An icon of building blocks, with text, certificate of deposit

With all the talk of interest rates, economic forecasts, and more, you might feel a little stuck when it comes to money.

But no matter the market, one thing you can always count on is that saving is a good idea. And while they may not grab headlines, certificates of deposit (CDs) remain one of the most reliable tools for building your balance.

What is a CD?

A CD is a type of deposit account, like a savings or checking account. When you open one, you agree to keep your initial deposit in it for a specific time period until it reaches maturity.

How does a CD work?

CDs are simple. You put money in for a certain number of months or years (during which you usually can’t withdraw it without an early withdrawal penalty). The cash earns interest until the CD matures, at which point you can withdraw your principal, plus interest, without penalty.

CD offerings use to be pretty basic: You might have been able to choose a one, three, or five-year term. Now you can find several types of CDs with terms tailored to your goals. Some allow you to switch to a better rate if interest rates go up, while others allow you to close your CD early without an early withdrawal penalty. At Ally Bank, we offer three different types of CDs: High Yield CD,  No Penalty CD, and Raise Your Rate CD.

Compare Our CDs

What happens when a CD reaches maturity?

When the CD matures, you can cash it out (or withdraw partial funds), renew it to a new term, or roll it into the existing term again. Or, you might build a CD ladder.

The basic strategy of CD laddering is to open several CDs with staggered maturity dates, so you have access to your cash at regular intervals. This allows you to take advantage of potentially higher rates offered by longer-term CDs without tying all your money up or paying an early withdrawal penalty.

Want to run numbers and see how different strategies might work for you? Give our interactive CD ladder tool a try.

What happens when you withdraw from a CD early?

Usually, if you withdraw your money from the CD earlier than the terms dictate, you’ll pay an early withdrawal penalty. This penalty isn’t necessarily a bad thing however, — it might be just the incentive you need to leave your savings alone.

When should you consider a CD?

When it comes to picking a savings vehicle, it depends on your goals, timeline, and how much access you need to your money.

If you anticipate needing to withdraw your funds in a pinch, a CD might not be your best bet. And if you’re thinking long-term, like retirement, you may want to explore options with more flexibility and greater potential returns. But if you’re saving for a short-to-mid-range goal (like buying a car in a year) and don’t want to worry about market volatility, a CD could be a great fit.

How does a CD compare to a savings or money market account?

CDs, savings accounts, and money market accounts all have their own benefits and drawbacks, and it’s a good idea to weigh them before making any deposits.

Money market accounts, which act like savings accounts with certain checking account features, offer the most accessibility. Savings accounts offer fewer withdrawal options but may provide greater interest rates. CDs usually have the highest annual percentage yield (APY) of the deposit accounts, but are the most rigid about accessing your money.

When deciding between deposit accounts, chasing high interest rates can send you running in circles. CDs are subject to market conditions, meaning when interest rates are high, you’ll earn a higher rate on your deposits (and vice versa when they’re low). But CDs allow you to lock in a fixed rate for a specified time period, while most savings and money market account rates are variable. So, instead of constantly trying to snag the best rate, you can put your money in a CD that offers a competitive APY and leave it be.

How do you open a CD?

Opening a CD online is easy. Determine your goals and how long you want your money deposited. Then, shop around to find a CD that best fits your needs. Beware of promotional rates that plummet after a few months, or CDs with additional fees. Your best bet is to look for an FDIC-insured bank that offers consistently competitive rates.  And don’t forget: When you open a CD at Ally Bank, you get our 10-Day-Best-Rate Guarantee and a Loyalty Reward when you renew. Plus, there’s no minimum balance to open.

From there, all you have to do is follow your bank’s instructions to set up your account, make an initial deposit, and watch the funds grow.

Earn, but don’t touch

CDs may be a smart way to safely maximize your savings. At Ally Bank, our competitive rates and breadth of options mean savvy savers with all kinds of money goals can find a CD that is a financial fit. Whether you’re in it for the APY or the peace of mind that comes with keeping your deposits secure, consider saving with a CD today.

Save smarter with a CD from Ally Bank.

Find Yours Today