A certificate of deposit (CD) is an easy, safe place to stash your savings and earn some interest while you’re at it. But CDs have some features that may not work for your situation. So how do you know if a CD is right for you?

When you have an important decision to make, especially a financial one, you want to be thorough. Who can blame you for turning to the old decision-making standby: the pro and con list?

To help you decide whether a CD is right for you, we’ve created the certificate of deposit pros and cons chart below, followed by information on the advantages and disadvantages of this common way to save.

pros and cons of a certificate of deposit (cd)

The upside of adding a CD to your savings plan

Some of the best features of saving with CDs include:

Great rates: You’re likely to find higher APYs (annual percentage yields) on CDs as compared to say, savings accounts or money market accounts. That’s especially true of long-term CDs. However, it’s not always the case, so when you’re shopping around, be sure you compare APYs on any account you’re considering.

Fixed rates: Another advantage of CDs is that they often offer fixed rates for fixed terms. Knowing your rate is going to stay the same for a given period of time helps you accurately estimate your earnings and makes planning for the future that much easier.

Security: The Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks, like Ally Bank, up to the maximum amount allowed by the law. That gives you peace of mind and as safe a place to save as you can get.

Convenience: You can open CDs at most banks and credit unions. What’s more, there are several different types of CDs to fit a variety of savings goals, so it’s likely you’ll find something that works for your own situation.

Ally Bank Tip: Online banks, like us, often offer some of the best CD options and the highest APYs. And, you can open a CD with an online bank whenever, wherever you like. Just double-check that any online bank you consider is member-FDIC.

What to watch for when considering a CD

CDs can be a great way to save, but depending on your situation, there may be some trade-offs.

Rates: While CDs can offer great rates compared to other deposit accounts, you likely won’t see returns as high as those offered by investments like stocks and bonds.

If your primary goal is to get aggressive with your returns, you probably should explore investment accounts at a brokerage, like Ally Invest. Just remember, investing comes with risk, including loss of principal, so be sure you understand your risk tolerance before you move in that direction.

Fixed rates: The fixed rates offered by CDs can be a plus, but there is a flip side. A fixed rate also means you might be stuck with a lower rate if interest rates rise. Some banks offer “bump-up CDs,” which give you the option of increasing your rate at some time over the course of your CD’s term. That’s the idea behind the Raise Your Rate CDs at Ally Bank.

Withdrawal penalties: A CD usually requires you to keep the money in the account until the end of its term, in other words, until maturity. If you end up needing the money before then, you’ll likely end up paying an early withdrawal penalty. Not great.

However, a withdrawal penalty might not be a bad thing if it helps you stay motivated to leave your balance alone and let it grow.

Access: Again, you usually commit to keeping your money in the account for a pre-determined period of time, until the CD matures, or pay an early withdrawal penalty. That means you don’t have the flexible access you’re used to with, say, a savings account.

Make the most of your CDs.

If you’ve weighed the pros and cons and decided to save with CDs, there are a few things you can do to be sure you get the most from those accounts.

Compare rates and terms. Comparison sites like Bankrate.com can help you find the highest APYs on all the CDs out there. Just be sure to read the fine print and watch for things like promotional rates and withdrawal penalties before you commit.

Get the right type for your situation. There are many different types of CDs suited to short- or long-term goals that have competitive APYs and flexible terms.

Consider CD laddering. A CD ladder can be a useful way to earn great rates and still maintain frequent access to your cash. The basic idea of a CD ladder is that you open several CDs with varying maturity dates so that a portion of your money is accessible on a regular basis. Learn more about CD ladders here.

At Ally Bank, we offer a variety of CDs in a range of terms to help you reach your savings goals. There’s no minimum deposit to open and all of our CDs are backed by the Ally Bank Ten Day Best Rate Guarantee.

View Our CD Rates