A certificate of deposit, or CD, is a savings product where you deposit a fixed amount of money for a set term — often anywhere from a few months to several years — in exchange for a fixed interest rate that's usually higher than a standard savings account.
The core tradeoff
In exchange for that higher, guaranteed rate, you generally agree not to touch the money until the term ends, known as the maturity date. Unlike a savings account, you can't freely deposit or withdraw funds throughout the term.
What happens if you withdraw early
Most CDs charge an early withdrawal penalty, commonly calculated as a certain number of months' worth of interest. Depending on how early you withdraw, that penalty can eat into not just the interest you've earned, but occasionally a small portion of your original deposit as well.
| CD | Savings Account | |
|---|---|---|
| Interest rate | Usually fixed and often higher | Usually variable, can change anytime |
| Access to funds | Locked until maturity | Available anytime |
| Best suited for | Money you won't need for a set period | An emergency fund or short-term goals |
Consider a CD ladder for more flexibility
When a CD makes sense
A CD works best for money you're confident you won't need before the term ends — for example, funds set aside for a known future expense like a down payment 18 months out. It's generally not the right place for your emergency fund, which needs to stay accessible.
