There are plenty of CD advantages, mostly around security and predictability. They include:
A fixed interest rate
When you open a CD, you decide exactly how much you want to invest and how long to invest. Many banks allow you to open a CD account online. In exchange for keeping your money in the account for the time agreed, you receive a fixed interest rate.1
Higher returns
Those average rates are typically higher than you’ll receive in a traditional savings account.2
Predictable returns
Unlike other investments, CDs are considered one of the safest savings options.1 There’s no question of how it will perform or how long you’ll keep it. You’ll invest a specific amount at a locked rate for a specific amount of time.
Interest options
Often people assume the interest earned on a CD can only be collected once it fully matures. However, many banks allow customers to choose to receive the earned interest more often—either monthly, every six months or annually.1
Ladder options
A CD ladder is an investing strategy in which customers invest in CDs of increasing lengths—1 year, 2 years, etc. This lets investors tap into their money along the way while keeping some of it invested for a longer period.
Security
One of the biggest CD benefits is security. Like checking and savings accounts at federally insured banks, CD accounts are insured by the Federal Deposit Insurance Corporation, FDIC for short, up to the allowable limits.1
FAQs
CDs offer higher interest rates than traditional savings accounts, guaranteed returns and a safe place to keep your money. But it can be costly to withdraw funds early, and CDs have less long-term earning potential than certain other investments.
What is the biggest negative of putting your money in a CD? ›
Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.
Is there a downside to opening a CD? ›
Penalties for accessing funds early
When you sign up for a CD, you agree not to touch the money for a set period of time but there are always unexpected expenses. If you access your money before the CD's term is up, you'll be charged an early withdrawal penalty, often worth a few months of interest.
How much does a $10,000 CD make in a year? ›
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 1 year | 2.60% | $263.12 |
| 18 months | 2.21% | $336.74 |
| 2 years | 2.07% | $422.32 |
| 3 years | 1.94% | $598.77 |
3 more rowsDisadvantages of investing in CDs
Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded. As noted previously, since CDs have a set interest rate and maturity date, you typically can't withdraw the money from the CD without paying a penalty.
Are CDs safe if the market crashes? ›
Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.
Can you lose money in a CD account? ›
Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.
What is the catch with putting your money in a CD? ›
But the catch is that you have to keep your money invested for that whole time. If you take your money out early, you'll pay a penalty (and if that penalty amounts to more interest than you've already earned, you could lose some of your principal balance).
Why is CD not a good financial investment? ›
CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.
Do you pay taxes on CDs? ›
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
Highest current CD rates (overall)
| Institution name | APY | Term length |
|---|
| Raymond James Bank | 5.20% | 18 months |
| LendingClub Bank | 5.15% | 12 months |
| Newtek Bank | 5.15% | 12 months |
| Sallie Mae | 5.15% | 12 months |
31 more rowsUnlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
Can you get 6% on a CD? ›
It's possible to get a 6% certificate of deposit, but currently, they're only offered by credit unions, not banks. Pros of a 6% CD include locked-in interest rates and a relatively high rate of return.
Should I put a million dollars in a CD? ›
However, federally insured banks and credit unions only insure up to $250,000 per depositor per account ownership category. If you put more than this amount in a single CD, some of your money will be at risk. You can still safely invest more than $250,000 in CDs by opening accounts at multiple financial institutions.
Who has the highest paying CD right now? ›
Best 1-Year CD Rates
- Abound Credit Union – 5.25% APY.
- Mountain America Credit Union – 5.25% APY.
- KS State Bank – 5.25% APY.
- Forbright Bank – 5.25% APY.
- Merchants Bank of Indiana – 5.25% APY.
- Seattle Bank – 5.25% APY.
- Bread Savings – 5.25% APY.
- Utah First Credit Union – 5.25% APY.
A CD may be the best option for some of your cash if you can afford to lose access to it for the duration of the term and if the CD's interest rate is competitive. CDs work best for specific, short-term savings goals, like down payments, vacations or weddings.
Are CDs a good investment right now? ›
CD Investing Pros and Cons in 2024
CDs can be a smart financial move at times, but not so great at others. In the past, other investments earned higher rates than even the best CDs could earn. But, in today's high-interest-rate environment, CDs might be a great option.
What are the weaknesses of a CD? ›
7. Compact Disks
| Advantages of CDs | Disadvantages of CDs |
|---|
| Small and portable | Fairly fragile, easy to snap or scratch |
| Very cheap to produce | Smaller storage capacity than a hard drive or DVD |
| Most computers can read CDs. If there is no CD drive, a DVD drive can usually read them | Slower to access than the hard disk. |
1 more rowSavings accounts will let you withdraw your cash at any time without penalty (although your bank may limit you to six withdrawals per month). CDs typically charge early withdrawal penalties for withdrawing money before the agreed-upon term is up.
