Best CD Rates

Because banks generally like it when you keep a steady balance with them, certificates of deposit (CDs) encourage you to do just that: invest a sum in an account that pays you a higher interest rate in exchange for your commitment.

The term of the CD determines how long you need to keep your money in the account before you can withdraw it without a penalty. CDs exist for many different terms, though the most common range from one month to five years. Generally, the longer the the CD term, the higher the interest rate you will receive.

CDs are insured by the FDIC up to $250,000 per account owner for each financial institution. CDs can offer a safe place to build your savings with interest rates that will outpace most savings accounts, but to truly benefit from CDs, it's important to note their unique characteristics.

CD features

• CDs aren't liquid. Your funds will be tied up for a specified period of time, and if you cash out early, you'll lose your interest and possibly some principal.
• The good and bad news is that interest rates on CDs are locked in for the duration of term. This means that if interest rates drop, you continue to earn at the higher interest rate. On the other hand, if interest rates rise, you won't benefit from the rate increase.
• The best CD rates generally come with the longest terms. While a longer-term CD can be a good purchase when you open one during a time of high interest rates, they can also cost you interest earnings if rates rise significantly during the term.
• CDs generally have a minimum balance requirement, which varies depending on the financial institution.
• Once your CD reaches maturity, you have a specified period of time to roll the account over into a new CD along with the earned interest, or you can withdraw the money for other purposes.
• When and how much you can deposit to your CD during the term varies by bank.

CD rate considerations

Fixed-rate CDs are the most common type. They require that you deposit a certain amount and wait out the term with a static interest rate. But some banks offer so-called bump-up CDs, which allow users to take advantage of rising CD interest rates if they occur. The bump-up feature is usually only allowed once or twice a term, however. These accounts sometimes start at lower interest rates than fixed rate CDs, which means you could end up earning less than you anticipated if interest rates don't rise during the term.

Steps to opening an account

Make the most of your investment by keeping a few things in mind when choosing your CD:

• Choose an account that compounds interest daily, versus monthly, quarterly or annually, as this grows your money faster. Be sure to pay close attention to interest rates on your CD, as they are the primary reason you're locking your money up.
• Interest rates change frequently, so be sure the rate you saw in an ad or online is the one you get when you actually open the account.
• Look for accounts that require a minimum deposit that meets your saving needs.
• Consider laddering multiple CDs to improve liquidity. This process involves opening up a series of accounts with varying maturity dates, which can allow for more frequent withdrawals while still earning higher interest rates.

CDs can be a great way to grow your savings and reach your financial goals, particularly if you aren't earning the interest rates you want on your standard savings accounts.