Types of Certificates of Deposit (CDs)

A certificate of deposit (CD) is a type of savings account that requires you to deposit your money for a specified period, called a term. CD terms can range from a few months to several years. You typically pay a fee for withdrawing your money before the CD term ends. In return for locking up your money for the term, CDs typically offer higher interest rates than standard savings accounts.

There are many different types of CDs, including fixed rate, no penalty and step up CDs. It’s important to understand how each type works to choose a CD that makes sense for you.

Let’s explore the key features of the different types of CDs.

Fixed rate CDs

Fixed rate CDs — sometimes called traditional CDs — are the standard CD. They have a fixed term, usually between a few months and 5 years, and a fixed interest rate that stays the same throughout the term. That means you’ll know how much interest you’ll earn over the course of the term.

While it’s possible to withdraw money from a fixed rate CD, there is likely an early withdrawal penalty for doing so. Penalties are typically at least a few months’ worth of interest.

No penalty CDs

As the name implies, a no penalty CD allows you to withdraw your money before the term ends without incurring a penalty. These CDs can have lower rates than fixed rate CDs. That said, their flexibility can make no penalty CDs a good choice for savers who may need to access all or some of their funds early.

Step up CDs

Unlike fixed rate CDs, a step up CD’s interest rate increases at scheduled intervals, as determined by the bank. For example, interest rates might increase every 6 months or annually. Starting rates for step up CDs may be lower than what you’ll see with fixed rate CDs. You’ll need to do the math to see if a step up CD offers more overall interest compared to other CDs.

Bump-up CDs

Similar to step up CDs, bump-up CDs also allow for interest rate increases. However, instead of scheduled raises, bump-up CDs let you request a rate increase, which can allow you to strategically take advantage of rising interest rates. Typically, you can only request a rate increase once with a bump-up CD. But longer-term CDs may allow for multiple rate increase requests.

Add-on CDs

Add-on CDs let you make additional deposits throughout the term. For example, you may be able to add funds every 12 months. Most other CDs only allow you to deposit money when you open the account. Add-on CDs can be a flexible option, but the rates are typically lower than you might find with traditional CDs.

Jumbo CDs

A jumbo CD is similar to a standard fixed rate CD — it usually has a fixed rate, a fixed term and penalties for early withdrawal. However, jumbo CDs require a much larger minimum deposit, usually at least $100,000. In exchange for the large opening deposit, jumbo CDs typically offer higher interest rates.

High-yield CDs

High-yield CDs typically offer higher interest rates than traditional CDs. Like traditional CDs, high-yield CDs usually have fixed terms and rates as well as early withdrawal penalties. Minimum deposit amounts can vary by financial institution. Longer terms typically come with higher interest rates.

CD accounts: FAQs

What is a CD term?

When you open a CD, you agree to keep your money in that account for a certain amount of time, called a term. In general, you’ll pay a fee for withdrawing funds before the term ends. At the end of the term, the CD matures, and you can get your deposit back, plus interest.

What is a CD ladder?

You can build a CD ladder by opening several CDs, each with a different maturity date. That way, you can access some of your money earlier, if needed, or open another CD, if desired.

How can you pick the best type of CD?

Different types of CDs each have their benefits. In general, considering factors like total interest earnings, terms, accessibility and your financial situation can help you choose a CD that meets your needs.

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.