What is a Certificate of Deposit? And what to know before opening an account

May 03, 2023

Looking for a low-risk way to boost your savings? With current interest rates on the rise, CDs are offering just that. Here are some tips.

What are CDs?

A CD is a low-risk savings account backed by the FDIC and insured up to $250,000. It offers a higher interest rate than a traditional savings account in exchange for locking your money in the account for a set period of time. And like other financial products that have seen interest rate increases, CDs may offer potentially higher returns. You can use this calculator to see how much your CD could earn. 

Most CDs have fixed terms with options ranging from just one month to five years or more. At the end of the term, the account has “matured” meaning you’re able to take out both the money you put into the account and the interest you earned. You can withdraw your money, transfer it to another bank account or reinvest it into another CD.

Pro tip: 
A CD is a great option if you want to earn a higher rate than a traditional savings account. Typically, the longer the term, the higher the interest rate.

What do I need to know before opening a CD account?

There are a few key factors to consider when choosing a CD, including term length, interest rate and deposit amount. Here are some things to consider when exploring your options. 

What's your goal?

Are you saving money for a trip, a down payment on a home, or trying to build a nest egg? Watch for account terms that best support your goal. You’ll typically see CDs with terms designed to fit the different reasons why people save. 

Review your checking and savings account and see if moving money makes sense

Before moving money out of your other accounts and into a CD, review and consider your monthly budget and additional savings you have. Do you see any big expenses coming up that might need immediate funds? (like new tires for your vehicle). Also, keep in mind your emergency fund for any unexpected expenses that could pop up. If you find that you'll need more of your funds quickly, you may want to keep money in your savings or checking accounts. If putting the money aside for a longer term seems doable, then a CD might be a better option. When in doubt, connect with a banker to better understand if moving your money is a good idea.

Keep this in mind when considering your CD amount

Some accounts require a low minimum deposit, and you’ll often get a lower rate of return, while other accounts require a higher minimum deposit which would come with a higher rate of return. It’s best to choose an amount of money for your CD that you know you won’t need to use for the term you select.

Ask yourself: How long am I comfortable with my money growing untouched? 

The duration of your CD (also called the term) is how long your money is supposed to stay in the CD. Typically, terms range anywhere from just a few months to as long as five years. If you take funds from your account before the term is done, you usually need to pay an early withdrawal penalty and/or fee. Check the CD’s disclosure information to understand what an early withdrawal would mean for you.  

Consider CD laddering
CD laddering involves splitting your funds across multiple CDs with different maturity dates. This strategy lets you access funds that mature early while still earning interest on those that mature later. When interest rates increase as they have recently, you'll likely earn higher interest across your CD accounts. 

Pro tip: 
CD laddering allows you to adjust your accounts when they've reached their maturity dates. At those times, you can change the amount invested and adjust the length of the term. 

What happens after the CD's term is over?

When your CD matures and your term ends, you'll have a grace period to withdraw your money, including accumulated interest you're earned, without penalty (note: This may differ by financial institution. U.S. Bank provides a ten day grace period).

If you have a CD that automatically renews, you can use this grace period to consider a few different options:

  • Reinvest into another CD or CD laddering strategy that fits your financial situation, plus add or remove funds
  • Leave it alone and let it automatically renew into the same term at the current available rate
  • Withdraw the funds


Ready to open a CD account of your own? Learn more about our CD options and start growing your savings. Or, learn about the different ways CDs can be used to grow your money.  

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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 through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.