Types of CDs: How To Pick the Right CD in 2024 (original) (raw)
A CD is a time-based deposit purchased from a bank, credit union or other financial institution. You can use CDs to balance risk in your portfolio since they require you to keep your money deposited for a set period of time in exchange for fixed-rate earnings.
If you’re interested in opening a CD, it’s important to understand the different CD options available, which may include various term lengths, rates and rules regarding early withdrawals or additional deposits. We at the MarketWatch Guides team will take a closer look at the types of CDs you can open to help you make an informed decision.
Key Takeaways
- Certificates of deposit (CD) are generally available as fixed-rate CDs or specialty CDs, with various types of each.
- With fixed-rate CDs, your money earns the same interest rate throughout the CD term.
- Specialty CDs are a broader category and may offer more favorable terms or looser restrictions than fixed-rate CDs.
- All CDs are insured by the Federal Deposit Insurance Corp. (FDIC), up to the maximum allowable amount of $250,000, across all eligible deposits with an institution.
Featured CDs
| Provider | CD Term | APY | Minimum Deposit | Visit Site |
|---|---|---|---|---|
Highest Rated  4.4 Next |
12 Month | 4.10% | $2,500 | Next |
| Highest Rated 4.4 Next |
9 Month | 4% | $2,500 | Next |
 4.3 Next |
12 Month | 3.75% | None | Next |
 3.8 Next |
12 Month | 4.90% | $1,500 | Next |
 4.0 Next |
12 Month | 4.60% | $1,000 | Next |
 3.9 Next |
13 Month | 3.50% | $1,000 | Next |
| Provider | CD Term | APY | Minimum Deposit | Visit Site |
|---|---|---|---|---|
| Highest Rated 4.4 Next |
12 Month | 4.10% | $2,500 | Next |
| Highest Rated 4.4 Next |
9 Month | 4% | $2,500 | Next |
| 4.3 Next |
12 Month | 3.75% | None | Next |
| 3.8 Next |
12 Month | 4.90% | $1,500 | Next |
| 4.0 Next |
12 Month | 4.60% | $1,000 | Next |
| 3.9 Next |
13 Month | 3.50% | $1,000 | Next |
Fixed-Term CDs
Fixed-term CDs are also known as standard or traditional CDs. They have a locked interest rate, or annual percentage yield (APY), which means the CD rate won’t change over the lifespan of your deposit, regardless of market conditions. The interest your CD earns will typically compound on a daily or monthly basis.
Fixed-term CDs have preset term lengths that typically range anywhere from one month to 10 years, and there are early withdrawal penalties if you withdraw your funds before a CD’s maturity date.
These types of CDs may be offered with standard, lower interest rates or promotional, higher interest rates. Online banks currently offer the best high-yield CDs with rates around 5.00% APY.
Who They’re Best For
Fixed-term CDs are best for savers who don’t need liquidity and want guaranteed returns over a set time frame. They’re also best for savers who want to take advantage of the best CD rates available today.
>> Related: Learn more about the best online-only banks
Variable-Rate CDs
Variable-rate CDs have fixed term lengths, but instead of a locked interest rate, the rate you’ll earn will fluctuate based on various financial benchmark indices such as the federal funds rate, the prime rate or market indices like the S&P 500. If the interest rate rises, so will the rate on the CD. The reverse also holds true.
You may want to get a variable-rate CD if you think interest rates will increase in the near future. If your prediction proves true, your savings will grow even faster.
Who They’re Best For
Variable-rate CDs are best suited for savers who want exposure to rising interest rates without needing fixed, guaranteed returns.
Bump-Up CDs
With a bump-up CD, an issuing institution allows you to “bump up,” or increase, your interest rate at least once during the CD’s term if the issuing institution raises interest rates for new account holders. None of the other features change and there’s no charge or penalties for making the bump-up request.
The initial rates offered for this type of CD may be lower than that of other CDs because the bank is taking on the risk that it may have to pay you more on your deposit down the line.
Who They’re Best For
Bump-up CDs are best for those who believe that interest rates will rise during a CD’s term.
Step-Up CDs
Step-up CDs are similar to bump-up CDs in that the interest rate will increase during the CD term. With step-up CDs, you won’t request a higher interest rate. Step-up CDs have a set term length with fixed interest rate increases at specific intervals during the term.
For example, if you have a step-up CD with a 24-month term, your interest rate may be set to increase by a fixed percentage every six months until the maturity date.
Who They’re Best For
You may be interested in a sep-up CD if you want set interest rate increases during your CD term. But since step-up CDs tend to offer lower rates in general, you may be better off considering a CD ladder strategy.
No-Penalty CDs
No-penalty CDs, also called liquid CDs, offer account flexibility since they allow you to withdraw your money before the CD term ends without paying an early withdrawal penalty. They typically have higher interest rates than traditional savings accounts but lower interest rates than traditional, fixed-rate CDs. However, you’ll typically have to wait about seven days before you can withdraw your funds from a no-penalty CD.
Some no-penalty CDs may allow you to make a partial withdrawal of your funds, but most banks only allow complete withdrawals. Once you withdraw your money from a no-penalty CD, you can’t redeposit it — you’d have to open an entirely new CD account.
