A certificate of deposit is one of the safest places to park your money and earn a guaranteed return. Unlike a savings account where your rate can change at any time, a CD locks in a fixed interest rate for a set term — anywhere from three months to five years or longer. The trade-off is straightforward: you agree not to touch your money for that term, and the bank rewards your commitment with a higher rate than you would earn in a standard savings account. CD rates are heavily influenced by the federal funds rate and the broader interest rate environment, which means they rise when the Federal Reserve tightens monetary policy and fall when the Fed cuts rates. Understanding how CDs work, what types are available, and when they make sense in your financial plan can help you earn meaningful, risk-free returns on cash you do not need immediately.
Key Takeaways
- CD rates are directly tied to the federal funds rate — when the Fed cuts, new CD rates drop, but existing CDs keep their locked-in rate.
- As of March 2026, the best CD rates range from 4.00% to 4.75% APY depending on the term and institution, down from peaks above 5.50% in early 2024.
- The prime rate currently sits at 7.50%, and CD rates typically run 2.5 to 3.5 percentage points below prime because CDs carry virtually zero risk for banks.
- FDIC insurance protects your CD balance up to $250,000 per depositor, per institution — making CDs one of the safest investments available.
- Early withdrawal penalties typically range from 3 to 6 months of interest, so choosing the right term is critical to avoiding unnecessary costs.
Use the calculator below to see exactly how much a CD will earn based on your deposit, the APY you are offered, and the term you choose. Adjust the inputs to compare different scenarios — the comparison table automatically shows your earnings across all standard terms at the same rate.
Enter your deposit amount, APY, and term to see exactly how much interest your certificate of deposit will earn at maturity.
Table of Contents
| CD Term | National Average APY | Top Online Bank APY | Interest on $10,000 | Early Withdrawal Penalty |
|---|---|---|---|---|
| 3-Month | 1.55% | 4.25% | $106 | 1 – 3 months interest |
| 6-Month | 1.70% | 4.50% | $225 | 3 months interest |
| 1-Year | 1.85% | 4.60% | $460 | 3 – 6 months interest |
| 2-Year | 1.60% | 4.25% | $867 | 6 months interest |
| 3-Year | 1.45% | 4.10% | $1,277 | 6 – 12 months interest |
| 5-Year | 1.40% | 4.00% | $2,167 | 12 – 18 months interest |
How CD Rates Work
A certificate of deposit is a time-deposit account offered by banks and credit unions. When you open a CD, you deposit a specific amount of money for a fixed period — the term — and the bank pays you a guaranteed annual percentage yield (APY) in return. Unlike a regular savings account, where the bank can lower your rate at any time, the rate on a traditional CD is contractually locked for the entire term. This predictability is the core appeal of CDs: you know exactly how much interest you will earn before you commit a single dollar.
Banks use the deposits from CDs to fund loans — mortgages, auto loans, business credit lines — at higher rates than they pay you. Because a CD guarantees the bank access to your funds for a known period, the bank can plan its lending activities more confidently. That reduced uncertainty is why banks pay higher rates on CDs than on savings accounts, where depositors can withdraw at any time. The longer you agree to lock your money away, the more certainty the bank gets, and the higher the rate it typically offers. This is why 5-year CD rates historically exceed 6-month rates, although this relationship can invert during certain economic conditions — a phenomenon we will explore in the section on the federal funds rate connection.
When your CD matures — meaning the term ends — you have a grace period, typically 7 to 14 days, to withdraw your funds plus accumulated interest, roll the balance into a new CD, or add more money and renew. If you do nothing during the grace period, most banks automatically renew the CD at the prevailing rate for the same term length. This auto-renewal feature catches many depositors off guard, especially in a falling-rate environment where the renewal rate may be significantly lower than the original rate. Setting a calendar reminder for your maturity date is one of the simplest ways to protect your returns.
