Certificates of deposit (CDs): How they work to grow your money

August 16, 2022

Learn how this savings tool works, when to consider it and your options.


You probably already have a checking or savings account from which you pay monthly bills and cover daily expenses. You might even have a retirement savings account like a 401k or IRA. If you also have some extra money that you won’t need right away, consider growing it with a certificate of deposit (CD). A CD may give you a higher return than a traditional savings account, while still allowing you to withdraw your money after a set period of time that you select when you open the account.

Learn more about growing your money with a CD from U.S. Bank.


Maturity: Your CD reaches maturity at the end of the term you chose when you opened the account. Then, either you can withdraw the money, or you can reinvest in another CD. If you do nothing, a bank typically will automatically reinvest your money in another CD with the same term. If you want to withdraw your money or move it into a CD with a longer or shorter term, you’ll need to let the bank know during the grace period of the CD. This is a period of time after the CD matures during which you can make changes to your account with no penalty. Then, you can transfer your deposit to your checking or savings account, or you can purchase another CD with a different term.

Early withdrawal: If you withdraw money before the CD’s term ends, you’ll usually have to pay a penalty. This penalty varies, but you may have to give up some of your interest earnings – sometimes as much as three or six months’ worth.

Laddering: Many savers may try to take advantage of the higher interest rates CDs tend to offer while also attempting to keep their savings semi liquid. They often do this by purchasing more than one CD. For example, you might deposit money in a one-year, two-year, three-year, four-year and five-year CD — a strategy known as laddering. With this approach, one CD would mature each year, and you would be able to access the original funds and earned interest without paying a penalty. This also may be a valuable approach if interest rates rise more generally throughout the economy. When interest rates increase broadly, you are likely to earn a higher interest rate on a new CD account.


When should you consider a CD?

CDs may be a good choice if you have budgeted well and have some money in savings that you’re unlikely to need right away. Consider other CD pros:

  • Low-risk investment: CDs from banks are generally FDIC insured, that is insured by the Federal Deposit Insurance Corporation. If your bank participates, your CD deposit generally is protected up to $250,000, making CDs a safer investment than stocks, which are not insured against loss of principal. 
  • Savings motivation: When you open a CD account, the penalty for withdrawing your deposit before the term ends can be a strong incentive not to spend money you planned to save. If you want to add extra protection to your savings goals, a CD may be a good option. While CD accounts are less common than checking or savings accounts, households with CDs tend to hold a lot more money in them than they do in checking or savings, according to the Federal Reserve.


When is a CD not right for you?

If you are uncertain about your spending plans for the next few months or years, or if you will need to take money out of savings soon for a major purchase, a CD may not be the best choice. The penalty for early withdrawal removes some flexibility and value.

Additionally, they are not a good substitute for a broader strategy to invest for retirement, because they generally earn lower interest rates relative to other options, such as purchasing stocks, bonds or mutual funds. That means it can be harder to use CDs to accumulate the funds you will need for retirement.


What types of CDs are available?

Traditional CDs: These CD accounts are the most common and have fixed interest rates and terms. This means the interest rate and length of time you will keep your deposit in the account are set when you make the initial deposit, and they won’t change until the CD matures. Traditional CDs also require you to pay a penalty if you withdraw your money before the account matures. But there are other types of CDs with different terms that could be a good fit for your savings plans.

Trade-up CD: This type of CD offers a lower interest rate at the beginning of its term than a traditional CD does. However, it also gives you an opportunity to earn more. If interest rates rise on CDs with similar terms before your CD matures, you can choose to raise the interest rate of your account at least once during the term. If rates don’t rise, however, you could miss out on the higher interest rates offered by traditional CDs. A trade-up CD could be a good choice if you expect interest rates to increase soon.

