Types of Certificates of Deposit (CDs)

A certificate of deposit (CD) is a type of savings account. With a CD, you deposit your money for a specified period, called a term (usually ranging from a few months to 5 years). In return for locking up your money for the term, CDs typically offer higher interest rates than standard savings account. Many types of CDs come with early withdrawal penalties that you must pay if you take money out early. 

There are several types of CDs, including fixed rate, no penalty and step up. Let’s explore the key features of 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 to a few years, and a fixed interest rate that stays the same throughout the term. While it’s possible to withdraw money from a fixed rate CD, there is likely a penalty – usually a few months’ interest – for doing so.  

No penalty CD

As the name implies, a no penalty CD allows you to withdraw your money before the term ends without incurring a penalty. While these CDs can have lower rates than fixed rate CDs, they can still offer a higher return than a standard savings account. This flexibility can make no penalty CDs a good choice for CD owners 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 can change. Step up CDs start with a set interest rate at the beginning of the term, but increase at scheduled intervals determined by the bank, such as every 6 months or annually. Step up CDs may still have penalties for early withdrawals.

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 advantage of rising interest rates. Depending on the CD’s term, you may only be able to request a rate increase once. You may be able to request 2 rate increases for longer-term bump-up CDs. 

Add-on CDs

Add-on CDs let you make additional deposits throughout the term. Add-on CDs can be a flexible option, allowing you to add more funds as they become available, but may still come with early withdrawal penalties. 

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 can offer higher interest rates. 

High-yield CDs

High-yield CDs can offer higher interest rates than traditional CDs. They are often issued by online banks. Like traditional CDs, high-yield CDs usually have early withdrawal penalties. 

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.