Early withdrawal is the primary risk with CDs. If you need your money before the term ends, most banks charge a penalty expressed as a number of months of interest. A 1-year CD might carry a 3-month interest penalty, meaning you forfeit 25% of your expected earnings. For longer terms, the penalty can reach 6 to 18 months of interest, which in some cases can eat into your original principal if you withdraw early enough in the term. This penalty structure means you should only put money into a CD that you are confident you will not need before maturity.
Types of CDs
The traditional fixed-rate CD is the most common, but banks have created several variations to address the main objection depositors have — locking money away and potentially missing out on better rates or needing liquidity. Understanding these variations helps you pick the right CD for your situation.
Traditional CDs offer a fixed rate for a fixed term with an early withdrawal penalty. They typically pay the highest rates among CD types because you are accepting the most restrictions. Terms range from 1 month to 10 years, though the sweet spot for most depositors is 6 months to 3 years. National average rates significantly understate what is available because they include rates from large brick-and-mortar banks that pay well below online competitors. The best rates are almost always found at online banks and credit unions that compete aggressively for deposits.
No-penalty CDs (also called liquid CDs) let you withdraw your full balance before maturity without any fee. The trade-off is a lower rate — typically 0.25% to 0.50% less than a traditional CD of the same term. No-penalty CDs make sense when you want a rate higher than a savings account but are uncertain about your liquidity needs. They are particularly useful when rates are falling because you can lock in today’s rate and still access your money if an emergency arises.
Bump-up CDs (sometimes called raise-your-rate CDs) allow you to request one or two rate increases during the term if the bank’s posted rate rises above your locked-in rate. This protects you against the regret of locking in just before rates climb higher. The downside is that bump-up CDs start at a lower rate than traditional CDs, and you have to actively request the rate increase — it does not happen automatically. Bump-up CDs work best in environments where rates are expected to rise, which makes them less attractive in the current declining-rate environment.
Jumbo CDs require a minimum deposit, typically $100,000, and may offer a rate premium of 0.10% to 0.25% over standard CDs. The premium has shrunk in recent years as online banks have compressed the spread between standard and jumbo rates. Before committing to a jumbo CD, check whether the same institution offers a comparable rate on a standard CD — the difference may not justify concentrating that much cash at a single bank, especially if it pushes you near the FDIC insurance limit.
Brokered CDs are purchased through a brokerage account (Fidelity, Schwab, Vanguard) rather than directly from a bank. They often offer competitive rates and the ability to sell the CD on the secondary market before maturity, avoiding the early withdrawal penalty entirely — though selling at a loss is possible if rates have risen since purchase. Brokered CDs are also convenient for building a CD ladder across multiple banks without opening separate accounts at each institution.
The Federal Funds Rate and CD Rates
CD rates do not move in a vacuum — they are heavily influenced by the Federal Reserve’s monetary policy decisions. The mechanism works through the federal funds rate, which is the overnight lending rate between banks. When the Fed raises the funds rate, the prime rate rises in lockstep (prime always equals the funds rate plus 3 percentage points), and banks adjust what they pay depositors upward to attract the cash they need for lending. When the Fed cuts, the reverse happens — banks lower deposit rates because their cost of funds has decreased and they no longer need to compete as aggressively for deposits.
The relationship is consistent but not instantaneous or proportional. Banks tend to raise CD rates more slowly when the Fed tightens, but lower them quickly when the Fed eases. This asymmetry exists because banks benefit from the spread between what they charge borrowers and what they pay depositors — a wider spread means higher profits. During the 2022-2023 tightening cycle, for example, the Fed raised rates by 525 basis points, but average 1-year CD rates rose by only about 350 basis points. The gap was larger at big banks and smaller at online banks that compete more aggressively.
As of March 2026, the federal funds rate stands at 4.25%–4.50% and the prime rate is 7.50%. The Fed delivered three 25-basis-point cuts in late 2024 and early 2025 before pausing, and markets currently expect one to two additional cuts before year-end based on the CME FedWatch Tool. Each Fed cut puts downward pressure on new CD rates, which is why locking in today’s rates — before further cuts materialize — is a time-sensitive decision. Importantly, an existing CD’s rate does not change when the Fed cuts; only new CDs issued after the cut reflect the lower rate. This is the fundamental advantage of a CD over a savings account in a falling-rate environment.
