A CD, or certificate of deposit, is a fixed-rate, fixed-term savings product offered by FDIC-insured banks and credit unions. You deposit a sum of money for an agreed period — anywhere from 1 month to 10 years — and the bank pays a fixed interest rate. At the end of the term (the maturity date), you get your principal back plus accrued interest. Withdrawing early triggers a penalty.
How CDs Work
The core trade-off is simple: you give up liquidity in exchange for a higher interest rate than a savings account or money market account would pay. As of 2026, top CDs pay 4.0% to 5.0% APY at competitive online banks and credit unions, while traditional savings accounts at the same banks often pay similar or slightly lower rates and money-market accounts sit somewhere in between.
The deposit is locked: you cannot add to a standard CD during its term, and you cannot freely withdraw without penalty. At maturity, you can either let the CD roll over into a new CD at then-current rates or close it and move the money elsewhere. Most banks send a maturity-date notice and offer a 7 to 10 day grace period for the rollover decision.
CD Terms and Typical Rates
CD terms commonly available:
- 3-month CD: shortest standard option, lowest rates
- 6-month CD: still short-term
- 12-month CD: most popular term, often the best rate per dollar of locked liquidity
- 24-month CD
- 36-month CD
- 60-month CD: longest standard option for most banks
Longer terms historically paid higher rates, but the relationship inverts during rate-cutting periods — banks won't lock in 5-year rates if they expect short-term rates to fall.
Where Brokerage Apps Like Public Fit
Brokered CDs are CDs issued by banks but bought through a brokerage. Public.com supports brokered CDs alongside Treasuries, bonds, and stocks in a single account. The advantages are inventory breadth (a brokerage can have CDs from dozens of issuing banks at any moment) and secondary-market liquidity if rates move and you need to exit. Direct-from-bank CDs are simpler but have less flexibility.
Public.com
Public.com
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• Invest in stocks, bonds, crypto & more• Earn 3.3% APY* on your cash with no fees• 1% match when you transfer your portfolio• Lock in a 5%+ yield with a Bond Account
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Customer support is in-app and email only, no phone
Early Withdrawal Penalties
The penalty for breaking a CD before maturity is typically expressed as months of interest:
- CDs of 12 months or less: 3 months of interest penalty
- CDs of 12 to 36 months: 6 months of interest penalty
- CDs of 36 to 60 months: 9 to 12 months of interest penalty
- CDs over 60 months: up to 24 months of interest penalty
If the CD has earned less than the penalty (e.g., breaking a 5-year CD at month 3), the penalty can eat into principal. This is why CD shopping should always include reading the fine print on early-withdrawal terms.
A few banks now offer no-penalty CDs, where you can withdraw without penalty after a brief lockup (typically 7 to 30 days). The rate is usually below standard CDs of the same term — the no-penalty option is essentially a hybrid between a CD and a HYSA.
When a CD Is the Right Tool
CDs work best for known-future-need money: a down payment in 2 years, college tuition in 4 years, a vehicle replacement in 18 months. The fixed term should match the time horizon, and the lockup is acceptable because you don't expect to need the money sooner.
CDs are not the right tool for emergency funds — the early-withdrawal penalty defeats the purpose of an emergency fund. A HYSA is better. CDs are also not right for long-term wealth accumulation; over 5+ years, a diversified equity portfolio in a brokerage or retirement account historically outperforms even the best CD rates.
Track Credit Alongside Saving Decisions With Creditship
Large cash positions in CDs can affect how lenders view your reserves on mortgage and personal-loan underwriting. Creditship offers free credit monitoring with AI guidance for your overall financial profile. Sign up free with Creditship at no cost.
Related Reading
- Credit Score For High Yield Savings Account
- Saving Vs Investing How To Decide
- Emergency Fund Building
- Best Investment App For Beginners
- Best Savings Account For Bad Credit
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Frequently Asked Questions
Are CDs FDIC-insured?
Yes — CDs at FDIC-insured banks are covered up to $250,000 per depositor, per bank, per ownership category. CDs at credit unions are NCUA-insured under equivalent limits.
Can I add money to a CD?
Generally no. Standard CDs are funded once and locked. Some banks offer add-on CDs that allow additional deposits during the term.
What happens when a CD matures?
Most banks notify you of the maturity and offer a grace period (typically 7 to 10 days) to either withdraw the funds or roll into a new CD at current rates. If you don't act, many CDs auto-renew.
Can I lose money in a CD?
The principal is FDIC-insured, so you can't lose to bank failure. You can lose to early-withdrawal penalty if you break the CD early. You can also "lose" to inflation if the CD rate is below the inflation rate.
