Certificates of Deposit (CDs)

Understanding CDs: A Simple Guide

Are you looking for a safe way to save your money and earn interest? Certificates of deposit, commonly known as CDs, might be a good choice for you—and they're available at the Central Bank branch near you. Let’s look at what CDs are, how they work, and why they could be a helpful addition to your financial strategy.

What Is a CD?

A CD is a type of savings account. Unlike a regular savings account where you can deposit and withdraw money at any time, a CD is issued for a fixed period of time—usually from a few months to a few years. And while you can always withdraw your money from a CD at any time, you may have to give up some of the interest if you take out money before the CD matures (reaches the end of the fixed time period).

Benefits of CDs

CDs offer several advantages, making them an attractive option for savers:

  • Safety: CDs are considered low-risk investments. They are federally insured up to a certain amount.
  • Attractive interest rates: Generally, CDs offer higher interest rates than traditional savings accounts, allowing your money to potentially grow more over time.
  • Fixed rates: With a fixed interest CD rate, you can calculate exactly how much money you’ll have at the end of your term, making it easier to plan for your financial future.
  • Flexible terms: Whether you’re saving for a short-term goal or long-term project, there’s a CD term out there that can match your timeline.

Is a CD Right for You?

Before opening a CD, consider your financial situation and goals. CDs are ideal for money you won’t need immediately, offering a secure and predictable way to save. However, because your funds are locked in, make sure you have enough liquidity to cover any short-term needs or emergencies.

Glossary of Common Terms Related to CDs

To help you navigate the world of CDs more easily, here’s a brief glossary of common terms you might encounter:

  • CD Term: This is the length of time your money will be in the CD. Common terms range from as short as a few months to as long as several years.
  • CD APY (annual percentage yield): This is the rate of interest you will earn on your CD over a year, taking into account the effect of compounding. APY provides a more accurate picture of your potential earnings compared to the simple interest rate.
  • Compounding: This refers to the process where the interest earned on your CD is added to your principal (the initial amount deposited), so that the added interest also earns interest. Different CDs compound interest at different rates, such as daily, monthly, or annually.
  • Maturity date: The date when your CD term ends and you can access your initial deposit plus the accrued interest without facing any penalties.
  • Early withdrawal penalty: If you need to take your money out of the CD before the end of its term, you’ll likely face an early withdrawal penalty. This fee varies by bank and can impact the interest you’ve earned.
  • Rollover: At the end of your CD term, you have the option to renew or “rollover” your CD into a new term. You might choose to stick with the same term length or select a new one depending on current CD interest rates and your financial goals.

How Do CDs Work?

Here’s a simple breakdown of the process:

  1. Choose your term: Decide how long you want to save in the CD. Terms can vary, so pick one that aligns with your financial plans.
  2. Deposit your money: Once you’ve selected your term, you deposit a lump sum of money into the CD. The minimum deposit amount can vary from one CD to another.
  3. Earn interest: Based on the CD rate, your money earns interest over the term of the CD. CD interest rates are usually fixed, so you’ll know exactly how much you’ll get at the end of the term.
  4. Access your funds: At the end of the term, you can withdraw your money and the interest earned without penalty. If you don’t need the cash right away, you can roll it over into a new CD.

Learn More

Central Bank makes it easy to open a CD. Check out our current CD specials to get started!