A CD (certificate of deposit) sold by either a bank or credit union is generally considered one of the safest ways to save money while earning interest.

The reason a CD is low-risk is primarily due to the FDIC insurance (or NCUA insurance if issued by a credit union) that the financial institution has. This protects your funds up to $250,000 in the event of the bank or credit union’s inability to repay your principal investment plus any interest accrued.

CDs come with a set term (amount of time) and a fixed interest rate or APY (annual percentage yield). Terms typically range from 6 months to 5 years, but shorter term deposits of 1-5 months as well as longer term deposits of up to 10 years may be offered by some institutions.

How CDs Work

When you open a CD at a bank or credit union you are agreeing to keep your money tied up for a predefined period of time in exchange for a predefined fixed interest rate.

APY and Interest

On the day your account is open and funded, you will start earning interest. Interest is normally compounded either daily, monthly or quarterly.

Interest is then returned to the bank CD and added to the principal for further compounding. The APY is the overall yield you will receive annually taking into account compounding interest. This is why you generally see interest rates and APYs shown together when shopping around for bank CDs and also why the interest rate is generally a smaller figure than the APY.

For example, you might see something like:

In this example above you’re earning an interest rate of 2.96% but after compounding interest is taken into effect the overall take home yield (or APY) at the end of the year is 3.00%.

Some savers like to have their interest payments sent to them (generally by ACH transfer) rather than added back to the principal for further compounding. Generally speaking, many banks and credit unions allow for this, but just remember you won’t receive the full APY but rather just the interest rate, since interest payments will be sent to you rather than added back to the deposit.

Grace Period

Prior to the maturity of your CD, the bank or credit union will send you a notice that your CD is going to mature soon.

Upon maturity you will generally have 7 – 10 calendar days to make any changes you would like to the CD. This includes changing the term, adding or withdrawing funds or closing it out entirely. This 7 – 10 day window is referred to as the grace period.

Early Withdrawal Fees

If you need access to your funds prior to your CD’s maturity date, you will almost always incur an early withdrawal penalty fee. The details of these fees vary by institution but have the potential to drastically eat away at any interest you’ve earned and even your principal.

This is why you must be sure you can tie up your funds for the period of time you select when opening a CD.

📌 Important – Before considering a certificate of deposit at a bank or credit union be sure you have liquid cash in a savings account that can be accessed in case of an emergency. Most financial advisors recommend 3 – 6 months worth of living expenses.

Terms, Deposit Size and APY

As mentioned, CDs tend to come with terms (or durations) of 6 months to 5 years.

In exchange for locking up your funds for longer periods of time, banks and credit unions will generally give you a higher APY. Therefore yields on 5 year CDs, for example, are almost always going to be higher than yields on 6 or 12 month CDs on average.

Another factor that may have implications on your overall APY is your deposit size. Many banks and credit unions offer “Jumbo CD” rates for larger deposits. There is no exact dollar amount that qualifies as a jumbo CD but rather banks and credit unions set these amounts themselves individually. Oftentimes a jumbo CD will be $100,000 or the FDIC-insurance maximum of $250,000, but again, each institution is different in defining what a Jumbo CD is for them.

Banks and credit unions may also offer tiered interest rates that vary by deposit range.

For example, you may see a rate table of offers from a bank or credit union that looks like the following:

In the table above, you’d receive the best annual percentage yield with a deposit size of $100,000 or more and the lowest APY with a deposit size of less than $10,000.

Alternatives to Consider

If you’re still on the fence about opening a CD, there are a handful of alternative, low-risk options to consider.

1. High yield savings account – Along with a money market account, high yield savings accounts are FDIC-insured, variable rate deposit accounts that earn interest. These accounts may also be referred to as online savings accounts since they can almost always be opened and managed completely online. Although CDs generally pay higher interest rates than these accounts, the trade-off is you’ll have much easier access to your cash with a high yield savings.
2. I Bonds – Purchased through the TreasuryDirect, I Bonds or Series I Savings Bonds are designed to hedge against inflation. Consumers can only purchase up to $10,000 worth in any calendar year, but the rate is currently sitting at 9.62%. The interest on these accounts are compounded semi-annually and the advertised rate is only good for 6 months. Every half-year a new rate is offered that is closely pegged to inflation. Read more here.
3. U.S. Savings Bond – If you’re saving for a long term goal such as college, retirement, a house, etc. then savings bonds are a safe place to invest. The rates don’t always keep up with inflation and even CDs tend to have higher yields on average, but they are backed by the U.S. government and deposits can be greater than the typical $250,000 cap by banks and the FDIC.

While the FED continues to aggressively raise rates, banks and credit unions have begun to lift the APYs (annual percentage yield) on their CDs (certificates of deposit) and other deposit accounts in the second half of 2022 as well.

