Benefits of Certificates of Deposit (CDs)

A Certificate of Deposit (CD) is a type of savings account that holds money for a set period, called a term. CD terms generally range from a few months to a few years. When you open a new CD, you get a guaranteed interest rate during the CD term in exchange for agreeing to leave your money in the account for the term. CD rates are often higher than standard savings account rates.

Depending on the type of CD, there may be a penalty for withdrawing your money early, usually a set number of months’ interest.

CDs can be a great way to grow your savings. Let’s look at some of the benefits.

Advantages of opening a CD account

Earn a fixed interest rate

Standard CDs – sometimes called fixed rate CDs – offer a set rate for the entire term. Once you lock in your rate, it won’t change for the term of the CD, even if interest rates fluctuate. This interest rate can make CDs an option for anyone who doesn’t need their money in the short- or medium-term.

Potential to earn higher returns

CDs often offer higher interest rates than traditional savings accounts. Typically, the longer the term, the higher the rate. 

Specialized options

Different types of CDs can suit different financial goals and needs. 

For example, Step Up CDs come with rates that automatically increase after a set period. While most CDs charge a penalty for withdrawing money before the term ends, No Penalty CDs allow you to access funds early without incurring any fees. This flexibility can be useful if you want to keep your money relatively liquid but still want to earn a higher interest rate than with a standard savings account.

May be FDIC-insured

Money deposited into a CD at an FDIC-insured bank may qualify for FDIC deposit insurance coverage. FDIC insurance covers $250,000 per depositor for each account ownership category per insured bank.

Who should consider the benefits of a CD?

CDs can be a good fit if you:

Have short- or medium-term savings goals

If you’re saving for something in the next year or two, such as for a wedding, a car or a down payment, a CD can help you earn more than a standard savings account while keeping your money secure until you need it.

Prefer stable returns over higher-risk investments

Unlike stocks or mutual funds, CDs offer a fixed interest rate for the CD term. That makes them attractive if you want steady growth without worrying about volatility.

Want to diversify your savings

CDs can complement your other accounts by locking in part of your savings at a higher rate. This creates balance in your overall strategy, with some money kept liquid in a savings account and some earning guaranteed interest rate in a CD for a set term.

Don’t need immediate access to your deposit

Because CDs require you to commit funds for a set term, they’re best for money you won’t need right away. If you think you may need to withdraw early, a no penalty CD could give you flexibility without giving up the advantages of a fixed return.

Want to build flexibility with a CD ladder?

A CD ladder lets you divide your savings into multiple CDs with different maturity dates. As each one matures, you can reinvest at current rates or use the funds if you need them. This approach helps you take advantage of higher long-term rates while keeping some money accessible sooner.

CDs vs. other savings options

When comparing CDs to other accounts, here are some differences:

CDs stand out for their competitive, guaranteed interest rates during a CD term, making them an advantage if predictability is your priority.

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.