Who They’re Best For
No-penalty CDs are good if you want liquidity without sacrificing much yield. However, these CDs tend to have shorter terms and often offer lower interest rates than other types of CDs.
IRA CDs
If you open an individual retirement account (IRA) with a bank or credit union, you can then open a traditional IRA CD or a Roth IRA CD. IRA CDs usually have fixed rates and early withdrawal penalties, similar to other fixed-rate CDs. You will also incur a tax penalty if you take money out of your IRA CD before you reach retirement age, though you may be able to take out interest earnings or qualifying withdrawals without penalty.
IRA CDs are subject to yearly contribution limits. In 2024, the maximum amount you can deposit in an IRA CD — assuming it’s the only IRA account you’re contributing to — is 7,000(7,000 (7,000(8,000 if you’re 50 or older).
Who They’re Best For
IRA CDs are best for those nearing retirement age who want to reduce risk in their investment portfolios and want slow but steady returns protected by the FDIC.
Brokered CDs
A brokered CD is purchased through a brokerage firm instead of a bank. Brokered CDs usually earn simple interest, which is less lucrative than the daily or monthly compounded interest offered by other bank CDs.
Many brokered CDs are callable CDs, which means that the issuing bank can call it back before its maturity date if its benchmark interest rates go down. When this happens, your CD is effectively terminated.
Make sure you purchase brokered CD products from a reputable source since only well-funded financial institutions are eligible for FDIC insurance.
Who They’re Best For
Brokered CDs are best for those who want access to a wide variety of terms and rates as well as the ability to sell their CDs on the secondary market without penalties — although you may need to pay a fee when buying or selling.
Add-On CDs
An add-on CD allows you to deposit more funds into a CD after its term starts. Any additional deposits earn the same interest rate as when you opened the account. Add-on CDs tend to earn less than other types of CDs and aren’t as widely available as traditional CDs.
The rules surrounding additional deposits may also vary by bank. For example, some banks may limit the number of times you can make additional deposits or cap the total amount you can have in the CD.
If you’re just looking to park money in a safe place and add or withdraw from the account as you see fit, a high-yield savings account may be a better option.
Who They’re Best For
Add-on CDs are best for those who want to grow their deposits over time in an existing CD rather than opening multiple accounts.
Jumbo CDs
A jumbo CD works like a traditional CD, but it has a higher minimum deposit requirement — typically at least $100,000 — as well as a longer term commitment. Jumbo CDs may offer higher rates than some other types of CDs, and you’ll generally need to leave your money in a jumbo CD for at least a year or more. However, fewer banks offer jumbo CDs.
Locking up a larger sum of money in a jumbo CD can limit your earning potential if interest rates increase. However, if interest rates drop, your money will continue to earn at the same steady rate.
Who They’re Best For
Jumbo CDs are best for those who have a large sum of cash and want to lock it into one CD. But if you’re looking to diversify your risk, building a CD ladder offers greater liquidity and the likelihood of better earning potential than having all your funds in one jumbo CD that you can’t withdraw from without penalty.
CD Ladders
Some savers use CD laddering to ensure a steady stream of predictable income. With this method, you’ll invest in multiple CDs, each with different maturation terms.
For example, instead of investing 10,000intoonefixed−termCD,youmightsplitthatupandput10,000 into one fixed-term CD, you might split that up and put 10,000intoonefixed−termCD,youmightsplitthatupandput2,500 into four different CDs, such as a six-month CD, one-year CD, two-year CD and three-year CD.
When each one matures, you could then invest it in another CD that matures after the last CD you originally bought matures. You’ll then repeat this strategy with each maturity date.
Who They’re Best For
CD ladders are best for those who want to shop around to access the best interest rates on different term lengths. Laddering offers predictable income and greater liquidity than locking all funds into one CD with one maturity date.
The Bottom Line: Choosing the Right CD
CDs can play an important part in earning low-risk, predictable income to help you reach your financial goals. Like most financial products, the right CD for you will depend on a combination of your budget, your savings goals and your need for liquidity.
Since CDs are time-based deposits, you’ll typically need to commit your money at a locked rate for a set period of time or you’ll have to pay a penalty for early withdrawal. And be sure to only buy a CD from a reputable financial institution and confirm that it is FDIC-insured before opening any new accounts.
FAQ: Types of CDs
There are roughly a dozen different types of CDs, and they can generally be split into one of two main categories: standard fixed-rate CDs or specialty CDs. Ultimately, the type of CD that’s best for your personal finance goals and circumstances may not be right for someone else.
Some of the different kinds of CDs include fixed-term CDs, variable-rate CDs, bump-up CDs, step-up CDs, no-penalty CDs, IRA CDs, brokered CDs, add-on CDs and jumbo CDs. Most CDs can be categorized as either standard CDs, which have a fixed interest rate, or specialty CDs, which come in multiple types and options. They can vary by term lengths, interest rates and other variables unique to each CD type and issuing bank.
The main benefit of a CD is that it can earn at a fixed interest rate over time. CDs are also not typically subject to volatility like other types of investments. They’re also FDIC-insured, which means that your money is safe should the bank have a financial issue. The FDIC insures up to $250,000 across all deposit accounts within the same institution.
_**Data accurate at time of publication
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