How To Invest With CDs

Certificates of deposit (CDs) provide a reliable way to grow your savings with virtually no risk. As long as your CDs are issued by FDIC-insured banks or NCUA-insured credit unions, your principal is protected up to $250,000 per depositor per institution.

What is a CD?

A certificate of deposit is a deposit account that earns a fixed rate of return over a set period, known as the term. In exchange for this guaranteed yield, you agree to keep your money in the CD until maturity. Your deposit accrues interest and compounds at regular intervals during the term.

CDs work best for funds you can afford to set aside until the term ends. Withdrawing money from a CD before maturity will trigger an early withdrawal penalty, potentially wiping out some or all of your earned interest.

Plenty of banks and credit unions offer high yields on their CDs, and you can develop a strategy for investing in one or several CDs with varying term lengths, depending on your goals.

Take these steps to start investing in CDs:

1. Determine your CD investing goals (ex., saving for a down payment in three years).
2. Compare the best CD rates to find the most competitive APYs.
3. Choose a CD term that aligns with your goals and timeline.
4. Decide how much you can comfortably lock away for the duration of the term.
5. Use Bankrate’s CD calculator to project your earnings.
6. Open your CD account and fund your initial deposit.

Read more about how to save for short-term goals.

Despite declining rates, CDs are still a good option right now

Even though rates have declined somewhat in 2025, following the Federal Reserve’s recent rate cuts, you can still find CDs with yields that outpace the current inflation rate of 2.4 percent:

Locking in these competitive yields in longer-term CDs now, before rates drop further, could prove advantageous. A CD ladder strategy allows you to take advantage of today’s high rates while maintaining some flexibility.

Other low-risk investments, such as money market accounts and online savings accounts, may offer better returns and features for savers, depending on their needs. Nevertheless, a CD still provides a better return than most traditional savings accounts, which are averaging 0.59 percent APY nationally.

Expert tip: When to lock in CD rates

“With the Fed expected to continue cutting rates through 2025, now might be an opportune time to consider locking in today’s higher CD rates, especially for longer terms. Pay special attention to any early withdrawal penalties, though – if you think you might need the money sooner, a no-penalty CD could be worth the slightly lower yield.”

— Greg McBride, CFA, Bankrate Chief Financial Analyst

How much can you earn by investing in a CD?

Your earnings from a CD depend on a few main factors:

• The amount you deposit
• The CD’s interest rate
• The length of the term
• Whether the interest compounds

As an example, let’s say you invest $20,000 in a 3-year CD with a 3.10% APY. Over the 3-year term, you would earn $1,918.26 in interest. You can use Bankrate’s CD calculator to project your specific earnings.

The minimum deposit required to open a CD varies by institution. Some banks, like Capital One, have no minimum requirement. Others, such as Bank of America, may require $1,000 or more to open certain CD products.

CD investing strategies

Many CD investors employ strategies involving multiple CD terms to optimize their returns while maintaining some liquidity. Here are three common approaches:

CD Laddering

CD laddering is arguably the most common CD investing approach. For example, let’s say you have $10,000 you plan to invest in CDs. Here’s how a ladder might look:

• $2,000 in a 1-year CD
• $2,000 in a 2-year CD
• $2,000 in a 3-year CD
• $2,000 in a 4-year CD
• $2,000 in a 5-year CD

When the 1-year CD matures, you reinvest the principal and interest earned in a new 5-year CD. When the two-year CD matures, reinvest the funds into another new 5-year CD, and so on. This way, your money is regularly maturing, and that gives you two key benefits.

First, if you need access to some of the funds, you can access them upon the next maturity date which, in the above example, is fairly close. Second, you’ll hopefully be able to take advantage of higher interest rates when you reinvest to continue to maintain the ladder. It’s important to note that you don’t have to divide the funds equally (as in the example above). You can choose any amount in each CD, in order to maximize earnings on CDs with higher rates.

Here’s an example:

Barbell strategy

While a ladder has multiple steps with even space between them, a barbell skips all those middle rungs in favor of short-term and long-term CD investments. For example, a barbell might look like this:

• $5,000 in a 6-month CD
• $5,000 in a 5-year CD

The benefit of pairing long-term investments with short-term ones is that the investor can use shorter-term CDs to take advantage of higher rates, while the longer-term CD serves as a safety net in case rates fall.

This strategy works particularly well in uncertain rate environments. If rates rise after your short-term CD matures, you can reinvest at the higher rate. If rates fall, you still have a portion of your funds locked in at the previous higher rate in your long-term CD.