Some banks and credit unions are even offering promotional CDs (sometimes referred to as Special CDs or Bonus CDs) on top of their standard suite of CDs.

These accounts generally feature higher yields than the institution’s standard set of CD accounts and may come with oddball maturity terms rather than the standard increments of 6, 12, 18 or 24 months, etc.

There are also common promotional CDs that allow for certain exceptions if you need funds early or if you’d like to take advantage of rising rates. These are:

• “Bump-Up”, “Step-Up”, “Step-Rate”, or “Raise Your Rate” CDs. All of these promotional certificates of deposit allow for you to receive one or more rate bumps (if rates are rising) during your CD’s term. Generally CDs feature fixed rates all the way through their term, but these promotional CDs make an exception to that rule.
• “No-Penalty CD”. The no-penalty CD allows for you to make one or more withdrawals during the life of your CD without incurring a penalty fee. Standard CDs almost always come with penalty fees that eat away at your interest if you need your funds prior to maturity. However, the “No-Penalty” promotional CD makes an exception to that rule.

In terms of rates, some banks and credit unions may provide promotional CDs with exceptional APYs but they may also cap the amount in which you can earn that advertised yield.

So for instance, an offer may be something like 5.00% APY on deposits up to $10,000 with an APY of 1.00% on any amount greater than $10k.

Another last asterisk you may come by when searching for promotional deposit accounts is the requirement to set up additional accounts with the institution (typically a checking account) and even a monthly recurring deposit to the account. You typically won’t see this requirement with a fixed-rate promotional CD, but you may with a promotional variable rate savings account such as a money market account, online savings or rewards checking account.

Lastly, with many promotional certificates of deposit, the bank or credit union may require you to be a new customer with the institution. Or if already a customer, to deposit new funds that weren’t already in an account with them.

Just be sure to read the fine print associated with any promotional savings rates to make sure you’re meeting any potential requirements on your part.

Best Promotional CD Rates

Below are our top picks for the best promotional CDs on the market today. We monitor hundreds of CD rates daily from FDIC-insured banks, NCUA-insured credit unions and even brokerages, but if you feel we’re missing a noteworthy promotional CD account please reach out to hello@apyguy.com to let us know!

Sun East Federal Credit Union – 6 month Certificate Special

Although Sun East Federal Credit Union is a smaller credit union in the Northeast, they allow membership nationwide by joining the Sun East Foundation with a $10 donation. They currently offer two Certificate Specials. Both come with an APY of 4.00% but the 6 month option comes with a $1,500 minimum deposit whereas the 9 month option requires a minimum deposit of just $500.

Both Certificate Specials will automatically renew into a standard 12 month CD with the going APY at that time.

NASA Federal Credit Union – CD Promotions

NASA Federal Credit Union has a handful of promotional CDs with exceptional yields available to both new and existing customers as long as they deposit a minimum of $10,000 in new money to the account.

Upon maturity the 9 month CD will automatically renew into a standard 6 month CD and the 15 month CD will renew into a standard 12 month CD.

As with Sun East Federal Credit Union, NASA Federal Credit Union also allows for membership nationwide. Consumers across the country can join by getting a complimentary affiliated Membership to the National Space Society (NSS).

BMO Harris Bank – CD Specials

BMO Harris Bank offers a handful of “CD Specials” but their rates vary by location. We surveyed their CD Specials in California and found the following offers:

BMO Harris Bank is FDIC-insured. All CD Specials require a minimum deposit of $5,000.

Ally Bank – Raise Your Rate CD and No Penalty CD

Ally Bank is well known for offering these types of promotional CDs. They are available to consumers throughout the country and neither products come with any minimum deposit requirement.

The 2 year “Raise Your Rate” CD allows you to bump your rate once during the life of the CD and the 4 year “Raise Your Rate” CD allows for 2 rate increases. You can see all of Ally Bank’s CD rates in our full review.

Citibank – Featured Rate and No Penalty CD

The big banks have been slower to keep up with CD and savings rates in this rising interest rate environment, however Citibank has begun peppering in some enticing promotional CDs to go along with their rather mundane standard CDs.

Citibank currently offers a couple “Featured Rate CDs” with respectable yields as well as a competitive 12 month No Penalty CD. See rates below.

The 12 month No Penalty CD allows for you to withdraw all of your funds prior to the CD’s maturity. You must, however, withdraw the entire deposit. No partial withdrawals allowed.

Final Thoughts

When shopping around the best CD rates, be sure to see if the bank or credit union offers any promotional CD accounts.

While these tend to come with higher APYs, just remember they may have special requirements such as higher minimum deposits or new money only, etc.

Also be aware of the grace period of your promotional CD. This is the window of time that you have upon the CD’s maturity to withdraw any or all funds penalty-free before it automatically renews. Most promotional CDs will automatically renew into a less attractive standard CD if nothing is done during the grace period.