CD rates change weekly, and the highest ones are usually at online banks, not at the branch where you keep your checking account

A certificate of deposit (CD) is a savings account where you agree to leave money untouched for a set period — typically three months to five years — in exchange for a fixed interest rate. The bank pays you that rate no matter what happens to market rates during your term. Right now, the highest CD rates come from online banks and credit unions, which have lower overhead costs than traditional branches and pass those savings to depositors. A CD at your local bank might pay 0.01% while an online bank pays 4.50% or higher on the same term — that difference compounds into real money over time.

The catch is that CD rates shift constantly. A rate that is highest today may not be highest next week. Banks adjust rates based on what the Federal Reserve does with its benchmark rate, and they compete for deposits by raising or lowering their offers. This means you need to check rates shortly before you actually deposit money, not days in advance.

Key Takeaways

  • Online banks and credit unions typically offer CD rates two to three percentage points higher than traditional brick-and-branch banks, because they have lower operating costs.
  • CD rates change weekly or even daily, so compare rates from multiple banks only when you are ready to deposit money, not in advance.
  • Longer terms (12 months to 5 years) usually pay higher rates than shorter ones (3 to 6 months), but you lose access to your money for that entire period.
  • Your CD is insured up to $250,000 per bank through the FDIC (or NCUA if it is at a credit union), so the bank's size does not affect your safety.
  • Early withdrawal penalties can erase months of interest, so only lock money in a CD if you will not need it before the term ends.

How to compare CD rates across banks

Start by visiting the websites of online banks directly — Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings, Discover Bank, and Charles Schwab Bank are common names, but new competitors enter regularly. Write down the rate each one offers for the term you want (say, 12 months). Then check your own bank and a few credit unions in your area. Do not rely on rate-comparison websites alone; they update slowly and sometimes show outdated numbers.

When you find the highest rate, read the fine print for the early withdrawal penalty. Some banks charge a flat fee (say, $25); others charge a number of months' interest (say, three months of interest if you withdraw early). If you think there is even a small chance you will need the money before the term ends, a CD with a lower penalty might be worth a slightly lower rate.

Why online banks pay more than traditional banks

Online banks have no physical branches, no tellers, and no regional offices. They save millions on rent, staff, and overhead. They pass some of those savings to customers through higher CD rates. A traditional bank with 500 branches across the country has to cover the cost of all that real estate and staff, so it offers lower rates to depositors and charges higher fees to borrowers.

This does not mean online banks are riskier. They are regulated by the same federal agencies as any other bank. Your money is insured by the FDIC up to $250,000, whether you bank online or in person. The only trade-off is convenience: you cannot walk into a branch to deposit cash or speak to someone face-to-face. For most people saving money in a CD, that trade-off is worth the extra interest.

The relationship between CD term length and interest rate

Banks pay more interest for longer commitments because they want to lock in your money. A 5-year CD typically pays 0.5% to 1% more than a 6-month CD at the same bank. The longer you agree to leave money untouched, the higher the rate. This is called the yield curve, and it usually slopes upward — but not always. Sometimes short-term rates are higher than long-term rates, which happens when the economy is uncertain.

The practical question is: how long can you afford to lock up this money? If you have an emergency fund, it should stay in a regular savings account where you can access it anytime. A CD makes sense for money you know you will not need — a bonus you are saving, a tax refund, money set aside for a goal two years away. If you pick a 5-year term and then need the money after one year, the early withdrawal penalty will cost you.

How CD laddering can help you access money sooner

One way to get higher rates without locking all your money away for five years is CD laddering. You divide your money into equal chunks and buy CDs with different maturity dates. For example, with $10,000, you might buy five $2,000 CDs that mature in 1, 2, 3, 4, and 5 years. Each year, one CD matures and you can withdraw that money or roll it into a new 5-year CD at the current rate.

This strategy gives you access to some of your money every year while keeping the rest locked in at higher rates. It also protects you if rates drop: if you had put all $10,000 into a 5-year CD and rates fell, you would be stuck earning the old rate. With a ladder, only the portion that matures gets the new (lower) rate.

What happens when your CD matures

When your CD term ends, the bank will notify you — usually by email or mail — that it is about to mature. You then have a window of time (often 7 to 10 days) to decide what to do. You can withdraw the money, move it to a savings account, or roll it into a new CD. If you do nothing, many banks automatically roll your CD into a new one at the current rate, which may be higher or lower than what you were earning.

Do not assume the new rate will be competitive. Check other banks before your CD matures so you know what rates are available. If your bank's new rate is lower than what competitors offer, move your money. Banks count on inertia — many people do nothing and accept whatever rate the bank assigns. You do not have to.

FDIC insurance and safety at different banks

Your CD is protected by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per bank, per account type. This means if the bank fails, you get your money back up to that limit. The protection applies whether you bank at a large national bank or a small online startup. Size does not matter; the insurance does.

If you have more than $250,000 to save, you can spread it across multiple banks to stay fully insured. For example, $250,000 at Bank A and $250,000 at Bank B are both fully protected. You can also open a CD in your name alone and another in joint names with a spouse at the same bank, and both are insured separately. Read the FDIC's rules on your specific situation if you are near or above the limit.

Frequently Asked Questions

Can I withdraw money from a CD before it matures?

Yes, but you will pay an early withdrawal penalty. The penalty varies by bank and term length — it might be a flat $25 fee or three months of interest. Calculate whether the interest you have earned so far minus the penalty is worth it. Often it is not, which is why you should only buy a CD with money you will not need.

What is the difference between a CD and a high-yield savings account?

A CD locks your money for a set term and pays a fixed rate. A high-yield savings account lets you withdraw anytime and the rate can change. Right now, high-yield savings accounts pay nearly as much as short-term CDs (3 to 6 months), so if you might need the money, a savings account is safer. For longer time horizons, a CD usually pays more.

Do I have to buy a CD at the bank where I have my checking account?

No. You can open a CD at any bank or credit union, even if you have never done business there before. Online banks make this easy — you can open an account and fund it from another bank in minutes. Shop around for the best rate; loyalty to your current bank costs you money.

What happens if interest rates drop after I buy a CD?

Nothing — your rate is locked in for the entire term. You keep earning the same rate even if the bank lowers rates for new CDs. This is one advantage of CDs: you are protected from falling rates. The downside is that if rates rise, you are stuck with the old rate unless you pay the early withdrawal penalty.

Are CDs at credit unions safer than CDs at banks?

Credit unions are insured by the NCUA (National Credit Union Administration) instead of the FDIC, but the protection is the same: $250,000 per account. Both are equally safe. Credit unions sometimes offer competitive CD rates because they are member-owned and return profits to members rather than shareholders.