Should you open a CD account?

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A certificate of deposit (CD) is a type of savings account that requires you to deposit money for a set term. In exchange, the bank or credit union pays you interest—often higher than the rates paid on checking or savings accounts. The longer you agree to leave the money in the account, the higher the interest yield.

"It depends on the individual's circumstances and goals. Generally speaking, though, there are a few key advantages to CDs that may make them worth considering for some people," says Robert Donnelly, CFO of Marketplace Fairness.

You can easily check today's CD interest rates to determine if it makes sense for you or use the table below to explore some local options.

CDs provide a low-risk way to earn as you save. Here's a closer look at three key advantages they offer.

A big perk that comes with CDs is that they present low-to-no risk to the account holder.

Banks offer fixed interest rates so you receive a guaranteed amount if you leave your money in the account for the agreed-upon term. For example, if a one-year CD offers a 4% annual percentage yield (APY) and you deposit $5,000, you would earn $200.

"The investor knows exactly how much money they'll earn on their investment, which can be helpful for budgeting and planning purposes," says Donnelly.

Additionally, as long as you buy a CD from an institution that's insured by the FDIC or NCUA, your account will be protected in the event of a bank failure (up to the allowable amounts).

Another advantage of CDs is they tend to offer higher returns than a checking or savings account. According to the FDIC, the average national deposit interest rate for a checking account as of March 8, 2023, was 0.06%. A savings account was at 0.35% but a CD came in somewhere between 0.18% to 1.26%, depending on the term you select.

While these are the national averages, you can find much higher interest rates when shopping around. For example, Capital One is currently offering an 11-month Special CD with a 5.00% APY and no minimum deposit. The bank's normal CD rates are considerably higher as well, ranging from 3.30% to 4.10% APY.

In comparison, Capital One's high-yield savings account offers a 3.40% APY. In this case, the CDs offer higher returns as long as you agree to a term of at least 11 months. So be sure to shop around before opening a CD. You can easily explore your CD options online here or simply use the table below to get started.

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