Bullet strategy

With a CD bullet strategy, you pick a target date for the bullet and invest in CDs accordingly. So, you might invest in a 5-year CD today. Next year, you invest in a 4-year CD, and the following year, you invest in a 3-year CD. All the CDs will mature around the same time, so the bullet strategy may be good for investors looking to achieve a specific goal by a certain date.

A benefit of the bullet strategy is you won’t have to invest the entire amount at one time, and there’s a chance you’ll be able to pick up higher rates along the way on the shorter-term CDs. Here’s an example of using a bullet strategy for a goal you have in five years, like buying a home:

Different types of CDs

All CDs aren’t created equally. If you’re comparing CD investments, here’s a rundown of some of the common alternatives to traditional CDs:

Bump-up CD

A bump-up CD gives you the option to request a rate increase a certain number of times during the term. So, let’s say you open a 2-year CD with a 4.00% APY, and eight months later, the rate is 4.50% APY. You can ask for the increase. Typically, these CDs only allow for one increase per term and they generally make the most sense when rates are expected to rise.

Step-up CD

A step-up CD is similar to a bump-up CD except the bank does the work for you. You’ll have an idea of the rate increases before you open. For example, a bank’s 28-month CD might start with a 4.00 percent APY and increase by 0.25 percent every seven months.

No-penalty CD

With a no-penalty CD, the name says it all. You don’t have to worry about handing over any earnings if you make a withdrawal before the maturity date – and generally at least seven days after making your deposit. These typically offer slightly lower rates than traditional CDs but provide much more flexibility.

Check out the best no-penalty CD rates.

Add-on CD

Add-on CDs function more like a standard savings account. After you open the CD, you can make additional deposits to the principal. Some add-on CDs allow for unlimited additional deposits, but others may have limits on how many contributions can be made. The downside is that they may earn less than standard CDs.

Callable CD

Callable CDs put more power in the bank’s hands to call – close out – your CD. For example, let’s say your CD is paying a 4.5 percent APY. If interest rates drop and the bank doesn’t want to pay that much interest, it can call (close) your CD. These typically offer higher rates to compensate for this risk, but should be approached with caution.

Jumbo CD

Jumbo CDs typically require a minimum deposit of $100,000, though some institutions set the threshold at $50,000 or $25,000. They may offer slightly higher rates than standard CDs to reward the larger deposit, though this isn’t always the case.

See the best jumbo CD rates.

Can you lose your money in a CD?

As long as your CD is with an FDIC- or NCUA-insured institution, and you keep the funds in the CD until maturity, there is virtually no risk of losing your principal. Your initial deposit and earned interest are federally insured up to $250,000.

The main way CD investors can lose money is by withdrawing funds before the CD’s maturity date. Early withdrawal penalties can eat into your earnings and possibly your principal. Only open CDs with money you can commit to leaving untouched for the full term.

There is also the risk that inflation could outpace your CD’s yield, meaning your money would lose purchasing power over time, even as the nominal value increases.

Opening a CD is a simple process, but there are some stumbling blocks that can get in your way. Avoid these errors to make sure you’re maximizing your earnings and minimizing your chances of penalties:

1. Forgetting to account for inflation: Though at this time you can find CDs outpacing the current inflation rate of 2.6 percent, you have to account for inflation when choosing a CD. CD APYs now might outpace inflation for a while or inflation could rise above that CD yield, eroding your real returns.
2. Choosing the first CD you see: Many banks and credit unions offer CDs, and these offerings come at varying terms and yields. You can use Bankrate’s best CDs list to compare some options. Online banks often offer significantly higher rates than traditional brick-and-mortar institutions.
3. Failing to consider penalties and more flexible alternatives: An investor may want to consider other types of CDs besides traditional CDs. A no-penalty CD, for example, may be a good option for an investor looking for more flexibility with their deposit, even if it comes with a slightly lower yield.
4. Not diversifying your CD investments: Putting all your money into a single long-term CD could mean missing out on higher rates if interest rates rise. Consider spreading your investment across multiple CDs with different terms using one of the strategies outlined above.
5. Overlooking automatic renewal settings: Many CDs automatically renew at maturity, potentially at less favorable rates. Make sure you understand your bank’s renewal policy and mark your calendar to evaluate your options before the CD matures.

Bottom line

For low-risk investors, CDs provide a safe way to earn guaranteed returns. Investing in CDs makes sense for funds you don’t need in the shorter term.

Shopping around is important to find the best yields. CD investing strategies like laddering can help you take advantage of today’s rates while preserving flexibility for the future.

Carefully consider your financial goals, time horizon, and liquidity needs to determine the most appropriate CD terms. Avoid locking up funds you may need before maturity to steer clear of costly early withdrawal penalties.