What is a CD (Certificate of Deposit)?

A certificate of deposit (CD) is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions. CDs differ from savings accounts in that the CD has a specific, fixed term (often one, three, or six months, or one to five years) and usually, a fixed interest rate. The bank expects CD to be held until maturity, at which time they can be withdrawn, and interest paid.


Key takeaways:

  • A CD is a type of savings account with a fixed time period and interest rate.

  • CDs tend to have higher rates than regular savings accounts but don’t allow easy access to your money until a term ends.

  • Consider a CD for two reasons: to have guaranteed returns without much risk and to have a safe place for savings earmarked for future use.

How does a CD work?

The process for opening a certificate of deposit starts the same way as for other bank accounts: Apply online or in person at a financial institution. The key difference is that your initial deposit into a CD will almost always be the only deposit you can make. You can’t add contributions over time like you can with a regular savings or checking account.


What types of CDs are there?

CDs typically come with a fixed term and a fixed rate of return. But depending on where you bank, you may have access to a few other varieties. (For a more exhaustive list of each type, see the nine types of CDs.)


  • No-penalty CD: This CD, also known as a “liquid CD,” lets you withdraw early without an early withdrawal penalty in exchange for typically lower rates than other CDs. (See our list of the best no-penalty CDs.)

  • High-yield CD: This CD has higher-than-average CD rates. Online banks and credit unions typically offer better rates than traditional brick-and-mortar banks. (Check the top CD rates.)

  • Jumbo CD: This is essentially the same as a regular CD, but with a high minimum balance requirement — historically $100,000 — as a trade-off for traditionally higher rates. (See more details about jumbo CDs.)

  • IRA CD: This is a regular certificate that is held in a tax-advantaged individual retirement account. (See our list of the best IRA CD rates.)

  • Bump-up or step-up CD: These CDs usually have a jump to a higher interest rate during the CD term. Bump-up CDs require you to ask for that rate jump, if available, while step-up CDs work on a fixed schedule of rate increases. Both types typically have lower interest rates than fixed-rate CDs, and some carry steeper minimum deposit requirements. In most cases, you can request only one rate increase, although long-term CDs may let you do so twice.

  • Brokered CD: This is a CD offered at a third party, or broker, such as a brokerage firm. (Learn more about types of brokered CDs, including callable CDs, in our explainer.)



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