Certificate of Deposit Rates, June 2025
What is a Certificate of Deposit?
A Certificate of Deposit (CD) is a time deposit account that typically offers higher interest rates than regular savings accounts in exchange for leaving your money untouched for a specific period. Unlike savings accounts, which have variable rates, CDs usually provide a fixed, guaranteed rate of return for the entire term.
When you open a CD, you agree to deposit your money for a predetermined time period (the "term"), which commonly ranges from 3 months to 5 years. The longer the term, the higher the interest rate you'll typically receive.
Why CDs Offer Higher Rates Than Savings Accounts
Time Commitment
Banks reward you with higher rates because they can count on your money staying put for the full term, allowing them to use these funds for loans and other investments.
Predictable Costs
The fixed-term nature of CDs helps banks manage their costs better than with savings accounts, where customers can withdraw funds at any time.
Term Structure
Longer CD terms generally offer higher rates because you're committing your money for an extended period, compensating for inflation and opportunity costs.
Key Features of Certificates of Deposit
CDs offer several distinct advantages that make them attractive for certain financial goals. Understanding these features can help you decide if a CD aligns with your savings strategy.
Fixed Rates
Your interest rate is locked in when you open the CD, protecting you from rate drops during the term. This guaranteed return makes budgeting and financial planning more predictable.
FDIC Protection
CDs at FDIC-insured banks are covered up to $250,000 per depositor, per bank, making them one of the safest investment vehicles available. Your principal and earned interest are protected.
Higher Yields
CDs typically offer higher interest rates than regular savings accounts, especially for longer terms. Online banks often provide more competitive rates than traditional brick-and-mortar institutions.
Self-Discipline
Early withdrawal penalties discourage impulsive spending, helping you maintain financial discipline and commit to your savings goals when you might otherwise be tempted to dip into your funds.
Types of CDs for Different Needs
Beyond traditional CDs, banks offer several specialized CD products to accommodate different financial needs. Understanding these options can help you choose the right CD for your situation.
No-Penalty CDs
These CDs allow you to withdraw your principal without penalties after a short initial period (often 7 days). They typically offer lower rates than traditional CDs but provide more flexibility.
Bump-Up CDs
If interest rates rise, bump-up CDs allow you to increase your rate once or twice during the term. These typically start with slightly lower rates than standard CDs of the same term.
Add-On CDs
Unlike standard CDs that only allow a single initial deposit, add-on CDs let you make additional deposits during the term, combining the higher rates of CDs with the flexibility to add funds.
Step-Up CDs
These CDs feature predetermined rate increases at specific intervals throughout the term. They provide a blended rate that's typically competitive with standard CDs of similar terms.
Jumbo CDs
Requiring larger minimum deposits (typically $100,000+), jumbo CDs often offer higher interest rates than standard CDs, making them attractive for investors with substantial cash reserves.
Brokered CDs
Purchased through brokerage firms rather than directly from banks, these CDs can be traded on the secondary market before maturity but carry different risks and considerations than bank-issued CDs.
CD Laddering: A Smart Strategy for Maximizing Returns
CD laddering is a strategy that balances higher returns with liquidity by spreading your money across multiple CDs with different maturity dates. This approach gives you periodic access to your funds while maintaining higher average yields than keeping everything in a savings account.
How to Build a CD Ladder
Divide your investment amount into equal portions (e.g., 5 equal parts)
Invest in CDs with increasingly longer terms (e.g., 1, 2, 3, 4, 5 years)
When the shortest CD matures, reinvest in a new 5-year CD
Repeat this process as each CD matures
A mature ladder provides access to funds annually while earning higher long-term rates
Example of a $10,000 CD Ladder
Here's how you might create a CD ladder with $10,000:
| CD Term | Amount | Typical APY | When Available |
|---|---|---|---|
| 1-Year CD | $2,000 | 4.25% | 1 year |
| 2-Year CD | $2,000 | 4.35% | 2 years |
| 3-Year CD | $2,000 | 4.40% | 3 years |
| 4-Year CD | $2,000 | 4.45% | 4 years |
| 5-Year CD | $2,000 | 4.50% | 5 years |
After the first year, when your 1-year CD matures, you can either withdraw those funds if needed or reinvest into a new 5-year CD. This creates a perpetual ladder where you have access to a portion of your money each year while still benefiting from the higher rates of longer-term CDs.
