What Is a CD Rate?

A CD rate is an interest rate that shows what a bank or credit union will pay you for depositing your money with them for a certain time in a certificate of deposit (CD). For example, if the rate is 5.50% for a 1-year CD, the bank or credit union will pay you 5.50% in interest on your money for keeping it in the account, untouched, for 12 months. If you deposit $1,000 in that account and keep it there for 12 months, you will earn $55 at the end of the term.

How Does a CD Work?

A certificate of deposit (CD) is similar to a bank deposit account. The difference is what you're agreeing to when you sign on the dotted line (even if that signature is now digital).

A CD works by locking your deposit up for a set time. When time is up, the CD pays you the set interest rate you agreed to when you opened it. A CD locks you into four specific things:

1. The interest rate: Most CDs pay a fixed interest rate. The bank cannot later change the rate and therefore reduce your earnings. On the flip side, a fixed interest rate may hurt you if rates later rise and you've lost your opportunity to take advantage of higher-paying CDs.
2. The term: This is the length of time you agree to leave your money deposited to avoid any penalty (such as six months or 1 year, etc.) The term ends on the "maturity date," when you can withdraw your money penalty
3. The principal: Except for some specialty CDs that allow add-on deposits, this is the amount you agree to deposit into the CD, at the time of opening.
4. The institution: The bank or credit union where you open your CD will determine aspects of the agreement, such as early withdrawal penalties and whether your CD will be automatically reinvested if you don’t provide other instructions at the time of maturity. Credit unions may also require you to open a high-yield savings account or money market account before you open a CD.

Once your CD is established and funded, the bank or credit union will set the terms and conditions like with most other deposit accounts. You'll get either monthly or quarterly statement periods, paper or electronic statements, and usually monthly or quarterly interest payments deposited to your CD balance, where the interest will compound. The money you put into a CD is insured like other deposit accounts—up to $250,000 per customer, per institution.

How Much Does $10,000 Earn in a CD in One Year?

If you invest $10,000 in a CD for one year, you could earn $540—that's based on the best 1-year CD rate offered right now (5.40% APY). CD rates can change, so locking in a high interest rate today could guarantee you the maximum earnings, especially if CD rates drop by next year. There are a few scenarios you may encounter or need to decide between when it comes to investing $10,000 in a CD. It'll depend on the rate and CD term you choose. Here are a few scenarios:

Deposit Amount	APY	Term	Earnings
$10,000	5.00%	3 months	$98.53
$10,000	5.00%	1 year	$500
$10,000	5.00%	3 years	$1,248.64

Who Should Get a CD?

If you're looking to save money for a certain amount of time and you want to make sure you don't touch it until you need it, then you should get a CD. If you're risk-averse and don't want to invest money in the stock market because there's no guarantee you'll see a return, then you should consider a CD. CDs offer a fixed rate of return that guarantees you earnings when the term is over. And right now, CD rates are high—over 4% and 5% in many cases—so you can earn a decent amount on your deposit.

Types of CDs

• Regular CDs: A regular CD is a CD with a fixed interest rate for a set period. Brick-and-mortar traditional banks, as well as online institutions and credit unions, offer these kinds of CDs. They may also be called traditional CDs.
• Variable-rate CDs: This kind of CD is one where the interest rate can change based on the prime rate, the Consumer Price Index (CPI), Treasury bills, or a market index. The entire term for a variable-rate CD is still fixed, though, and does not change. These are sometimes called "flex" CDs.
• Jumbo CDs: A jumbo CD is a CD that requires a larger opening deposit, such as $50,000 or $100,000.
• No-penalty CDs: A no-penalty CD is exactly what it sounds like—you do not pay a fee for withdrawing your money early.
• Brokered CDs: A brokered CD is one that an investor can buy through a brokerage firm or from a sales representative other than a bank or credit union.
• Step-up CDs: A step-up CD allows you to increase your interest rate when you can. Your rate is not fixed for the entire term; you can capitalize on higher interest rates with a step-up CD. A step-up CD may also be called a bump-up CD.
• Promotional-rate CDs: This CD offers a promotional rate that may be higher than a regular CD rate and is only offered for a certain time period. You may be able to lock in a high rate by opening this kind of CD within a promotional period, like 30 days or before the end of the month.
  

