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CDs (Certificates of Deposit)

Lock in a fixed rate for money you won’t need until a set date.

By Fountain Finances Editorial TeamUpdated

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How a CD works

A certificate of deposit (CD) is a savings account that pays a fixed rate for a fixed term — commonly three months to five years. In exchange for the certainty of the rate, you agree to leave the money untouched until the CD matures. Withdrawing early usually triggers a penalty, often a set number of months of interest.

Types of CDs

  • Traditional CD: fixed rate, fixed term, early withdrawal penalty.
  • No-penalty CD: allows withdrawal after a short initial period without a penalty; rates are usually lower.
  • Bump-up CD: lets you request a rate increase if the bank raises rates for your term.
  • Jumbo CD: requires a large minimum deposit, sometimes for a slightly higher rate.
  • Brokered CD: purchased through a brokerage; can be sold before maturity at market prices, which may be more or less than you paid.

CD ladders

A CD ladder divides your money across several terms — for example, one-, two-, three-, four- and five-year CDs. As each matures, you reinvest in a new five-year CD. The ladder gives you regular access to part of your money while capturing longer-term rates on the rest.

Should you choose a CD?

CDs make sense for money with a known date — a down payment, tuition or a planned purchase — and when you want to lock in a rate before rates fall. For an emergency fund that must be available immediately, a high-yield savings account is usually the better fit.

Estimate earnings with the CD calculator, read how CDs work and compare banks on our CD accounts comparison.

Frequently asked questions

What is a good CD rate?

A good CD rate is competitive with other widely available insured CDs of the same term and higher than what you could earn in a high-yield savings account over that period. Rates change with the broader interest rate environment, so compare current offers.

What happens when a CD matures?

You typically have a grace period, often about 7 to 10 days, to withdraw the money or change terms. If you do nothing, many CDs automatically renew for the same term at the current rate.

Can you lose money in a CD?

Insured deposits do not lose value from market movements. However, an early withdrawal penalty can exceed the interest earned if you withdraw very early, reducing your principal.

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