What is certificate of deposit (CD).
A certificate of deposit (CD) is a financial product offered by banks and credit unions that allows customers to earn a higher interest rate than a regular savings account in exchange for depositing their money for a fixed period of time.
When you open a CD, you agree to leave your money with the bank or credit union for a specific length of time, which can range from a few months to several years. During that time, the bank pays you interest on your deposit, which is usually higher than the interest rate on a regular savings account.
Once the CD matures, you can withdraw your money, along with the interest earned, or roll it over into a new CD. However, if you withdraw your money before the maturity date, you may have to pay a penalty.
CDs are generally considered to be low-risk investments because they are FDIC-insured up to $250,000 per depositor per insured bank. However, they may not be the best choice for everyone, as the interest rate may not keep pace with inflation and there may be penalties for early withdrawal.
Top certificate of deposit (CD) rates in the USA
The top certificate of deposit (CD) rates in the USA can change frequently, but here are some examples of banks and credit unions with competitive rates as of my knowledge cutoff date (2021-09):
- Marcus by Goldman Sachs – 0.85% APY on a 12-month CD with a minimum deposit of $500.
- Ally Bank – 0.55% APY on a 12-month CD with no minimum deposit.
- Discover Bank – 0.50% APY on a 12-month CD with a minimum deposit of $2,500.
- Capital One – 0.50% APY on a 12-month CD with no minimum deposit.
- Navy Federal Credit Union – 0.70% APY on a 12-month CD with a minimum deposit of $1,000.
- PenFed Credit Union – 0.75% APY on a 12-month CD with a minimum deposit of $1,000.
Please note that CD rates can vary depending on the institution, the term length, and the minimum deposit amount. It’s important to compare rates and terms to find the best option for your needs.
To find a certificate of deposit (CD) with a higher interest rate, you may want to consider:
- Shopping around: Different banks and credit unions offer different interest rates on their CDs. Look for institutions that offer competitive rates and compare them to find the best deal.
- Longer terms: Generally, the longer the term of the CD, the higher the interest rate. Consider a longer-term CD if you can afford to have your money tied up for that period of time.
- Jumbo CDs: Jumbo CDs require a larger deposit than a traditional CD, but they often come with higher interest rates.
- High-Yield CDs: High-yield CDs typically offer higher interest rates than traditional CDs, but they may require a higher minimum deposit or longer term.
- Online banks: Online banks may offer higher interest rates on their CDs because they have lower overhead costs than brick-and-mortar banks.
It’s important to remember that a higher interest rate may come with other limitations, such as restrictions on withdrawals or penalties for early withdrawal. Be sure to read the terms and conditions carefully before choosing a CD.
There are several types of certificates of deposit (CDs), including:
- Traditional CD: A traditional CD has a fixed interest rate for a specific term, usually ranging from 3 months to 5 years. The interest rate is generally higher than that of a savings account and is guaranteed for the term of the CD.
- High-Yield CD: A high-yield CD offers a higher interest rate than a traditional CD, but often requires a larger deposit and a longer term. These CDs may also have stricter requirements, such as a higher minimum balance or limited withdrawal options.
- Bump-up CD: A bump-up CD allows the depositor to request a higher interest rate on their CD if interest rates rise during the term of the CD. This feature may come with limitations and restrictions.
- Callable CD: A callable CD allows the bank or credit union to “call” the CD before the maturity date. This gives the institution the ability to pay back the depositor’s principal and interest and terminate the CD early, which may not be in the depositor’s best interest.
- Brokered CD: A brokered CD is purchased through a brokerage firm instead of a bank or credit union. These CDs can offer higher interest rates, but may come with higher fees and penalties.
It’s important to compare the features and benefits of different types of CDs before choosing one, as each type has its own advantages and disadvantages.