Step-up CD: Like most CDs, a step-up CD has a set interest rate at the beginning of its term. A step-up CD also typically starts with a lower interest rate than a traditional CD with a similar term. But unlike other CDs, the rate on a step-up CD rises at specific stages over the life of the CD. For example, in a 28-month CD, the interest rate might rise after seven, 14 and 21 months. A step-up CD may be a useful option if you expect interest rates to rise, but you are concerned about having to choose the best time to increase the rate, as you would with a trade-up CD.

No-penalty CD: Suppose that you are interested in purchasing a CD, but you’re unsure about whether you may need the money before the CD term ends. A no-penalty CD, as its name suggests, does not require you to pay a penalty if you withdraw your money before the account matures. The tradeoff is that this type of CD generally offers a lower interest rate than that of a traditional CD, which do have a penalty for early withdrawal.

CDs can be part of a sound financial plan. To learn which kinds of CDs might be best for you, speak with your banker or accountant.


Ready to save? Start by comparing potential rates for U.S. Bank CDs today.



The customer would need to do this within what is called “grace period”; in which per regulations bank’s must notify a customer a specific amount of days ahead of time before the maturity date, so that once the account matures the customer is aware that they have a grace period (typically 10 days) to decide what to do (withdraw money without a penalty, renew CD or purchase a new CD).

Related content

3 steps to prepare for a medical emergency

Should you buy now, pay later?

Bank from home with these digital features

How to increase your savings

Practical money skills and financial tips for college students

4 tips to help you save for retirement in your 20s

Helpful tips for safe and smart charitable giving

Talent acquisition 101: Building a small business dream team

Money Moments: 8 dos and don’ts for saving money in your 30s

3 ways to keep costs down at the grocery store (and make meal planning fun)

Should rising interest rates change your financial priorities?

The mobile app to download before summer vacation

Tips to raise financially healthy kids at every age

Do your investments match your financial goals?

6 pandemic money habits to keep for the long term

Year-end financial checklist

What financial advice would you give your younger self?

How to discuss money with your family

7 ways for pre-retirees to get ready for retirement

Family planning for the LGBTQ+ community

Stay committed to your goals by creating positive habits

Travel for less: Smart (not cheap) ways to spend less on your next trip

5 things to consider when deciding to take an unplanned trip

Your financial aid guide: What are your options?

How to get started creating your business plan

How having savings gives you peace of mind

Starting your homebuying journey: Tips from a U.S. Bank Goals Coach

What to do when you lose your job

What’s in your emergency fund?

Make your business legit

Retirement income planning: 4 steps to take

What you need to know about renting

Dear Money Mentor: How do I set and track financial goals?

I own two electric vehicles. Here’s what I’ve learned about buying and driving EVs.

9 simple ways to save

Retirement expectations quiz

Checking and savings smarts: Make your accounts work harder for you

Credit: Do you understand it?

5 financial goals for the new year

Allowance basics for parents and kids

How to track your spending patterns

How to manage your money: 6 steps to take

Investment strategies by age

A who’s who at your local bank

Finding a side gig to fund your goals

It’s time for a fresh start: A new way of thinking

Military homeownership: Your guide to resources, financing and more

Working with an accountability partner can help you reach your goals

30-day adulting challenge: Financial wellness tasks to complete in a month

First-timer’s guide to savings account alternatives

The connection between your health and financial well-being

Friction: How it can help achieve money goals

How to talk to your lender about debt

How I did it: My house remodel

How to build wealth at any age

3 tips for saving money easily

How to use your unexpected windfall to reach financial goals

Money management guide to financial independence

5 myths about emergency funds

Home buying myths: Realities of owning a home

How I did it: Turned my side hustle into a full-time job

Certificates of deposit: How they work to grow your money

What military service taught me about money management

Improving your credit score: Truth and myths revealed

Tips for working in the gig economy

How to best handle unexpected expenses

Financial gifts can be a valuable – and fun – choice for the holidays

Dear Money Mentor: How do I pick a savings or checking account?

Webinar: Smart habits and behaviors to achieve financial wellness

Practical money tips we've learned from our dads

Myths vs. facts about savings account interest rates

Saving vs. investing: What's the difference?

