A Certificate of Deposit, or CD, is a savings account that earns interest on a lump sum for a set period. While opening a CD is similar to opening a standard bank account, there are some differences to remember. With a CD, you cannot withdraw the money until the end of the term without risking penalties or lost interest. However, CD rates are higher than savings accounts, making them a good option if you sacrifice some liquidity.

Types of CDs
Traditional CDs
It has a fixed interest rate and federal insurance but puts strict penalties for early withdrawal.

Bump-up CDs
These allow for a potential increase in interest rates if rates go up, but the initial rate may be lower. But you can only exercise this option if you inform the bank beforehand.

Step-up CDs
Herein, the interest rate hikes occur automatically. You do not have to make requests to the banks for a raise. For long-term CDs, the increase may happen at specific intervals.

Brokered CDs
These are acquired via brokerage accounts and offer better rates. You can trade them in the secondary market, as they are negotiable. However, exercise caution to ensure legitimacy.

No-penalty or liquid CDs
These allow penalty-free withdrawals during the term. So, you enjoy the flexibility to shift funds to higher-paying CDs. However, their interest rates are lower than standard CDs.

Other types of CDs
Beyond this, you can invest in jumbo, high-yield, or IRA-based CDs. Always read the fine print and use CD calculators to make an informed decision.

Features
Eligibility
Banks issue CDs to companies, individuals, trusts, mutual funds, etc.

Maturity period
CDs have a fixed tenure, typically varying from a few days to years, depending on the type of CD and issuing bank.

Interest rates
The investors can earn fixed or floating CD rates, semi-annually or monthly, adjusted as per the Federal Reserve Rates.

Fixed amount
The initial amount of investment is fixed. Many banks often have minimum investment requirement.

Negotiable
You can sell some CDs in the secondary market.

Average Percentage Yield (APY)
Compounding and longer tenures attract higher APY, with some banks offering as much as 0.6 percent.

Insured
Federally insured CDs offer insurance coverage up to $250,000.

Low risks
CDs are low-risk investments and less susceptible to bond and stock market fluctuations.

Benefits
The interest rates are higher than the money market or savings accounts.
You get a reliable and steady return, lowering the risks compared to unpredictable bonds and stocks.
CDs are federally insured for added security when opened with NCUA credit union or FDIC bank.
Since early withdrawals incur penalties, they often work as a deterrent to impulsive spending.

Best CD rates in the country
3-month CDs
TotalDirectBank offers 5.16% APY with a $25,000 minimum deposit, followed by Santa Clara County Federal Credit Union at 5.12% APY with a $500 minimum deposit.

6-month CDs
NASA Federal Credit Union offers 5.65% APY for a 9-month term with a $10,000 minimum deposit. Bellco Credit Union and Mountain America Credit Union offer 5.50% APY for a 6-month term with a $500 minimum deposit.

1-year CDs
BrioDirect offers 5.35% APY with a $500 minimum deposit, followed by State Bank of Texas at 5.30% APY with a $25,000 minimum deposit.

18-month CDs
NASA Federal Credit Union offers 5.45% APY for a 15-month term with a $10,000 minimum deposit. CFG Bank and USAlliance Financial offer 5.25% APY for an 18-month term with a $500 minimum deposit.