Beginner's Guide · 2026 Rates

What Is a CD?

A certificate of deposit locks your money for a set period in exchange for a guaranteed interest rate. FDIC insured, zero risk, completely boring — and that is the point.

4-5%

Current Rates

3mo - 5yr

Typical Terms

$250K

FDIC Insured

What Is a Certificate of Deposit?

A certificate of deposit (CD) is a time deposit offered by banks and credit unions. You agree to deposit a fixed amount of money for a specific period — from 3 months to 5 years — and the bank guarantees a fixed interest rate for the entire term. When the term ends (the CD "matures"), you get your money back plus the interest earned.

CDs are one of the safest places to put money. They are FDIC insured up to $250,000 per depositor, per bank. The interest rate is locked in at the time of purchase — it will not go down even if market rates drop. The trade-off is that your money is locked up: if you withdraw before the maturity date, you pay an early withdrawal penalty.

Think of a CD as a deal with your bank: "I will not touch this money for 12 months, and in exchange, you pay me a higher rate than your savings account." The bank benefits because they can lend your money out for the full term, knowing you will not ask for it back.

CD Rates by Term (2026)

Approximate ranges from top online banks as of early 2026. Rates change with Federal Reserve policy.

Term	Typical APY Range	Best For
3-Month	4.00% - 4.50%	Very short-term parking of cash
6-Month	4.25% - 4.75%	Money needed in about 6 months
1-Year	4.25% - 5.00%	Most popular term — good rate/flexibility balance
2-Year	4.00% - 4.50%	Locking in rates if you expect rates to fall
3-Year	3.75% - 4.25%	Medium-term goals with rate certainty
5-Year	3.50% - 4.00%	Rate lock when expecting significant rate drops

The CD Ladder Strategy

A CD ladder is a strategy where you divide your money across multiple CDs with different maturity dates. Instead of locking all your money in one 5-year CD, you spread it across 1-year, 2-year, 3-year, 4-year, and 5-year CDs.

Example: $25,000 CD Ladder

$5,0001-Year CDMatures Year 1 → reinvest in 5-year

$5,0002-Year CDMatures Year 2 → reinvest in 5-year

$5,0003-Year CDMatures Year 3 → reinvest in 5-year

$5,0004-Year CDMatures Year 4 → reinvest in 5-year

$5,0005-Year CDMatures Year 5 → reinvest in 5-year

After 5 years, you have a CD maturing every year — giving you annual access to a portion of your money while all of it earns the higher 5-year rate.

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Pros & Cons

Pros

+Guaranteed rate — locked in regardless of market changes
+FDIC insured up to $250,000
+Zero risk to principal
+Higher rates than regular savings accounts
+No temptation to spend — money is locked up
+CD ladder provides both higher rates and periodic access

Cons

-Money is locked up — early withdrawal penalty applies
-Rates may be lower than high-yield savings accounts
-Returns barely keep pace with inflation
-Miss out on higher rates if rates rise after you lock in
-Not suitable for long-term wealth building
-Opportunity cost — money in CDs could be in index funds earning ~10%

Glen's Take

CDs are the financial equivalent of hiding money under a very slightly warm mattress.

A 4.5% CD sounds great until you realize inflation is running at 3% and stocks average 10%. After inflation, your CD earns about 1.5% in real terms. Over 30 years, $100,000 in CDs grows to roughly $155,000 in real purchasing power. The same $100,000 in an S&P 500 index fund grows to roughly $870,000.

CDs make sense for one thing: money you absolutely need within 1-3 years and cannot afford to lose. Down payment savings, upcoming tuition, short-term goals. For everything else, invest in low-cost index funds and let compound interest work its magic over decades.

Frequently Asked Questions

What is a CD (certificate of deposit)?

A CD is a savings product offered by banks where you deposit money for a fixed period (3 months to 5 years) at a guaranteed interest rate. In exchange for locking up your money, the bank pays a higher rate than a regular savings account. CDs are FDIC insured up to $250,000.

What happens if I withdraw from a CD early?

You will pay an early withdrawal penalty, typically 3-6 months of interest depending on the CD term. Some banks charge even more. No-penalty CDs exist but usually offer lower rates. Always check the early withdrawal penalty before opening a CD.

What is CD laddering?

CD laddering is a strategy where you split your money across CDs with staggered maturity dates (e.g., 1-year, 2-year, 3-year, 4-year, 5-year). As each CD matures, you either use the money or reinvest it in a new 5-year CD. This gives you regular access to your money while capturing higher long-term rates.

Are CDs better than savings accounts?

CDs typically offer slightly higher rates than savings accounts in exchange for locking up your money. However, in 2026, the best high-yield savings accounts offer rates competitive with or equal to CD rates — without any lock-up period. CDs make the most sense when you believe interest rates will fall and want to lock in today's rate for 1-5 years.

Are CDs a good investment?

CDs are not investments — they are savings vehicles. They will not build wealth over the long term because their returns barely keep pace with inflation. CDs are best for money you need to keep safe for a specific short-term goal (1-5 years). For long-term wealth building, index funds in a Roth IRA will outperform CDs dramatically.

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