What is a Certificate of Deposit (CD)?

A CD is a bank account with a fixed interest rate that is usually higher than a regular savings account. CDs typically have a fixed-term length and a fixed date of withdrawal, known as the maturity date. CDs generally have a minimum dollar balance that must be invested and sometimes a maximum dollar amount you can invest. You can generally invest funds in a CD for terms between three months and five years. CDs typically do not have monthly fees associated with them, but most have early withdrawal penalties.

How is a CD different from a savings account?

CDs tend to have higher interest rates than regular savings accounts, often have a higher minimum deposit balance than a savings account and have a minimum amount of time (term) which funds must be invested. CD interest rates are fixed for the term of the CD, while savings account interest rates are variable and can change at any time. Typically, CDs do not allow deposits or withdrawals of funds except at maturity, and followed by a short grace period. Withdrawals made during the term typically trigger an early withdrawal fee. Savings accounts, however, allow regular access to your money. You can typically make deposits and withdrawals at any time without incurring a penalty. Electronic transactions from savings accounts do have withdrawal limitations.

What is the advantage of CDs?

In exchange for you depositing money for a minimum term, banks are typically willing to offer a higher interest rate that will stay fixed for the term of the CD. This can be an advantage, as CDs have fixed, predictable returns. Certificates of deposit make a relatively safe investment and provide peace of mind because even if the financial institution is forced to close, your principal and interest up to the insured amount are protected. FDIC coverage is based on account ownership and structure. The combination of a CDs low risk and higher interest rates compared with other bank accounts can make them an attractive investment.

How do I decide on a CD term?

This depends on your savings goals. Traditionally, the longer the term length, or the longer you commit funds to a CD, the higher the interest rate. People will often open several CDs, making sure the maturities fall before the time funding is needed, for tax payments, college tuition, or a remodel, for example. Also, clients often keep a certain amount of cash liquid—in a checking or savings account—to help meet any unexpected liquidity needs that may arise prior to the maturity of their CDs.

What if I need the money prior to the end of the term, or CD maturity?

You can access your money if needed prior to maturity but you may pay an early withdrawal fee. Typically, this will require speaking with your bank so they can process the early withdrawal, or “break.” You may be assessed an early withdrawal fee which can be equal to the interest earned over a certain amount of time. This early withdrawal fee can equal an amount of interest that has not been earned on the CD yet, thereby resulting in a loss of principal. Most banks typically allow a penalty-free withdrawal of interest that has posted to your account during the CD term. Some banks may offer a loan using the CD as collateral, eliminating the need to withdraw from the CD prior to maturity. There are a few exceptions for penalty-free withdrawals such as death of an accountholder, and some banks allow penalty-free withdrawals on IRA CDs when the IRA holder reaches age 59.5 years old.

What is the penalty for withdrawing funds from my CD before maturity?

This can vary by institution, but typically it is some portion of interest that would be deducted and held back when you cash out. For example, if the early closure penalty is 90 days’ worth of interest and you close the account at six months, you would receive the interest earned minus the penalty. There are a few exceptions for penalty-free withdrawals, such as death of an accountholder.

How does a CD work?

The process for opening a CD begins in the same way as with most bank accounts — by applying online or in person at a financial institution. The key difference is that your initial deposit into a CD will usually be the only time you can deposit money into it. You can’t add contributions to CDs over time like you can with a regular savings or checking account. The interest earned in a CD is usually compounded and posted to the account, either monthly, quarterly or when the CD term expires or matures. Interest may compound daily, monthly, quarterly or annually. The more often your interest compounds, the more money you will earn. For example, if your interest compounds daily, you earn interest on your interest each day and this creates a larger balance at the end of the maturity term. However, some people prefer to receive their CD interest each month or quarter. Depending on your financial institution’s policies, you may be able to receive regular interest payments by check or transfer to your checking account, providing you additional monthly or quarterly income. If the interest is paid to another account or if it is withdrawn, you will not earn the stated APY.

How do CD rates work?