One nuance worth understanding is the yield curve’s effect on CD term pricing. Under normal conditions, longer-term CDs pay higher rates because the bank is locking in your money for more time. But when the market expects the Fed to cut rates aggressively, longer-term CDs can pay less than shorter-term CDs because banks anticipate their cost of funds will be lower in the future. This inverted yield curve scenario played out in 2023-2024, when 6-month CDs briefly outyielded 5-year CDs. As of March 2026, the curve has largely normalized, with the 1-year term offering the most competitive rates — a sign that the market sees the bulk of rate cuts as already priced in. Track the Fed meeting schedule to stay ahead of policy changes that will affect CD pricing.
Where CD Rates Stand in 2026
The CD rate landscape in early 2026 reflects the transitional monetary environment. The best 1-year CD rates from competitive online banks sit between 4.50% and 4.75% APY, down from peaks above 5.50% in late 2023 when the federal funds rate was at its 5.25%–5.50% ceiling. Shorter terms (3 to 6 months) offer slightly lower rates in the 4.25% to 4.50% range, while longer terms (3 to 5 years) have settled around 4.00% to 4.25% as banks price in expectations of additional Fed easing.
The gap between national averages and the best available rates remains enormous. According to FDIC national rate data, the average 1-year CD pays just 1.85% — roughly 2.75 percentage points below what the best online banks offer. This gap exists because large brick-and-mortar banks like JPMorgan Chase, Bank of America, and Wells Fargo do not need to compete on rate to attract deposits. Their branch networks and brand recognition bring in deposits regardless of rate. Online-only banks like Marcus (Goldman Sachs), Ally, Discover, and Synchrony, along with credit unions like Alliant and Navy Federal, consistently offer the most competitive rates because deposit acquisition is their primary growth channel.
Looking ahead, where CD rates go next depends almost entirely on the Fed. If the Fed delivers one to two additional 25-basis-point cuts by year-end as markets currently expect, the best 1-year CD rates would likely settle into the 4.00% to 4.50% range by early 2027. If inflation resurges and the Fed pauses or reverses course, current rates could hold or even edge higher. The key point for depositors is that today’s rates — while below the 2023 peak — still represent historically attractive returns on a zero-risk investment. The 10-year average for 1-year CDs prior to the 2022 tightening cycle was below 1%, so current rates remain well above the long-term norm. For a deeper look at the rate outlook, see our prime rate vs other rates comparison.
When CDs Make Sense in Your Financial Plan
CDs are not the right tool for every dollar you have in savings, but they fill an important role in a well-structured financial plan. The best candidates for CD money are funds with a known time horizon — a down payment you plan to use in 18 months, tuition due in two years, a home renovation scheduled for next spring. Because the return is guaranteed and FDIC-insured, a CD eliminates the risk of your savings losing value due to market volatility, which is a real concern if you invest short-term money in stocks or even bond funds.
CDs also serve as a conservative anchor in a broader investment portfolio. Financial advisors often recommend that retirees or near-retirees hold a portion of their portfolio in CDs as part of their fixed-income allocation, particularly when CD rates exceed inflation. With the Consumer Price Index running at approximately 2.5% to 3.0% in early 2026 and the best 1-year CDs paying 4.50% or more, depositors are earning a positive real return — meaning their purchasing power is actually growing, not just keeping pace with inflation. That has not been consistently true for CDs in over a decade.
Where CDs do not make sense is for money you might need unexpectedly or for long-term growth goals. Your emergency fund should stay in a high-yield savings account where it is instantly accessible. And for goals more than five years away — retirement savings, a child’s college fund starting in elementary school — the stock market’s higher long-term returns will almost certainly outpace even the best CD rates over that horizon. CDs are a short-to-medium-term tool, not a wealth-building vehicle. Use our savings goal calculator to model how CDs fit into your timeline, and explore our net worth calculator to see the broader picture.
