What is a Certificate of Deposit?

A Certificate of Deposit (CD) is a savings product that rewards you with a steady interest rate and return when you agree not to withdraw the money for a certain amount of time. CDs often offer higher returns than a traditional savings account. When you open a CD, you agree to keep your funds untouched for the term.

Financial institutions offer various types of CDs to suit different needs.

  • Traditional CDs require an initial lump-sum deposit made into the account.
  • Jumbo CDs are designed for larger deposits and often pay higher rates.
  • No-penalty CDs let you withdraw funds early without losing interest, usually at a slightly lower rate.

Certificates of deposit are backed by organizations such as the Federal Deposit Insurance Corporation (FDIC) at FDIC-insured banks, which gives them an added layer of security. With multiple term lengths and deposit requirements available, CDs can fit a range of financial strategies.

How does a CD work?

When you open a CD, you commit to depositing a specific amount of money for a predetermined time frame. One of the key features of a CD is its fixed rate, meaning the interest rate won’t change during the term, so you can calculate exactly how much interest your deposit will generate.

CD terms typically range from a few months to several years, and the interest earned generally increases with longer terms or larger deposits. However, during the term, access to your funds is typically restricted. If you need to withdraw money before the CD matures, you will likely face penalties, such as losing a portion of the interest accrued. It’s important to review the terms and conditions before committing to a CD. Once the CD matures, you can withdraw your funds, including the interest earned, or roll the balance into a new CD.

What CD rates can I expect?

CD rates depend on a combination of factors, including the term length, deposit size, and overall economic conditions. In general, banks and credit unions offer higher interest rates for longer-term CDs while shorter-term CDs can still be a practical option for those who prefer more flexibility while earning interest. Sometimes CD specials are offered with higher interest rates for a limited time, often with shorter terms and higher returns.

The state of the economy plays a significant role in determining available rates. For instance, when the Federal Reserve raises interest rates, financial institutions often raise CD rates as well. Conversely, rates may drop during periods of economic slowdown or when overall interest rates are low. Staying informed about economic trends can help you determine the right time to open a CD.

Comparing rates across different institutions and types of CDs can help you maximize your earnings while meeting your savings goals.

When should I consider opening a CD?

CDs are particularly useful when you have extra funds that you won’t need access to right away and are looking for a higher return than a regular savings account. They are worth considering during periods of rising interest rates, as locking in a higher rate can be beneficial.

CDs can complement other savings or investment strategies by providing stability, especially if you’re cautious about market risks. For instance, if you’re saving for a near-term goal like a wedding or home renovation, a CD can protect your money while it earns interest.

They are also worth considering during periods of rising interest rates, as locking in a higher rate can be beneficial. It's essential to assess your financial goals and timeline to determine the right fit.

Explore the available terms and rates to find the option that best fits your goals. Learn more about Maspeth Federal Savings’ CD options here: https://www.maspethfederal.com/personal-banking/cds-iras