Most CD rates compound based on annual percentage yield, or APY. This is the annual interest rate after compounding, or when your account earns money from both the original deposit and the increasing interest. If it does not compound or if the interest payments are taken out, the account will not earn the stated APY.

What is the difference between the interest rate and annual percentage yield (APY)?

The APY indicates the total amount of interest you can earn on a CD over the course of one year. Although it is based on the interest rate, APY also accounts for the frequency of compounding interest, which can provide you with an accurate estimate of your earnings during that year.

Are there any fees associated with CDs?

Usually there are no fees associated with CDs, provided they are held to maturity. For this reason, they represent a very efficient savings vehicle. Visit the FAQ titled “What is the penalty for withdrawing funds from my CD before maturity?” for more information on early withdrawal fees, or “break-fees.”

What happens to my money when my CD matures?

Typically, you can provide instructions at the time of opening a CD as to what to do with funds at maturity. Common options include rolling it over into another CD, having funds sent to you by check or electronic transfer, or transferring them into a checking or savings account.

Are CDs covered by FDIC insurance?

Most banks are federally insured by the FDIC, while credit unions are insured by NCUA, and some financial institutions are privately insured. In general, the FDIC insures up to $250,000 per depositor. FDIC coverage is based on account ownership and structure. Depending on ownership, CDs can be insured for more than the standard $250,000. Consumers should check the insured status of the financial institution they are considering.To determine insurance eligibility of your deposits, visit the FDIC.

Can a business open a CD?

Many banks and credit unions will open business CDs, though not all banks will open business CDs online.

Can a CD be opened in the name of a trust?

In most cases, yes. However, not all financial institutions will open a CD in the name of a trust. This may be easier with a local bank, where you can speak with an account specialist.

Can CDs be owned jointly?

Yes, although IRA certificates may not. This may be easier with a local bank, where you can speak with an account specialist.

What is a CD Ladder?

“Laddering” is the process of opening several CDs, each with different terms, so that you have a set schedule of funds becoming available. This could be to meet an expected cash flow, such as college tuition payments or funding a home renovation. Or, it can be a way to keep funds invested unless needed. For example, a client may open four CDs, each for $50,000 but with respective terms of 3, 6, 9 and 12-months. Over the coming year, $50,000 will be available every 3 months. At each maturity, the client may use some or all the cash. Or they can set it up to let each CD roll-over into a new 12-month CD and would retain the same 3-month availability in the coming year, while still earning the higher rates typically offered for CDs.

Why is Seattle Bank sharing rates of other banks?

There are two reasons. First, community banks often offer deposit rates that are higher than the large national and online banks but because we do not advertise as frequently or broadly, consumers can miss out on earning the best possible returns. When they turn to rate comparison websites, they can find biased information influenced by advertising relationships. CD Valet simply brings you the best rates by simplifying your online searching and providing unbiased information. Second, community banks are an integral part of our country’s financial system, reinvesting local dollars back into the community to create greater economic opportunity through jobs, housing, local services and more. When people deposit their funds in local institutions, it fuels greater local investment. As the financial services sector grows more complex with fintech firms, neobanks and more, CD Valet helps people invest locally, where it matters most.

What is the source for the rates shown on CD Valet?

We obtain rates from banks’ published rates, usually posted on their website. Seattle Bank does not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. While Seattle Bank is FDIC insured, we cannot guarantee the deposit insurance coverage of quoted CDs. Visitors to any linked websites should independently verify all terms, conditions, and limitations including, but not limited to, federal deposit insurance coverage, credit union eligibility and membership requirements, other account relationships, access restrictions such as online access only, new customer or new money required, etc.

How do you choose what banks to show on CD Valet?

CD Valet provides CD rates for an ever-growing number of financial institutions, as we continue to expand and add more states every month. When we add a state, we have a methodology for determining which financial institutions to include on CD Valet. First, a financial institution must post CD rates on its public website to be included on CD Valet. All financial institutions that publicly post their CD rates and have more than $250 million in total assets are automatically listed. CD Valet may also include financial institutions under $250 million in total assets if they offer competitive and publicly available rates, as well as out-of-state banks with a significant branch presence and competitive rates. In addition, CD Valet includes many of the largest financial institutions and internet banks with a presence across the nation.

