How to Choose the Best CD Account

Quick Answer

Follow these four steps to make sure you understand the pros and cons of different CD accounts and get the best certificate of deposit for your needs:

  1. Learn about the different types of CDs
  2. Consider when you need the money
  3. Know where to look
  4. Find the best CD given your criteria
Serious man sitting at his desk and using laptop to find the best CD.

A certificate of deposit (CD) can offer a higher interest rate than a savings account and be a safe place to keep your short- to medium-term savings. However, while opening a CD with your current bank or credit union might be the simplest option, it won't necessarily earn you the most interest. Here are four steps you can follow if you want to find the best certificate of deposit based on your goals.

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1. Learn About the Different Types of CDs

First, you'll want to consider the pros and cons of the various types of CDs:

  • Regular CDs: A regular CD lets you set aside money and earn interest on your savings. The interest rate can depend on the CD's terms—how long you have to lock your money up for—and you may have to forfeit interest earnings as an early withdrawal penalty if you close the CD before it matures.
  • High-yield CDs: Regular CDs that have a high interest rate are sometimes called high-yield CDs.
  • Jumbo CDs: Jumbo CDs have higher minimum deposit requirements (such as $75,000 to $100,000) than regular CDs, but also offer higher interest rates.
  • Brokered CDs: You can buy brokered CDs through a brokerage account rather than getting a CD from a bank or credit union. Brokered CDs sometimes have higher yields, and you can sell the CD early on secondary markets without early withdrawal penalties. But the CDs might be callable, which means the bank can redeem the CD early.
  • IRA CDs: An IRA CD is a CD that's part of an individual retirement account (IRA). Traditional and Roth IRA CDs both offer tax advantages, but consider when you'll need the retirement income and whether a CD is the best investment for your IRA.
  • Bump-up CDs: These often start with a lower interest rate than other CDs from the issuer with the same term. But you can request an interest rate increase (generally, only once) to the issuer's current offered rate.
  • Step-up CDs: This type of CD starts with a low interest rate—sometimes very low—that automatically increases several times over the CD's term. The timing and rates are predetermined, so you can look at the composite yield and compare it to other options.
  • No-penalty CDs: A no-penalty CD might have a lower rate than a regular CD, but it lets you withdraw your money early without paying any penalties.
  • Add-on CDs: An add-on CD also often has a lower rate than a regular CD, but you can add money to your CD while it's maturing.

2. Consider When You Need the Money

Although your goal might be to earn as much money as possible, the CD with the highest interest rate isn't necessarily the best. Your total earnings can depend on the CD's term, features, when you need the money and whether interest rates rise or fall.

If You Won't Need the Money Soon

If you think interest rates will stay relatively flat and you won't need the money soon, you might want a regular CD, jumbo CD or brokered CD.

If you think rates will likely increase a lot in the coming year, a bump-up CD might offer a higher overall return even if it starts with a lower rate.

And if you think rates will fall, the CD with the highest starting rate could be best. However, you might want to avoid callable brokered CDs, because the issuer can redeem the CD early—you receive your initial deposit and accrued interest, but the CD is closed and you lose the chance to earn additional interest.

If You Might Need the Money Soon

When you don't have an emergency fund or think you might need the money early, you also have to consider the CD's early withdrawal penalty. You don't lose money when you close the CD early, but you forfeit some of your earnings. The penalty can vary significantly depending on the issuer and CD's term—it might be two months' worth of interest, or 18 months' worth.

If you think you might need the money early, consider a no-penalty CD or high-yield savings account. A regular CD might still be a good option if it has a much higher interest rate and a small early withdrawal penalty.

Brokered CDs also give you the option to sell the CD without paying a penalty. But there's a risk that you'll have to sell the CD for less than you initially paid, and you could wind up losing money.

3. Know Where to Look

The general guidance for different types of CDs offering higher or lower interest rates than regular CDs only holds up if you're comparing different CDs from the same issuer.

But you can open a CD with thousands of different:

  • Banks: Traditional and online banks both offer CDs, and the rates might be slightly higher with online-only banks.
  • Credit unions: Credit unions sometimes offer higher interest rates than banks, but you need to meet the credit union's eligibility requirements to become a member.
  • Brokerage accounts: Brokerages can sometimes offer you a higher interest rate because they buy the CDs in bulk before splitting them up for customers.

Each financial institution might offer different types of CDs with varying interest rates, terms, penalties and minimum deposit amounts.

4. Find the Best CD Given Your Criteria

Ultimately, you have to decide which type of CD makes the most sense given your budget, timeline and goals. If your goal is simplicity, open the best-fitting CD from your bank, credit union or brokerage. But if you want to maximize profits, you might have to open a new account elsewhere.

It's generally easy to open a CD; the tricky part is finding the best offer. Online aggregation and comparison tools let you filter results based on your deposit amount, desired term and other preferences, but the results aren't necessarily comprehensive. You may want to check with your local banks or credit unions—or via your brokerage account—as well.

Keep CDs in Mind When Managing Your Finances

CDs are a relatively safe and easy way to earn money on your savings, and understanding how they work—and how to find the best CD—can be an important part of managing your day-to-day finances. You can also look into CD laddering, a strategy that involves buying multiple CDs to give you regular access to the funds. And consider how the interest rate on high-yield savings and money market accounts compares to CDs' rates.

Monitoring your credit can also be important for your personal finances, and Experian's free credit monitoring service alerts you if there are changes in your report and gives you access to your FICO® Score .