Opening a Certificate of Deposit Account 101

Certificate of Deposit 101

A certificate of deposit, commonly referred to as a CD, is an interest-bearing deposit account offered by banks and credit unions. Unlike a variable-rate savings account where the interest rate may fluctuate, most CDs offer a fixed annual percentage yield (APY). The APY on a CD can be higher than a savings account. When you open a CD, you agree that you will not withdraw the funds until the maturity date, which varies from a few months to several years after you open the account, depending on the term you choose. If you withdraw the funds before the maturity date, you usually will pay an early withdrawal penalty.

CD term lengths range from a few months to several years. Generally, the longer the term length, the higher the APY. If you're not willing to commit to a long-term CD, you can choose a short-term CD that has a slightly lower interest rate. You may also be interested in the Ally Bank 11-month No Penalty CD, which allows you to withdraw all your money, including interest earned, without any penalty, any time after the first six days following the date you fund your account.

Combining long- and short-term CDs is known as CD laddering. For example, rather than put $40,000 into a four-year CD, you might put $10,000 into four separate CDs—a one-year, an eighteen-month, a three-year and a four-year. When the first CD matures, you reinvest it in a four-year CD, repeating the process with the others as they become due. This CD rotation provides you with regular access to your money and allows you to take advantage of current CD interest rates.

At Ally Bank, there’s no minimum deposit to open any of our accounts and all of our CDs are backed by the Ally Bank Ten Day Best Rate Guarantee. We offer a variety of CDs to fit your savings goals, all at some of the most competitive rates in the country. Learn more about our High Yield CD, No Penalty CD, and Raise Your Rate CD by visiting Ally.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.