Pros and Cons of CDs

Pros

• Guaranteed yield for the CD's full term: Most CDs are a fixed-rate product, so you're guaranteed to earn the rate you lock in until the CD's maturity date, no matter what the Federal Reserve does with the fed funds rate in the future.
• Higher interest rates than liquid accounts: Banks generally offer higher rates on CDs than on savings and money market accounts, in exchange for you keeping the money in the account and not touching it until you're allowed to withdraw it.
• Fully predictable earnings and withdrawal date: Because you know the CD's rate and term, you can calculate exactly how much you'll earn and when you can withdraw the funds without penalty.
• Extremely safe, with almost no bank or market risk: When you open a CD at an FDIC bank or an NCUA credit union, up to $250,000 in deposits are federally protected against the institution's failure. You're also safe from the market volatility—and potential loss in value—that can occur with stock and bond investments.
• Can deter spending temptations: Withdrawing funds before your CD matures causes you to pay an early withdrawal penalty, which can help keep you from giving in to temptations to dip into your savings for an unplanned purchase. This means a CD could be good for building your emergency fund.

Cons

• Early withdrawal of the funds incurs a penalty: If you do need to withdraw your CD funds before maturity, the bank or credit union will impose an early withdrawal penalty. Typically, it's calculated as a certain number of months of forfeited interest earnings.
• You can’t add to your deposit: With the rare exception of add-on CDs, you can only deposit funds into the certificate at the time of initial deposit. This means you miss out on compound interest since you're not able to grow the account and apply the interest rate to your new balance every month like with a savings account.
• If CD rates rise, you may miss out on a higher yield: If you lock in your CD rate, but rates increase shortly after, you may wish you'd waited to score a higher return.
• If CD rates drop, you may wish you’d chosen a longer CD: Though you'll still be well-served by any CD yield you have locked in before interest rates drop, you may wish you'd locked in a longer-term CD to extend that competitive yield for a longer period.
• Typically return less than stocks over long periods: Though stock investments involve more risk and less predictability, they may offer greater returns over long periods.

How to Choose the Best CD for You

When choosing a CD, consider the following factors:

• Your financial goals: Both short-term goals and long-term goals are important.
• How much money you have to deposit: CDs have minimums, so if you only have $500 to deposit, you'll need to find a CD with that minimum balance requirement.
• How long you can leave that money in the CD without touching it: This will help you determine the right term—whether that's a one-year CD or a three-year CD.
• Interest rates offered for your term and minimum deposit: The higher the rate, the more you will earn on your deposit during the CD term.
• CD type: Is it a bump-up CD or a regular CD? This will ensure you're choosing one that meets your needs and goals.

Once you choose a CD, open the account, and deposit your money to start earning interest.

What Happens if I Withdraw From a CD Early?

If you withdraw money early from a CD, you'll likely have to pay an early withdrawal penalty. This is usually a certain number of months' worth of interest that you earned in the CD thus far. For example, if you had deposited $10,000 in a 12-month CD with a rate of 5.00%, and withdrew it early, you might have to pay three months' worth of the interest you had earned. So instead of cashing out $500 at the end of the CD term, you'd walk away with less interest earned, the exact amount depending on how early you withdrew the money.

Now, not all CDs have early withdrawal penalties. Some no-penalty CDs are available and have more flexibility, However, they may also come with lower interest rates.

Compare the Best CD Rates

Ranked below are the top 15 or more APYs on nationally available CDs with minimum deposits of no more than $25,000. In the case of ties, we rank them first by the shortest available term, then by the lowest minimum deposit, and finally by the smallest early withdrawal penalty.

