What Is a CD?
A certificate of deposit, commonly called a CD, is a bank deposit product that generally pays interest for a specified term. In exchange for keeping the money on deposit for that term, the account may offer a stated rate.
How a CD works
You deposit money for a selected term, such as six months, one year or five years. The CD's disclosure explains the interest rate, APY, maturity date, minimum deposit and other conditions.
Many CDs are designed to remain untouched until maturity. Taking money out early may result in a penalty or loss of some interest, depending on the product.
CD vs savings account
| CD | Savings account |
|---|---|
| Usually has a defined term. | Generally has no fixed maturity term. |
| Early withdrawal may involve a penalty or loss of interest. | Funds are generally more accessible, subject to account terms. |
| Rate may be fixed for the term. | Rate may be variable. |
What does CD APY mean?
APY reflects the annualized yield while accounting for compounding. When comparing CDs, look at APY as well as the term and the maturity conditions.
What happens at maturity?
At maturity, the CD's terms determine what happens next. Some CDs automatically renew for another term unless you take action during a stated grace period. Read the maturity notice and account agreement carefully.
Are CDs FDIC insured?
Eligible CDs issued by FDIC-insured banks are generally covered by FDIC deposit insurance within the applicable limits and ownership categories. Not every investment or product that uses the word "CD" is necessarily an FDIC-insured bank deposit, so verify the issuing institution and product.
Use a CD calculator
A CD calculator can estimate the maturity value from a starting deposit, rate, term and compounding assumption. The actual bank calculation should always take precedence over a general calculator estimate.