Bank CD rates are the interest percentages banks pay you for locking your money away for a set time

A CD rate is the annual percentage yield (APY) a bank promises to pay you on a certificate of deposit. When you open a CD, you agree to leave a sum of money untouched for a fixed period—typically three months to five years—and the bank pays you interest at that stated rate. The longer you lock your money away, or the larger your deposit, the higher the rate tends to be.

CD rates vary by bank, by the length of the term you choose, and by how much you deposit. A three-month CD at one bank might pay 4.50% APY while a five-year CD at the same bank pays 4.75% APY. A different bank might offer 4.25% for the same three-month term. Unlike savings account rates, which can change at any time, your CD rate is locked in—you know exactly what you will earn before you deposit a dollar.

The tradeoff is access. If you withdraw money before the term ends, you pay an early withdrawal penalty, usually a few months' worth of interest. This makes CDs best for money you genuinely will not need for the stated period.

Key Takeaways

  • CD rates are fixed percentages set by the bank when you open the account, and they do not change during your term.
  • Longer terms and larger deposits usually earn higher rates, though this varies by bank and market conditions.
  • You can find current rates by visiting bank websites directly or using rate-comparison sites that list multiple banks side by side.
  • Early withdrawal penalties erase your earnings and sometimes cost you principal, so only lock away money you will not need before maturity.
  • CD rates move with the Federal Reserve's interest rate decisions, so rates available today may be different in three months.

How CD rates are set and why they change

Banks set CD rates based on what the Federal Reserve does with its benchmark interest rate. When the Fed raises rates, banks typically raise CD rates within weeks. When the Fed cuts rates, CD rates fall. This is why you might see a 5.25% rate one month and 4.75% the next—the Fed moved, and banks adjusted.

The bank also considers how much money it needs to attract. If a bank has plenty of deposits already, it may offer lower CD rates. If it needs cash, it raises rates to draw more customers. Larger banks often offer lower rates than smaller or online-only banks because they have more depositors already.

Your deposit size and term length also affect the rate you receive. A $100,000 CD usually earns more than a $1,000 CD at the same bank. A five-year CD earns more than a one-year CD. But these differences vary—some banks offer the same rate regardless of deposit size, while others have tiered pricing.

Where to find current CD rates

The fastest way to see what banks are offering is to visit their websites directly. Most banks list CD rates prominently on their homepage or in a rates section. You will see the APY, the term length, and the minimum deposit required. Online banks like Marcus, Ally, and American Express Personal Savings often display rates clearly because they compete on rate alone.

Rate-comparison websites like Bankrate, DepositAccounts, and NerdWallet pull rates from dozens of banks and update them daily. These sites let you filter by term length and deposit amount, so you can see which banks offer the best rate for your specific situation. They do not charge you—banks pay them for referrals.

Credit unions also offer CDs, sometimes called share certificates. Their rates are often competitive with banks, and you can search credit union rates through CO-OP or Alliant Credit Union's rate tools. If you are a member of a specific credit union, check their website first.

The difference between CD rates and savings account rates

Savings account rates are variable, meaning the bank can change them whenever it wants. A savings account paying 4.50% today might pay 3.75% next month. CD rates are fixed for the entire term—if you lock in 4.75% for two years, you earn 4.75% for all 24 months, no matter what happens to market rates.

This fixed nature is both an advantage and a risk. If rates fall after you open your CD, you are protected—you still earn the higher rate. If rates rise, you are stuck with the lower rate you locked in. Savings accounts move with the market, so you benefit when rates climb, but you lose out when they drop.

CDs also typically pay more than savings accounts at the same bank. A bank might offer 4.50% on a one-year CD but only 4.25% on a savings account. The bank pays more because it knows your money will stay put.

What happens when your CD matures

When your CD term ends, the bank notifies you—usually by email or mail—that the CD has matured. You then have a window, typically 7 to 10 days, to decide what to do. You can withdraw the money, open a new CD at the current rate, or move it to a savings account.

If you do nothing during that window, most banks automatically renew your CD at the current rate for the same term length. This can work in your favor if rates have risen, but it locks you in again at a potentially lower rate if rates have fallen. Read the maturity notice carefully and act before the deadline if you want a different option.

Some banks offer a grace period—usually a week or two after maturity—during which you can withdraw without penalty. After that window closes, early withdrawal penalties apply again. Check your CD agreement or call the bank to confirm your specific grace period.

Early withdrawal penalties and how to avoid them

An early withdrawal penalty is a cost you pay if you take money out before the CD matures. The penalty is usually expressed as a number of months of interest. A CD with a three-month penalty means you lose three months' worth of the interest you earned. On a $10,000 CD earning 4.50% APY, that is roughly $112.50.

Some penalties are steeper. A five-year CD might carry a 12-month penalty. A few banks charge a flat dollar amount instead of months of interest. Always read the CD agreement before you deposit—the penalty terms are listed there, and they vary widely.

The best way to avoid penalties is to only open a CD with money you will not need. If you have an emergency fund, keep it in a savings account instead. If you are saving for something you might need sooner, choose a shorter CD term—a six-month CD is less risky than a five-year one. Some banks offer no-penalty CDs that let you withdraw early without cost, though they usually pay a lower rate to offset that flexibility.

How to choose a CD term that fits your timeline

Your CD term should match when you will actually need the money. If you are saving for a house down payment in two years, a two-year CD makes sense. If you are setting aside money for retirement and will not touch it for 20 years, a five-year CD is fine—you can open a new one when it matures.

Shorter terms (three months to one year) are useful if you think rates might rise soon and want the flexibility to move your money. Longer terms (three to five years) lock in a rate if you believe rates will fall. The tradeoff is that longer terms usually pay more, but you give up access.

Some people use a CD ladder—opening multiple CDs with different maturity dates so that one matures every few months or every year. This gives you regular access to some of your money while keeping the rest locked in at higher rates. For example, you might open five one-year CDs, each maturing in a different month, so you have access to one-fifth of your money every month.

Frequently Asked Questions

Do I have to pay taxes on CD interest?

Yes. CD interest is taxable income in the year you earn it, even if you do not withdraw the money. The bank will send you a 1099-INT form at tax time showing how much interest you earned. You report this on your tax return. If your CD is in a tax-advantaged account like an IRA, the interest may not be taxable until you withdraw.

Can CD rates go down while my money is in the CD?

No. Your rate is locked in for the entire term. If market rates fall, you still earn the rate you agreed to when you opened the CD. This is one of the main benefits of CDs—certainty. The downside is that if rates rise, you are stuck with the lower rate.

What is the minimum deposit for a CD?

Minimum deposits vary by bank and by term. Some banks require $500, others $1,000, and some online banks have no minimum. Check the specific bank's website for the CD you are interested in. A few banks offer high-yield CDs with no minimum deposit.

Is my CD protected if the bank fails?

Yes, if the bank is FDIC-insured. The Federal Deposit Insurance Corporation covers up to $250,000 per depositor per bank. If you have multiple CDs at the same bank, they count toward that $250,000 limit combined. Credit union CDs are covered by the NCUA up to the same amount. Check the bank's website to confirm it carries this insurance.

Should I open a CD now or wait for rates to go higher?

No one can predict where rates will go. If current rates meet your needs and you have money you will not need for the CD term, opening now locks in that rate. If you think rates might rise and you can afford to wait, you could hold off. Many people split the difference by opening a shorter-term CD now and planning to open another when it matures.