Do you have the feeling you could be doing a little bit more with the money in your savings account? If you like the security of having money in the bank—safely earning interest—but want to expand your savings skill set, you’ve come to the right place.

Certificates of deposit (CDs) can be great for building your savings balance and achieving your long- and short-term money goals. So can savings accounts. But CDs often offer higher interest rates—if you’re able to leave your money deposited for a certain amount of time. You also can choose from a variety of different CDs to fit your needs. Here’s everything you need to know about these useful savings tools.

What is a CD?

A CD is a deposit account, like a savings, money market, or checking account. You’ll sometimes see CDs referred to as “time deposits,” because when you open a CD, you deposit a fixed amount of money for a specific period of time. When the time is up, or the CD matures, you can cash it out or “roll it over” for another term. Usually if you withdraw the money before it matures, you will pay an early withdrawal penalty.

How do CDs work?

CDs are pretty straightforward: you put money in, earn interest, and then withdraw your money plus interest or leave it in the account to keep earning.

Most CDs have fixed rates and fixed term lengths, meaning you agree to a certain rate for a certain amount of time. Term lengths can be anywhere from a few months to several years, with longer-term CDs usually offering higher APYs (annual percentage yields.)

CDs may or may not have minimum deposit requirements, but higher balances may qualify for higher rates.

Weighing CD pros and cons

There’s a lot to like about CDs, but some of their features may not fit your goals. Take a look at the following common characteristics of CDs:

Security: CDs offered by FDIC-insured banks are insured up to the maximum amount allowed by law. That gives you peace of mind and about as safe a place to save as you can get.

Rates: You’re likely to find higher rates of return 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. Most CDs offer fixed rates, meaning you can lock in a given rate for the duration of your term and you don’t have to worry about it going down. On the 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,” that 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.

But, as with most things, it all depends on how you look at it. That early withdrawal penalty might not be a bad thing if it helps you stay motivated to leave your balance alone and let it grow.
That said, not all CDs have withdrawal penalties. The Ally Bank No Penalty CD, for example, is a more flexible option if you think you might need to access your funds before the term is up.

Accessibility: No matter what CD you choose (even a “no penalty” CD), you aren’t going to be making deposits and withdrawals to it on a regular basis. Since the basic idea is that you’ll leave your money deposited for a certain amount of time, you don’t want to use a CD for funds you need regular access to.

Find the right CD(s) for you.

One of the things that make saving with CDs attractive is that you have a lot of account options. There are many different types of CDs out there suited to short- or long-term goals that have competitive APYs and flexible terms.

At Ally Bank, we offer several different types of CDs with a variety of terms tailored to your own personal savings goals.

  • High Yield CD: Get maximum savings with a competitive, fixed rate.
  • Raise Your Rate CD: Start with a great rate, plus have the opportunity to increase your rate once over the 2-year term or twice over the 4-year term if our rate for your term and balance tier goes up on these CDs.
  • No Penalty CD: Withdraw all your money any time after the first six days following the date you fund the account, and keep the interest earned, with no penalty.

Compare Ally Bank CDs

How to open a CD

Opening a CD account is a pretty simple process. First, determine your savings goals and decide how long you want to keep the money deposited. Then, shop around and compare different types of CDs, APYs, and account terms and conditions. Be sure to choose a reputable bank that’s FDIC-insured.

Tip: Online banks often offer better rates than their brick-and-mortar counterparts because they don’t have the overhead traditional banks have. That means they can pass the savings on to you in the form of great rates.

Then, all that’s left is to deposit your money and see your balance grow.

Up your game with CD laddering.

Once you’re comfortable with opening CD accounts and feel like you’ve got a handle on how they work, you may want to up your savings game with a CD ladder strategy. 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. It can be a useful way to earn great rates and still maintain frequent access to your cash more.

CD ladder basics

Savvy savers are in the know.

Educating yourself about the ways you can boost your savings is a smart move. It’s all too easy to just let your balance languish in that first low-interest savings account you ever got. So, high-five for learning more. At Ally Bank, we believe in straightforward products, competitive rates, and great customer service. Go to Ally.com to learn more about all of our products and services.