What is a CD?

How do CD’s work?

Opening a CD account is similar to opening a savings account in that there may be a minimum initial deposit you’re required to make. You’ll also have to choose a CD term, which is the length of time you agree to keep your money tied up in the CD.

CD terms can range from as little as 28 or 30 days up to 10 years or more, depending on the credit union. As a general rule of thumb, the longer the CD term, the higher the interest rate you can earn. At DECU, right now only, we are offering a CD special.

Visit Savings Rates - Our Guide to Earn the Most in These Accounts | DECU to learn more.

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Pros of using a CD for savings.

Safety: CDs are some of the safest places to keep your money. That’s because money held in a CD is insured.

Guaranteed Returns: CD accounts offer predictability in that it’s relatively easy to determine how much interest you’ll earn over time, since rates are typically fixed for the entire term. Certificate of deposit calculators allow you to plug in the amount you’re saving and your APY to gauge how much your money will grow.

Higher Rates: Compared to savings accounts or money market accounts, CDs potentially can offer higher interest rates on deposits. That’s because you agree to keep your money in the CD for a set time period. The interest rate and APY you earn depends on the bank, the CD term and the current interest rate environment.

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Cons of using a CD for savings.

Accessibility: With a savings account or money market account, you’re allowed to make a certain number of withdrawals of cash or transfer funds to a linked checking account. Certificate of deposit accounts, on the other hand, typically require you to keep the money in place until the CD matures. This means a CD likely isn’t the best choice for your emergency fund.

Early Withdrawal Penalties: CDs are designed for holding money that you don’t plan to spend right away. While you aren’t barred from taking money out of a certificate of deposit early, there’s usually a price to pay for doing so.

Credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee, or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Inflation Risk: If inflation is rising, it could outpace the rate of return you’re earning on your CDs, especially in a low interest rate environment.

This means even though your savings is growing, it won’t stretch as far when it’s time to spend it. Notably, this is also a risk when keeping money in savings and money market accounts.

Visit Savings Rates - Our Guide to Earn the Most in These Accounts | DECU to learn more about our current CD Rate Special.