While every Certificate of Deposit offers a guaranteed, fixed return, not all CDs are the same. Understanding the different types, from standard fixed-rate accounts to flexible or tax-advantaged options, is essential for maximizing your savings strategy. Choose the CD that matches your liquidity needs and financial goals.
Ready to run the numbers? Use our High Yield CD Calculator to project your earnings on any CD term.
1. Traditional and Jumbo CDs
The Traditional CD is the foundation of the market. You deposit a lump sum for a fixed term (e.g., 1 year, 5 years) and receive a fixed interest rate (APY). The key trade-off for the guaranteed return is limited access to your money; early withdrawal almost always incurs a penalty.
Jumbo CDs: Larger Deposits, Higher Rates
- Jumbo CDs typically require a minimum deposit of $100,000 or more.
- In exchange for this large commitment, banks may offer a *slightly* higher APY than a standard CD with the same term.
- Jumbo CDs are still FDIC-insured, but investors should be aware that the $250,000 limit applies per depositor, per institution.
2. No-Penalty CD (Liquid CD)
A No-Penalty CD offers the best of both worlds: a higher, locked-in rate than a typical savings account, with the flexibility to withdraw your entire principal and earned interest early** without penalty.
Key Feature: Liquidity
Withdrawals are generally allowed anytime after the first 6 or 7 days of funding, making this an ideal vehicle for emergency funds or savings goals with flexible timelines.
The trade-off is often a slightly lower APY compared to a rigid Traditional CD.
Compare current No-Penalty CD rates to see if the flexibility is worth the potential difference in APY.
3. Bump-Up and Step-Up CDs
These CDs are designed for environments where interest rates are expected to rise, giving you a hedge against inflation.
Bump-Up CD
Gives the investor a one-time (or limited) option to manually increase their CD rate to a higher rate offered by the bank during the term.
Pro: You choose the best time to increase the rate.
Step-Up CD
The interest rate automatically increases at predetermined intervals (e.g., every 6 or 12 months), regardless of market rates.
Pro: Rate increases are guaranteed and automatic.
Both types usually start with a lower initial APY than a Traditional CD of the same term length.
4. Retirement and Investment CDs
IRA CDs (Tax-Advantaged)
An IRA CD is a standard CD held inside an Individual Retirement Account (IRA), such as a Traditional or Roth. This allows the CD’s interest to grow with tax advantages (tax-deferred or tax-free). They are ideal for retirement savers seeking a guaranteed, low-risk component for their portfolio.
Brokered CDs (Higher Volume)
Brokered CDs are bought through a brokerage firm (like stocks) rather than directly from a bank. This gives investors access to a wider selection of banks and often higher limits. They are used by investors to easily manage multiple CDs across different institutions to keep total balances under the $250,000 FDIC limit at each bank.
Which CD Type is Right for You?
The right choice depends on your timeline and flexibility needs. If you’re confident in locking your money away, go for the highest Traditional APY. If you need a flexible emergency buffer, consider a No-Penalty option.