CD rate? ›

Highest current CD rates (overall)
Institution nameAPYTerm length
Rising Bank5.20%12 months
MYSB Direct5.20%12 months
Morgan Stanley5.15%12 months
LendingClub Bank5.15%12 months
31 more rows
4 days ago

Why is a CD a poor investment? ›

CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs. CDs offer less liquidity than savings accounts, money market accounts, or checking accounts.


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