What Is a Certificate of Deposit?
A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time. In exchange, the bank pays you a higher interest rate than a standard savings account. At the end of the term, you get your original deposit back plus interest.
CDs are offered by banks, credit unions, and online banks. They are insured by the FDIC (at banks) or NCUA (at credit unions) up to $250,000 per depositor, making them one of the safest savings options available.
How Does a CD Work?
When you open a CD, you agree to three things:
- Deposit amount — the minimum required is often $500 to $1,000 depending on the institution
- Term length — typically 3 months, 6 months, 1 year, 2 years, or 5 years
- Interest rate — locked in at the time you open the CD
You cannot add money to a standard CD after you open it. If you withdraw funds before the term ends, you pay an early withdrawal penalty — usually 60 to 150 days of interest depending on the term.
CD Rates in 2026
Online banks and credit unions consistently offer the highest CD rates. In 2026, competitive 12-month CD rates from top online institutions range from 4.50% to 5.25% APY. Traditional brick-and-mortar banks typically offer far less.
Shopping around matters. The difference between a 0.50% CD at a local bank and a 5.00% CD at an online bank on a $10,000 deposit is $450 in interest per year.
Types of CDs
Standard CD
Fixed rate, fixed term, penalty for early withdrawal. The most common type.
No-Penalty CD
Lets you withdraw your full balance without a penalty after a brief waiting period (usually 6 to 7 days after funding). Rates are slightly lower than standard CDs.
Bump-Up CD
Lets you request a rate increase once during the term if the bank’s rates rise. Useful in a rising rate environment.
Jumbo CD
Requires a large minimum deposit — often $100,000 or more — in exchange for a slightly higher rate.
CD Ladder
A strategy, not a product. You split your savings across multiple CDs with different maturity dates (e.g., 1-year, 2-year, 3-year) so you always have a CD maturing soon. This balances liquidity with higher long-term rates.
CD vs. High-Yield Savings Account
Both are low-risk savings options. The main difference is flexibility. A high-yield savings account lets you add or withdraw money anytime. A CD locks your money in for the term but typically offers a higher guaranteed rate.
Use a CD when you know you won’t need the money for a specific period and want to lock in a competitive rate. Use a high-yield savings account for your emergency fund or any money you might need on short notice.
Are CDs Worth It in 2026?
CDs are worth it when you have money you won’t need for 6 to 12 months and you want a guaranteed return without market risk. With rates still above 4% at many online banks, CDs offer meaningful returns with zero risk of loss.
They are not a good fit for money you need access to, money you plan to invest in the market, or an emergency fund.
How to Open a CD
- Compare rates at online banks and credit unions — look for the highest APY with a term that fits your timeline
- Check the minimum deposit requirement
- Review the early withdrawal penalty before committing
- Open the account online — most institutions allow you to fund a CD from an external bank account within minutes
Bottom Line
A CD is a straightforward, low-risk way to earn guaranteed interest on money you won’t need for a set period. Compare rates across online banks before opening one, and consider a CD ladder if you want regular access to maturing funds without fully sacrificing higher rates.