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How Do CDs Work? Learn How to Save Smarter
CDs lock up savings for a fixed period of time in exchange for a generally higher rate than other bank accounts.
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Spencer Tierney is a consumer banking writer at NerdWallet. He has covered personal finance since 2013, with a focus on certificates of deposit and other banking-related topics. His work has been featured by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is based in Oakland, California.
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How CDs work
A certificate of deposit is a type of savings account with a fixed interest rate and term. CDs, called share certificates at credit unions, tend to have the highest rates among federally insured bank accounts. CD returns, assuming no early withdrawals, are also guaranteed. Here’s a breakdown of various factors that make up CDs.
CD rates
Unlike regular savings accounts, most CDs earn the same rate over time. This can be a plus if you lock in a high rate and see new rates offered across banks fall. And it can be a negative when you’re looking at low rates that may rise soon. Rates are in terms of annual percentage yield.
You must choose a specific time frame to open a CD. Terms generally range from three months to five years, and terms can impact both rates and early withdrawal penalties, which are fees charged if you cash out a CD before the term ends. Generally, the longer the term, the higher the rate; penalties tend to be bigger for longer terms. Consider how much time you can keep some cash locked up and learn more about short-term, midrange and long-term CDs.
High CD rates for now
The Fed dropped its benchmark interest rate in September 2025. Excellent interest rates are still available on certificates of deposit, but they may start to trend lower. See where rates are headed in our CD rate forecast.
CD safety
Like other bank accounts, CDs have federal deposit insurance up to $250,000 at banks insured by the Federal Deposit Insurance Corp. and at credit unions insured by the National Credit Union Administration. This means you get your money back, guaranteed, if a financial institution goes bankrupt.
A CD’s main risk is opportunity risk, meaning you may lose out on higher rates if you open a CD right before rates rise. But unlike investing in stocks or bonds, you typically don’t risk losing money from a CD based on factors outside your control, such as financial market performance. Learn more about how CDs are safe.
A savings account is a place where you can store money securely while earning interest.
A savings account is a place where you can store money securely while earning interest.
4.00%Annual Percentage Yield (APY) is accurate as of 10/09/2025. APY may change at any time before or after the account is opened. Available only online.
5.00%Annual Percentage Yield (APY) is accurate as of June 17th, 2025. Start earning 2.50% APY, then qualify to earn 5.00% APY on your balance up to $5,000.00 and 2.50% APY on balances over $5,000 next month by 1) Receiving direct deposit(s) totaling $1,000 or more; and 2) Ending the month with a positive balance in all your Varo Accounts. No fees, no minimums required. Rates subject to change at any time.
3.50%Annual Percentage Yield (APY) may change at any time and fees may reduce earnings. Please visit etrade.com/ratesheet for more information.
Min. balance for APY
$0
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
These cash accounts combine services and features similar to checking, savings and/or investment accounts in one product. Cash management accounts are typically offered by non-bank financial institutions.
Up to 3.90%The Base Annual Percentage Yield (APY) is 3.25%, from program banks, is as of 12/19/25, is variable and is subject to change. If you are eligible for the overall boosted rate of 3.90% offered in connection with this promo, your boosted rate is also subject to change if the base rate decreases during the three-month promotional period. This limited-time promo offers eligible new Wealthfront clients a 0.65% APY increase over the standard base APY for 3 months on up to $150k in their Cash Accounts. Cash Account offered by Wealthfront Brokerage LLC, Member FINRA/SIPC, and is not a bank. Base APY (is representative, subject to change, requires no minimum) is paid from our Program Banks.
3.90%Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. Learn More (https://www.betterment.com/cash-portfolio). Annual percentage yield (variable) is 3.25% as of 12/12/25, plus a 0.65% boost (“APY Boost”) for new clients with a qualifying deposit. $10 min deposit for base APY. Terms apply (betterment.com/boost); if the base APY changes, the Boosted APY will change. FDIC insurance provided by Program Banks (https://www.betterment.com/cash-portfolio), subject to certain conditions.