Key components of a financial plan

5 tips for creating (and sticking to) a holiday budget

What I learned from my mom about money

How compound interest works

Your 4-step guide to financial planning

4 financial considerations before changing jobs

6 common money mistakes to avoid

Stay on budget — and on the go — with a mobile banking app

How grandparents can contribute to college funds instead of buying gifts

Financial checklist: Preparing for military deployment

U.S. Bank asks: Transitioning out of college life? What’s next?

How to financially prepare for a military PCS

Here’s how to create a budget for yourself

How to use debt to build wealth

Achieving their dreams through a pre-apprenticeship construction program

Transitioning from the military to the civilian workforce

How to prepare for healthcare costs in retirement

Is a Health Savings Account missing from your retirement plan?

How I did it: Deciding whether to buy an RV

How to decide when to shop local and when to shop online

Checklist: financial recovery after a natural disaster

How I kicked my online shopping habit and got my spending under control

How to manage your money when you're self-employed

Personal loans first-timer's guide: 7 questions to ask

How I did it: Bought a home without a 20 percent down payment

How to stay positive when searching for a job: advice from a U.S. Bank goals coach

How to set yourself up for success in your first job

Growing your savings by going on a ‘money hunt’

Multiple accounts can make it easier to follow a monthly budget

You can take these 18 budgeting tips straight to the bank

Are savings bonds still a thing?

How I did it: Learned to budget as a single mom

How to stop living paycheck to paycheck post-pay increase

Money Moments: Tips for selling your home

Parent checklist: Preparing for college

Which is better: Combining bank accounts before marriage — or after?

Does your savings plan match your lifestyle?

Don’t underestimate the importance of balancing your checking account

Do you and your fiancé have compatible financial goals?

How to cut mindless spending: real tips from real people

Using 529 plans for K-12 tuition

Checklist: 10 questions to ask your home inspector

Webinar: 5 myths about emergency funds

Webinar: Common budget mistakes (and how to avoid them)

5 reasons why couples may have separate bank accounts

7 steps: How couples and single parents can prepare for child care costs

Adulting 101: How to make a budget plan

How and when to ask for a raise

How can I help my student manage money?

5 tips for parents opening a bank account for kids

How to manage money in the military: A veteran weighs in

How to save for a wedding

How to save money while helping the environment

It's possible: 7 tips for breaking the spending cycle

Personal finance for teens can empower your child

Save time and money with automatic bill pay

Tips to overcome three common savings hurdles

Webinar: Uncover the cost: Wedding

Webinar: Uncover the cost: International trip

Building a financial legacy for your family and community

U.S. Bank asks: Do you know what an overdraft is?

U.S. Bank asks: Do you know your finances?

5 ways to spring clean your finances and save money year-round

Spring cleaning checklist for your home: 5 budget-boosting tasks

Saving for a down payment: Where should I keep my money?

Webinar: Uncover the cost: Building a home

Are professional movers worth the cost?

Webinar: Uncover the cost: Home renovation

Beyond the mortgage: Other costs for homeowners

How to Adult: 5 ways to track your spending

11 essential things to do before baby comes

Webinar: Uncover the cost: Starting a family

Preparing for adoption and IVF

Closing on a house checklist for buyers

How to prepare for a natural disaster

College budgeting: When to save and splurge

Webinar: Uncover the cost: College diploma

How to save money in college: easy ways to spend less

Checklist: How to gain financial independence from your parents

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

How to build credit as a student

5 things to know before accepting a first job offer

How I did it: Paid off student loans

Webinar: Bank Notes: College cost comparison

U.S. Bank asks: What do you know about credit?

Is a home equity loan for college the right choice for your student

How to apply for federal student aid through the FAFSA

Be careful when taking out student loans

Webinar: Mindset Matters: How to practice mindful spending

Consolidating debts: Pros and cons to keep in mind

7 tips to help grow your business after launch

How to test new business ideas

Costs to consider when starting a business

How to choose the right business savings account

Does your side business need a separate bank account?

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.