Institution	Rate (APY)	Term	Minimum Deposit	Early Withdrawal Penalty
	5.55%	6 months	$2,500	3 months of interest
	5.50%	5 months	$2,500	1 month of interest
	5.50%	6 months	$500	6 months of interest
	5.50%	6 months	$5,000	3 months of interest
	5.50%	7 months	$1,000	2 months of interest
	5.48%	5 months	$500	6 months of interest
	5.45%	6 months	$25,000	1 month of interest
	5.42%	3 months	$25,000	1 month of interest
	5.41%	9 months	$500	3 months of interest
	5.40%	9 months	$25,000	3 months of interest
	5.40%	12 months	$500	All earned interest (6 months maximum)
	5.40%	12 months	$500	6 months of interest
	5.40%	12 months	$500	6 months of interest
	5.40%	12 months	$2,500	3 months of interest
	5.40%	12 months	$25,000	6 months of interest

What You Need to Open a CD

To open a CD, you'll need some personal information including, but not limited to:

• Name
• Address
• Phone number

For example, you may need to provide a copy of your license or ID if you don't have an account with that institution already. When you have that info handy, fill out the application for your CD account:

1. State how you'll fund the CD, whether via an electronic transfer or another method.
2. Fund the CD.
3. State how you want to receive the interest, all at the end or in monthly installments (if required).

Once you've done all that, you should officially have a CD in your name, though check with the institution to ensure you've taken all the right steps.

How To Build a CD Ladder

Smart CD investors have a specific tactic for hedging against rate changes over time and maximizing their return. It's called a CD ladder and it enables you to access the higher rates typically offered on 5-year CDs, but with the twist that a portion of your money becomes available every year, rather than every five years. Here's how to do it.

1. Take the amount of money you want to invest in CDs and divide it by five.
2. Put one-fifth of the funds into a top-earning 1-year CD, another fifth into a top 2-year CD, another into a 3-year CD, and so forth through a 5-year CD. Let’s say you have $25,000 available. That would give you five CDs of varying lengths, each with a value of $5,000.
3. When the first CD matures in a year, you take the resulting funds and open a top-rate 5-year CD.
4. One year later, your initial 2-year CD will mature, and you'll invest those funds into another 5-year CD.
5. Continue doing this every year with whichever CD is maturing until you end up with a portfolio of five CDs all earning 5-year APYs, but with one of them maturing every 12 months, keeping your money a bit more accessible than if all of it were locked up for a full five years.

How Are CDs Taxed?

Just like how the interest you earn on any money you have in savings, money market, and checking accounts is taxable as interest income at both the state and federal levels, the interest you earn on your money in a CD is too.

Your CD earnings will be reported to the IRS in the year they were earned and posted to your account, so that's when they're taxable—even though you may not withdraw the funds for one or more years into the future.

For example, if you have $1,000 in a 1-year CD with a 5.00% interest rate, you'll earn $50 in interest. You owe taxes on that $50, but not on the $1,000 principal you deposited at the start of the term.

CDs vs. Inflation

In February 2024, inflation was 3.2%, while the top rate offered across all CDs was over 5.50%. CD rates reached historic highs in 2023 as a result of the Fed's rate-hike policy to cool inflation, which had reached 9.1% in June 2022. CDs can help you combat inflation by paying you interest on your money, even though you may be paying more for goods and services. This will not always be the case, though. Interest rates are often increased to help combat high inflation. When inflation drops back to the standard 2% mark the Fed aims for each year, then interest rates may also drop back from their highs.

Alternatives to CDs

CDs vs. Traditional Savings Accounts

Traditional savings accounts tend to offer a low interest rate. Banks or credit unions with no high-yield savings account options may only offer traditional savings accounts that pay 0.01% to 0.10%. While the national average for savings rates is 0.47%, according to the FDIC, many banks pay much less. For example, Wells Fargo's Way2Save account pays 0.01% APY and Chase offers just 0.01% with its Chase Savings account. When interest rates are high, the top CD rate can be up to 600x the rate you may be earning on your money in a traditional savings account.