4.05%All Bread Savings APYs are accurate as of 12/18/2025. APYs are subject to change at any time without notice. Offers apply to personal accounts only. Fees may reduce earnings. To open a CD, a minimum of $1,500 is required and must be deposited in a single transaction. A penalty will be imposed for early withdrawals on CDs. At maturity, your CD will automatically renew and earn the base interest rate in effect at that time. Rates are compared against competitor rates published by NerdWallet.com and the institutions themselves as of 12/18/2025. NerdWallet.com obtains the data from the various banks that it tracks and its accuracy cannot be guaranteed.
4.10%Annual Percentage Yield (APY) is subject to change at any time without notice. Offer applies to personal non-IRA accounts only. Fees may reduce earnings. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest in effect at that time. Visit synchrony.com/banking for current rates, terms and account requirements. Member FDIC.
Term
9 months
Checking accounts are used for day-to-day cash deposits and withdrawals.
Checking accounts are used for day-to-day cash deposits and withdrawals.
2.00%Annual Percentage Yield (APY). APY may change at any time and fees may reduce earnings. Please visit etrade.com/ratesheet for more information. The $15 monthly account fee can be waived when you maintain an average monthly balance of at least $5,000 in the account on or after the end of the second calendar month from opening the account.
Monthly fee
$15
Money market accounts pay rates similar to savings accounts and have some checking features.
Money market accounts pay rates similar to savings accounts and have some checking features.
Your initial deposit tends to be your only time to add money into a CD. A standard CD has a minimum opening deposit that can range from $0 to $10,000. CDs with much higher minimums, such as $100,000, are typically called jumbo CDs. Be mindful that the $250,000 federally insured limit applies, and choose how much to put into CDs based on your savings goals.
CD maturity date
Unlike any other bank account, CDs mature on a specific day either months or years after you opened it. Many banks automatically renew CDs, but that might not be in your best interest since it’s better to compare rates each time you open a new CD. Consider your choices when CDs mature.
CD penalty
If you break the seal on a CD before the maturity date, you’ll likely pay a penalty worth several months to a year’s worth of interest earned. Learn more about CD early withdrawal penalties.
Types of CDs
For the most part, you’ll consider CDs with fixed rates, no ability to add more money over time, and a penalty if you access the money before maturity. However, not all CDs have this set of traits.
No-penalty CDs, for example, let you withdraw for free whenever you choose.
Step-up CDs have the CD rate increase once or twice during a term.
CD interest works like it does in regular savings accounts. Interest generally gets compounded over time, meaning that the bank pays you interest on the initial deposit and the accrued interest that the CD earns. Compounding takes place in regular intervals, such as daily or monthly. The only difference between interest in CDs and savings accounts is that CDs have a fixed deposit, while savings accounts allow for ongoing contributions. Learn more about compound interest.
Do CDs have fees?
CDs have only one type of fee, called an early withdrawal penalty, and it occurs when you withdraw money from a CD before its term matures. The penalty typically ranges from a few months’ to a year’s worth of interest.
How does CD interest work?
CD interest works like it does in regular savings accounts. Interest generally gets compounded over time, meaning that the bank pays you interest on the initial deposit and the accrued interest that the CD earns. Compounding takes place in regular intervals, such as daily or monthly. The only difference between interest in CDs and savings accounts is that CDs have a fixed deposit, while savings accounts allow for ongoing contributions. Learn more about
CDs have only one type of fee, called an early withdrawal penalty, and it occurs when you withdraw money from a CD before its term matures. The penalty typically ranges from a few months’ to a year’s worth of interest.
Locking up funds for a future purchase: If you have some savings dedicated to a big purchase years away, such as a car or down payment for a home, a CD can keep your money safe and out of reach until the estimated date you’ll need it.
Protecting wealth for several years: If you want to avoid the risks that come with stocks and bonds, especially if you’re close to retirement, you may decide to use long-term CDs. Your money won’t grow as much over time as in stocks, but CD returns are guaranteed and generally higher than those of other bank accounts.
Using CDs for pre-invested funds: If you’re a fan of gradually investing money and you’re sitting on a large sum of cash, you might decide to spread out when you buy stocks or mutual funds using a strategy known as dollar-cost averaging. You can put the cash you’ll eventually invest into CDs to earn more interest than if it were sitting in a regular savings account.
How to open a CD
First, choose your CD based on rate, term and type of CD. Next, choose how to apply — online, over the phone, or at a branch if applicable — and get your identification ready. Read more about the next steps to opening a CD account.
