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8 Types of CDs: Which One Is Best for You?

Experts break down different certificates of deposit so you can find the right place to grow your money.

Aleksandr Zubkov / Getty Images

A certificate of deposit, or CD, is a low-risk way to earn a return on your savings. But there’s more diversity to CDs than what meets the eye. There are several types of CDs to choose from.

Before you lock in a high-yield CD with an attractive rate, you may want to consider other CDs with different benefits that could better fit your savings and financial goals. Be sure to weigh the different drawbacks and benefits of each CD type before deciding on one. And shop around -- you may not see every CD choice at your favorite bank. 

We talked to experts about eight different types of CDs and their pros and cons to help you decide which is best for your savings goals. 

Standard CDs

Standard, or traditional, CDs are commonly found at most banks and credit unions. This type of CD lets you earn a return on your deposit at a fixed rate for a set period of time. Some banks require a minimum deposit for standard CDs. When the CD matures -- or reaches the end of its term -- you can withdraw the money penalty-free. However, you’ll often face an early withdrawal fee if you need to access your money sooner.

“Understand the penalties and terms associated with early withdrawals from CDs. In case of unforeseen financial needs, it’s important to know the potential costs of accessing your funds before the CD matures,” said Doug Carey, founder and president of WealthTrace.

High-yield CDs

Similar to standard CDs, a high-yield CD functions the same way, but offers a higher APY than most traditional banks. You’ll often find high-yield CDs at online banks.

“A high-yield CD, offered by online banks or credit unions, is a good option for individuals seeking higher interest rates,” said Akpan Ukeme, a certified financial planner and founder of Finance4 Zoomers. “These CDs typically provide better returns compared to traditional bank CDs, but it’s important to research the institution’s reputation and ensure FDIC insurance coverage.” 

No-penalty CDs

No-penalty CDs offer more flexibility than traditional CDs. As with other CD types, you’ll still lock in a fixed rate and term, but if you need to take out your money before the CD matures, you can avoid the early withdrawal penalty.

However, there are still a few restrictions: You generally must take out your entire balance if you withdraw early, and there may be a waiting period between account opening and when you can withdraw penalty-free.

No-penalty CDs also have fewer term options, which could limit your potential interest and may require a higher minimum deposit. This CD type also tends to offer lower APYs than high-yield CDs. But many of the best no-penalty CDs today carry interest rates comparable to high-yield savings accounts.

Bump-up and step-up CDs

When interest rates are rising, bump-up and step-up CDs can help you keep up with higher interest rates even after you’ve locked in your CD. 

With a bump-up CD, you’ll have the option to request a one-time interest rate adjustment on your account over the lifetime of the CD. In a rising-rate environment, a bump-up CD can help you get the best return if your bank steadily raises interest rates. 

A step-up CD also works well in a rising-rate environment. Like a bump-up CD, the bank may raise your interest rate; but it requires less tracking on your part. These CDs will automatically increase their interest rates on a fixed schedule.

Both can help you yield a good return on your savings, but these two types of CDs aren’t as valuable when rates are falling.  

Callable CDs

Callable CDs are a type of account in which the bank can “call” your CD before it reaches maturity. That means you’ll get your principal balance and interest earned on the CD before your expected term ends.

“A callable CD gives the bank the option to pay off your CD early,” said Marty O’Leary, a certified financial planner and founder of Stadium Financial. “Normally, this would be done when rates are going down.”

Callable CDs may come with higher-than-average interest rates to entice people, said O’Leary, but they’re a riskier choice. You’ll lose any potential interest for the remainder of the term after your account is closed. And since banks usually end this type of CD early when rates drop, you’ll likely have lower-earning options to replace it with than you did before.

Brokered CDs

In addition to banks and credit unions, you can also invest in a CD at a brokerage firm, such as Fidelity or Vanguard. Brokered CDs work similarly to traditional CDs, but they’re offered by a broker. Brokered CDs can be useful for near-retirees looking to take on safer savings options within their investment accounts. You’ll still earn a fixed rate, but also receive your interest in dividends at regular intervals throughout the year -- and can choose to reinvest it. You also have more term options, typically ranging from one to 30 years.

“You get nice choices all in one spot,” said O’Leary. “The main advantage, though, is that you can buy them in your investment accounts.” If you already have a brokerage account, you can use money in the account to purchase a brokered CD as part of your investment portfolio.  

However, if you want to access your CD before it matures, you can typically sell it on the secondary market without incurring an early withdrawal penalty. You may have to pay brokerage fees, however, so it’s best to weigh the upfront cost and return to get the best value. Also, not all brokered CDs are FDIC-insured. If the brokerage partners with an FDIC bank, you should receive this protection. If they do not, your money is often not protected.

Jumbo CDs

Jumbo CDs are like traditional CDs, but they require a bigger deposit. 

“Jumbo CDs, which require a large minimum deposit, tend to be less popular as they cater to investors with substantial funds,” said Ukeme. “The higher minimum deposit requirement and limited accessibility make them less appealing for the average individual seeking a CD.”

Some banks may have minimum deposit requirements of up to $100,000 or more to open a jumbo CD. “They might have slightly better rates because you’re committing more of your money to it,” said O’Leary. “Otherwise, it’s going to operate just like a traditional CD, there are no real surprises there.” But today, many banks offer similar rates on jumbo CDs as traditional CDs.

Add-on CDs

Add-on CDs allow you to add more money to your CD after your initial deposit, so you can keep growing your savings while earning interest. For instance, say you initially deposit $10,000 into a CD, but want to add $1,000 a few months later when you receive an annual bonus. That’s possible with an add-on CD.

However, when rates are rising, like they are in our current economic climate, short-term traditional CDs may be the smarter option. “I don’t think [add-on CDs] are really attractive right now,” said O’Leary. “Rates are going up, and a few months from now, a new CD is going to have a higher rate than what you can add to that old CD.” 

Add-on CDs could be more lucrative in a falling rate environment since you’ll maintain the same rate you locked in even when you deposit more cash. 

Some banks have limits on how much money you can add and the number of deposits you can make over the lifetime of the CD.

The bottom line

The right type of CD for you depends on your financial goals and personal situation. While high-yield CDs tend to offer the highest rates, there are other reasons to consider different CD types. For example, if you need more flexibility, a no-penalty CD may come in handy. And if you want to grow your funds over time, you might consider an add-on CD, or building a CD ladder instead.

Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of CDs. Those points were all corrected. This version has been substantially updated by a staff writer.

This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.

Dashia is a staff writer for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.