CDs vs. High-Yield Savings Accounts

If you just aren't sold on committing your funds for a certain amount of time, or simply can't afford to because you may need the money in the near term, a high-yield savings account. You'll be free to withdraw and deposit funds as you like, though some institutions will limit how many withdrawals you can make each month. Some savings accounts may also require a minimum balance.

CDs vs. Money Market Accounts

If you're looking for other high-yield accounts, a money market account may serve your needs. Money market accounts offer the feature of allowing you to write checks on the account. They may also come with minimum deposit or balance requirements like savings accounts, and money market account rates can easily compete with savings account rates.

You can always find the top nationally available rates in our daily rankings of the best high-yield savings accounts and best money market account rates. Both accounts have deposit insurance through the FDIC or NCUA.

CDs vs. Bonds

If you're interested in venturing out of the bank and into the world of bonds, you have numerous options. You could put cash savings into U.S. government I bonds, which are designed to track or beat the inflation rate. Or you could invest in U.S. Treasuries, in which you lend money to the U.S. government for a fixed amount of time. The Treasury notes with durations of four weeks to one year are called T-Bills.

Another option is corporate and municipal bonds. Though it's difficult to research individual bonds on your own, you can easily invest in a bond mutual fund or bond exchange-traded fund which is diversified across a bundle of different bond issues. You can also enter and exit these funds at any time.

CDs vs. Brokerage Accounts

If you have a brokerage account, you can also hold savings in the brokerage’s cash reserve account or their money market fund (not to be confused with the money market accounts offered by banks). Just be sure to research what rate you’ll earn because in many cases, these brokerage cash accounts pay far less than what you can earn by keeping your money in an outside CD, savings account, or money market account.

CDs vs. Annuities

An annuity is a type of fixed-income investment provided by financial institutions. You can buy an annuity and pay into it with monthly payments or a lump sum. Then, in the future, you receive fixed monthly payments. Annuities are insurance contracts that can guarantee income. While they are similar to a CD in that the income is guaranteed as long as you follow the rules of the contract, they are not as short-term as CDs may be. Annuities are most often used in retirement planning. CDs can also be used for retirement planning, but they are usually bought and held for terms of 6 months to 5 years, rather than an annuity which could be owned for 20 years, or something similar. There may also be different withdrawal rules and limits, as well as tax consequences with annuities.

CDs vs. Treasury Bills

Treasury bills are debt obligations backed by the U.S. government. They usually have maturities of one year or less. That timing is similar to CDs with shorter terms, but Treasury Bills may not offer the same level of return on the investment. Rates are comparable, ranging from 4.76% to 5.39% as of March 20, 2024, but they can fluctuate daily.

CD rates can also change daily. The thing with T-bills is that you buy them at a discount and when they mature, you receive the full amount back, plus a little more. For example, you might buy a $1,000 T-bill for $950. When the bill matures, you will get $1,000, or $50 more than what you paid for it. This increase of $50 is the interest you earn. CDs are a little less complicated, where you put in a set amount, and then receive a fixed interest rate when it matures.

How We Find the Best CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide, and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

Your Guide to CDs

• What Is a Certificate of Deposit (CD)?
• What Is a Brokered CD?
• What Is a CD Ladder?
• Pros and Cons of CDs
• How to Invest With CDs
• How to Open a CD
• How to Close a CD
• CDs vs. Annuities
• CDs vs. Stocks
• CDs vs. Mutual Funds
• CDs for ETFs
• CDs vs. Savings Accounts
• Short-Term vs. Long-Term CDs
• CD Rates News
• Best 1-Year CD Rates
• Best Jumbo CD Rates
• Best 6-Month CD Rates
• Best 3-Month CD Rates
• Best Bank CD Rates