Types of certificates of deposit

Although the certificate of deposit, or CD, may seem like a generic and simple savings account, this financial tool is more diverse than it seems. CDs can be especially useful when interest rates are on the rise, and there are many benefits to earning a fixed interest rate over time. Balancing the appeal of the predictability and security of CDs, however, is a major trade-off: your deposit is locked in for a set period of time, and withdrawing early will subject you to fees.

Depositing money on a CD will generally earn more interest than a savings account – even a high-yield savings account — Where money market account. And there are many types of CDs to choose from. Read on for an overview of them all.

What is a CD?

A CD is a type of savings account that pays a fixed interest rate for a fixed term. The main difference between a CD and a savings or money market account is that you cannot withdraw your money from a CD until it has been in the account for a certain period of time, called a term. . Common terms include three, six, nine and 18 months as well as one, two, three, four and five years.

As a general rule, the longer you leave your money intact on a CD, the more interest you will earn. CDs are FDIC insured for up to $250,000 if withdrawn from a federally insured credit union or bank. CDs have no monthly fee, but most have an early withdrawal penalty.

traditional CD

To open a traditional CD, you make a one-time deposit and then let the funds grow until the CD matures for a specific term at a fixed interest rate. Once the CD matures or reaches the end of the term, you can roll your CD into another term or cash out. One of the main disadvantages of a CD is early withdrawal penalties. If you withdraw your money before it’s due, you can face a hefty penalty that can make any interest earned seem nonexistent.

Callable CD

Some CDs are structured so that the issuer can close the CD before its maturity date. This type of CD is called a callable CD. You generally want to invest in a CD that is non-redeemable because it protects your money from being repossessed by the issuer. But if you invest in a redeemable CD and the bank redeems it before it reaches maturity, you will still receive all of your principal and the interest it has earned to date.

However, you are more likely to have the bank repossess your CD sooner if interest rates suddenly drop. Callable CDs are still rare and can be harder to find than traditional CDs. Callable functionality can only be activated by the sender.


An IRA CD is held in a tax-advantaged Individual Retirement Account to help you save money for retirement. An IRA CD works much like a traditional CD, but there are some notable differences, including the amount you can invest and withdrawal penalties.

When it comes to a traditional CD, you can deposit any amount of money into a CD account, lock it for a pre-determined amount of time, and get a higher return on investment than you would with a CD account. savings or checking account.

However, your IRA CD is a tax-efficient retirement account, which means you can save and invest your money in many different ways. Since an IRA CD is part IRA, you will have the same rules and requirements as other IRA accounts, such as how much you can contribute. People under 50 can contribute up to $6,000 and people over 50 can contribute up to $7,000.

If you try to withdraw money from a traditional CD before it matures, you will inevitably face an early withdrawal penalty. However, if you try to withdraw from your IRA CD early, you will face a penalty from your bank and the IRS.

foreign currency CDs

A foreign currency CD is held in the currency of another country. You may want a foreign currency CD if you think the dollar will fall against other currencies. Or, you may want to invest in other currencies because they are expected to rise against the dollar. With a foreign CD, the money is converted into another currency for the term; the funds earn interest in that currency and the money is converted back into dollars on the due date.

negotiated CD

A traded CD is bought and sold in the secondary market through a brokerage account. These term savings products are similar to traditional CDs, but they are more liquid because they trade like bonds.

Zero-coupon CDs

A zero coupon CD does not make periodic interest payments like a traditional fixed rate CD. Instead, it is sold at a discount to its face value, which equals its value once it reaches maturity. The CD holder receives only the face value of the CD when it matures. These are generally long-term investments, meaning you won’t have access to interest earned before the CD matures.

Giant CD

A giant CD requires a minimum deposit of around $100,000. A $95,000 CD might technically be a “jumbo CD”, but it might not fetch as much as a $105,000 CD. Jumbo CDs — and super jumbo CDs, which require a minimum investment of $250,000 or more — often pay higher interest rates than regular CDs. But in today’s near-zero interest rate environment, jumbo CDs don’t earn significantly higher yields than regular CDs.

extra CDs

A bump-up CD allows the depositor to request an interest rate increase. If CD interest rates increase, the depositor can request that their existing certificate of deposit be “raised” at the new interest rate – as long as the rates offered by the bank for the specific CD also increase. Banks usually allow one increase per term.

Complementary CD

As the name suggests, an add-on CD helps to add money to the account balance after the initial deposit. Money is deposited at the start of the term, then additional deposits are allowed throughout the term. The interest rate remains the same even when money is added, and there are no monthly fees, but there is usually an early withdrawal penalty when money is withdrawn.

progress cd

With a step-up CD, you can lock in an interest rate for a set number of months, but a pre-set rate increase will occur automatically on scheduled dates. Like other CD accounts, there are no monthly fees, but early withdrawals are subject to a penalty.

Liquid CDs

A liquid CD does not charge penalties for early withdrawals, making it more of a savings account than a standard CD. Similar to a hybrid CD/savings account combination, you can withdraw funds from a liquid CD at any time by contacting the bank, credit union, or other financial institution where you purchased the CD. . But this privilege can come at a cost. Liquid CDs generally pay a lower interest rate than other types of CDs because they allow penalty-free access to funds.

First, you can usually only make one withdrawal without penalty. After that, you will likely face the same early withdrawal penalty as with a traditional CD. Second, some sellers place a limit on how much you can withdraw from a liquid CD at one time – before the penalties kick in, so always make sure you read the fine print.

high performance CDs

A high-yield CD, also called a high-interest CD or high-yield CD, is a type of CD that can pay a higher interest rate than a standard savings account. But the amount of interest you earn varies over time because interest rates fluctuate, unlike a fixed rate CD. High-yield CDs are usually found at online banks and credit unions, which may offer you slightly higher yields to earn your business.

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