One final consideration is taxes. CD interest is taxable as ordinary income in the year it is earned (or in some cases, credited), even if you do not withdraw the money. If you are in a high tax bracket, the after-tax return on a CD may be less attractive than a Treasury bill of similar maturity, since Treasury interest is exempt from state and local taxes. For depositors in high-tax states like California or New York, this difference can be meaningful. Compare the after-tax yields of CDs versus Treasuries before committing — the gross rate on a CD may be higher, but the after-tax return on a T-bill can sometimes win.
Frequently Asked Questions
What is a good CD rate right now?
As of March 2026, a good 1-year CD rate is 4.50% APY or higher, which is roughly 2.5 percentage points above the national average. Rates above 4.25% for terms of 6 months to 2 years are competitive. Anything below 2.00% is well below market and suggests you should shop around at online banks and credit unions, which consistently offer two to three times what large brick-and-mortar banks pay.
Are CD rates going up or down?
CD rates have been trending down since the Federal Reserve began cutting the federal funds rate in late 2024. Markets expect one to two more 25-basis-point cuts in 2026, which would push new CD rates lower. If you are considering a CD, locking in now preserves today’s rate before further cuts take effect. Once locked, your rate is guaranteed regardless of what the Fed does.
What happens when a CD matures?
When your CD reaches the end of its term, you enter a grace period (typically 7 to 14 days) during which you can withdraw your money plus interest, roll it into a new CD, or take no action. If you do nothing, most banks automatically renew the CD at the current rate for the same term length. Always check your maturity date — auto-renewal in a low-rate environment locks you in at a potentially unfavorable rate.
Can I lose money in a CD?
Your principal is protected by FDIC insurance up to $250,000 per depositor, per institution, so you cannot lose money due to bank failure. However, if you withdraw early, the penalty can exceed the interest earned to that point, resulting in a return of less than your original deposit. This is extremely rare with CDs held for at least half their term, but it is technically possible with very early withdrawals on long-term CDs.
How are CDs different from savings accounts?
A savings account lets you withdraw money at any time and the bank can change your rate whenever it wants. A CD locks in a fixed rate for a set term, but you pay a penalty if you withdraw early. CDs typically pay higher rates than savings accounts as compensation for the reduced liquidity. In a falling-rate environment, CDs are especially advantageous because your rate stays locked while savings account rates decline.
Should I open a CD or invest in Treasury bills?
Both CDs and Treasury bills are extremely safe investments with similar yields. The key differences are tax treatment and liquidity. Treasury interest is exempt from state and local taxes, which benefits high-tax-state residents. T-bills can also be sold on the secondary market before maturity without a fixed penalty. CDs are simpler to open, are available at your local bank, and their FDIC insurance is straightforward. For most depositors, the choice comes down to your state tax rate and whether you want the simplicity of a bank CD or the tax efficiency of a Treasury.
References
- FDIC Weekly National Rates — National average deposit rates by product type
- FDIC Deposit Insurance Overview — Coverage limits and eligibility for FDIC-insured accounts
- Federal Reserve Open Market Operations — Federal funds rate decisions and policy statements
- FOMC Meeting Calendar — Upcoming Federal Reserve meeting dates and projections
- CME FedWatch Tool — Market-implied probabilities of future federal funds rate changes
- FRED — 6-Month CD Rate National Average — Historical CD rate data from the Federal Reserve Bank of St. Louis
- CFPB — What Is a Certificate of Deposit? — Consumer guide from the Consumer Financial Protection Bureau
- TreasuryDirect — Treasury Bills — Information on T-bill auctions and rates
- IRS Topic 403 — Interest Received — Tax treatment of CD and deposit interest income
- Bureau of Labor Statistics — Consumer Price Index — Monthly inflation data for real return calculations