When to Choose a CD vs. a Savings Account
Both CDs and savings accounts serve important roles in your financial portfolio, but they're designed for different purposes. Understanding these differences can help you allocate your funds optimally.
Choose a CD When...
- You have a specific future expense - Like a down payment on a house in 2-3 years, a wedding, or college tuition
- You want higher guaranteed returns - CDs typically offer better rates than savings accounts, especially for longer terms
- You don't need immediate access - You can confidently set this money aside without needing it before maturity
- You want to lock in current rates - If you believe interest rates might fall in the future, a CD guarantees your current rate
- You need help avoiding impulse spending - Early withdrawal penalties provide a strong deterrent against dipping into your savings
Choose a Savings Account When...
- You need emergency funds - Quick access without penalties makes savings accounts ideal for emergency funds
- You're actively saving - Savings accounts allow regular deposits, while most CDs only allow a single initial deposit
- You expect interest rates to rise - Savings account rates typically adjust upward when the Fed raises rates
- You're unsure of your timeline - If you don't know exactly when you'll need the funds, a savings account offers flexibility
- You need frequent access - For funds you may need to tap into regularly but want to keep separate from checking
Pro Tip: The ideal approach for many savers is to maintain both types of accounts. Keep 3-6 months of expenses in a savings account for emergencies, then put additional savings into CDs to earn higher rates.
Understanding the Potential Costs: Early Withdrawal Penalties
One of the most important considerations when opening a CD is understanding the early withdrawal penalties. These penalties are how banks protect themselves when customers withdraw funds before the maturity date, and they can significantly impact your returns if you need to access your money early.
| CD Term | Typical Penalty | Example for $10,000 at 4.5% APY |
|---|---|---|
| 3-Month CD | 1 month of interest | $37.50 penalty |
| 6-Month CD | 3 months of interest | $112.50 penalty |
| 1-Year CD | 3-6 months of interest | $112.50-$225.00 penalty |
| 2-Year CD | 6 months of interest | $225.00 penalty |
| 5-Year CD | 12 months of interest | $450.00 penalty |
Penalties vary significantly between financial institutions. Some banks charge a flat fee, while others may charge a percentage of the principal. In rare cases, especially with longer-term CDs, penalties could even eat into your principal amount.
When It Might Make Sense to Pay the Penalty
Despite penalties, there are situations where breaking a CD early can be financially sound:
- If interest rates have risen significantly - Breaking a low-rate CD and paying the penalty might make sense if you can get a much higher rate on a new CD
- When you need the money for a high-return investment opportunity - If the potential return exceeds your CD rate plus the penalty
- To consolidate debt with high interest rates - Using CD funds to pay off high-interest debt could save you money overall, even after accounting for the penalty
Penalty Calculation Example
Suppose you have a 3-year CD with $20,000 at 4.5% APY, and you need to withdraw after just 1 year. The penalty is 6 months of interest.
- Interest earned in one year: $20,000 × 4.5% = $900
- 6-month interest penalty: $900 ÷ 2 = $450
- Net amount received: $20,000 + $900 - $450 = $20,450
Despite the penalty, you still walk away with more than your initial deposit.
Secure Your Financial Future with CDs
Certificates of Deposit represent one of the most reliable ways to grow your savings with minimal risk. With fixed rates that are typically higher than standard savings accounts, FDIC insurance, and terms to match almost any financial timeline, CDs offer a perfect balance of security and returns.
Whether you're saving for a specific goal like a home down payment, creating a CD ladder for regular access to funds, or simply looking to earn more on money you won't need immediately, CDs deserve consideration in your financial strategy.
The current rate environment makes this an excellent time to lock in competitive CD rates. By committing to leave your money untouched for a set period, you can earn substantially more interest than you would in a traditional savings account while enjoying the peace of mind that comes with a guaranteed return.
Ready to Start Earning More?
Compare the top CD rates from our featured banks, choose the term that aligns with your goals, and take an important step toward better financial returns. Even a small improvement in interest rate can make a significant difference over time.