What Is a Certificate of Deposit (CD)? How CDs Work
A certificate of deposit (CD) holds a fixed amount of money for a fixed term at a fixed rate. Here is how CDs work, what they pay, the penalties, the types and when a CD makes sense.
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A certificate of deposit (CD) is a bank deposit that holds a fixed amount of money for a fixed term, such as 6 months or 5 years, at a fixed rate. You get your money back plus interest at maturity. Withdrawing early usually costs a penalty. At our latest check, the top 12 month CD we track pays 4.65% APY at CFG Bank, vs. a national average of 1.76%. CDs at insured banks are FDIC insured up to $250,000.
CDs are one of the simplest ways to earn a guaranteed return on cash. Here is everything you need to know before you open one.
How does a certificate of deposit work?
- Pick a term, from a few months to several years.
- Deposit your money in one lump sum. Most CDs do not accept added deposits.
- Earn a fixed rate. Your APY is locked for the term, even if rates fall.
- At maturity, withdraw your money and interest, or let the CD renew. Most banks give a grace period of about 10 to 14 days before it renews automatically.
What do CDs pay right now?
| Term | Top rate we track | National average |
|---|---|---|
| 3 months | 4.30% APY, Popular Direct (as of Oct 19, 2026) | 1.14% |
| 6 months | 4.40% APY, Happen Bank (as of Oct 20, 2026) | 1.39% |
| 9 months | 4.40% APY, Bread Savings (as of Oct 17, 2026) | Not published |
| 12 months | 4.65% APY, CFG Bank | 1.76% |
| 18 months | 4.85% APY, Bread Savings (as of Oct 17, 2026) | Not published |
| 2 years | 4.80% APY, E*TRADE (as of Oct 21, 2026) | 1.55% |
| 3 years | 4.85% APY, Popular Direct (as of Oct 19, 2026) | 1.39% |
| 4 years | 4.95% APY, Popular Direct (as of Oct 19, 2026) | 1.31% |
| 5 years | 5.00% APY, Sallie Mae and Popular Direct (as of Oct 23 and Oct 19, 2026) | 1.41% |
Top rates last checked on each bank’s website on Oct 21, 2026; each row shows the date the bank says its rate applies. National averages from the FDIC, as of Oct 19, 2026. CD rates change often for new deposits; once you open a CD, your rate is fixed for the term.
The best rates are not always on the longest terms. Right now an 18 month CD pays more than any 3 or 4 year CD we track. See what that means in dollars in how much a $10,000 CD earns, or compare every bank on our best CD rates page.
What happens if you withdraw early?
You usually pay a penalty measured in days of interest, such as 90 days on a 1 year CD or 180 to 365 days on longer terms. If you have not earned enough interest yet, the penalty can come out of your principal. Under federal rules, withdrawals in the first six days after deposit carry a penalty of at least seven days’ interest. See CD early withdrawal penalties.
Types of CDs
- Regular CD: fixed rate, fixed term, penalty for early withdrawal.
- No penalty CD: withdraw without a penalty after the first week, usually at a slightly lower rate. See what is a no penalty CD?
- Jumbo CD: requires a large minimum deposit, often $100,000.
- Bump up CD: lets you raise your rate once if the bank’s rate for your term goes up.
- Brokered CD: bought through a brokerage rather than directly from a bank. The SEC’s investor.gov notes that deposit brokers are not licensed or approved by any agency, so check who you are dealing with.
- Share certificate: a credit union’s version of a CD, insured by the NCUA.
Are CDs safe?
Yes. CDs at FDIC insured banks are covered up to $250,000 per depositor, per bank, per ownership category, and credit union certificates have the same coverage from the NCUA. All your deposits at one bank count toward the same limit. See how to insure more than $250,000.
CD vs. high yield savings account
- Choose a CD for money you will not need until a known date, when you want a rate that cannot drop.
- Choose savings for money you might need any time, or will keep adding to.
Top savings accounts pay similar rates right now: Pibank Savings pays 4.40% APY with no monthly rules at our latest check. See high yield savings vs. CDs.
How to choose a CD
- Match the term to your goal. Compare the rate for that exact term, not the bank’s headline rate.
- Check the minimum. Some banks have none; others need $500 to $1,500.
- Read the penalty. It matters if your plans might change.
- Plan for maturity. Set a reminder for the grace period.
- Consider a ladder. Split money across terms so part comes due regularly. See what is a CD ladder?
Is CD interest taxable?
Yes, as ordinary income. For CDs longer than a year that pay at maturity, you generally report part of the interest each year. See how savings and CD interest is taxed.
Compare today’s rates on our best CD rates page, or see the best 1 year CD rates and best 6 month CD rates.
Frequently asked questions
What is a CD in banking?
A certificate of deposit is a bank deposit that holds a fixed amount of money for a fixed term at a fixed rate, paid back with interest at maturity.
How does a CD make money?
The bank pays you interest at a fixed APY for the term. Most CDs compound interest daily or monthly.
Can you lose money in a CD?
Not at an insured bank or credit union within the limits, if you hold it to maturity. An early withdrawal penalty can cut into your principal if you have not earned enough interest.
What happens when a CD matures?
You get a grace period, often 10 to 14 days, to withdraw or change terms. If you do nothing, most CDs renew for the same term at the current rate.
What is a good CD rate right now?
At our latest check, the top 12 month CD we track pays 4.65% APY, vs. a national average of 1.76%.
Compare today’s top savings rates
Happen Bank LevelUp SavingsAPY as of Oct 23, 20264.20%with $250 or more in deposits each monthReview →