Why do you differentiate between national and local banks? Why not just show the banks paying the highest rates?

Many people prefer local banks, as they want to be able to transact business in person, if needed. As a result, we believe it is important for our rate comparison tool to have the ability to filter by financial institutions that have a local presence versus those that are strictly digital.

How can a bank or credit union get listed on CD Valet?

We attempt to report the highest online and local payers. If a financial institution’s rates are consistently amongst the highest but are not showing up on CD Valet, or if they have a scheduled campaign, please  Contact Us  and we will consider adding them to our survey and CD Valet.

Are rates shown on CD Valet guaranteed?

While we commit to showing accurate published rates as of the times noted on our site, banks can change their published rates at any time. Additionally, banks may have other non-published rate campaigns, or offer rates on a relationship basis for customers that have a lot of other business with them. Rates are based on publicly available data for comparable CD products. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. While Seattle Bank is FDIC insured, we cannot guarantee the deposit insurance coverage of quoted CDs. Visitors to any linked websites should independently verify all terms, conditions, and limitations.

I found a higher rate online!

We don’t have perfect information, so that is possible. Our goal, however, is to be a reliable source for most of the national and local highest rate payers. However, if your research shows that we have not listed a bank that is consistently a leading rate payer, or you found a rate that is significantly higher for a given term than what we show on CD Valet, please let us know in our Contact Us page and we’ll monitor and may add it to our list.

Is Seattle Bank a broker?

No, we are just sharing public information.

Do banks pay to be listed on CD Valet?

No. We accept no money from the banks or credit unions we list and get no referral fee or other compensation from financial institutions we list on CD Valet. We choose who gets listed in order to give consumers a reliable source for seeing the highest paying local and national institutions.

How should I decide how much money to put into a CD?

This is a personal choice. We suggest people have at least a few months’ worth of cash in a checking or savings account. Depending on the predictability of your income or expenses, more cushion may be advisable. From there, it is important to think about the goals and timelines for the rest of your financial assets—that is your savings over-and-above daily needs or emergency funds. CDs are often used for that portion of saving where you want principal protection first and then optimize for interest. This might be for near-term expenses (tax payments, college tuition, or an approaching retirement) for which you do not want to put the principal at risk, but do want to earn as much interest as you can.

Why do people use CDs?

CDs are a safe, efficient way to save. Depending on the principal amount, they can be structured to be fully covered by FDIC insurance, yet pay considerably more than like-term Treasury notes. At the same time, if held to term, there are no transaction or management fees associated with CDs. This makes CDs often a very effective way of managing funds, that you don't expect to need for a matter of months or years, but which you do not want to place at risk by investing in stocks or other assets that are subject to price volatility.

Why do banks offer CDs?

Banks issue CDs as part of their funding strategy. It helps for planning purposes to know that a portion of deposits will be on hand for a definite amount of time—unlike checking or savings accounts which can fluctuate more often. As a result, banks are willing to pay a premium interest rate on CDs.

Why do rates vary so much between banks?

Banks set their CD rates based on their own liquidity needs—that is money they need to make loans and fund client withdrawals. Different banks have different business models and cost structures, or at a given time may be looking to meet growing loan demand or achieve a different deposit mix.

What are the benefits of creating a CD Valet account?

You can freely look at the CD rates and visit as often as you like without becoming a CD Valet subscriber. You gain several benefits when you create an account and subscribe to CD Valet. The first is access to CD Portfolio. The CD Portfolio tool tracks earnings and maturities of your individual CD accounts. Given that you are tracking your individual investments, a subscription is required with a unique username and password. Another benefit is that once you are a subscriber, you can also set up push alerts to be automatically informed about rate changes, CD maturity dates, and more. You also have the ability to add rates to your watch list, as well as add market rates that are missing on CD Valet’s site.