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What is a certificate of deposit (CD)?

CDs offer significantly higher interest rates than those tied to traditional savings accounts. Getty Images/iStockphoto

With so many Americans spending more than they were just a year or two ago, the thought of saving money isn't always at the forefront. While inflation and interest rate hikes have hurt things like grocery shopping and home purchasing, they've also led to unique opportunities for those looking to save extra money. 

For example, high-yield savings accounts are currently offering interest rates many times higher than those tied to traditional accounts. Certificates of deposit, or CDs, are also offering favorable terms and incentives for those looking to earn more interest. To get the most out of a CD it helps to first understand how it works as well as the ways you can benefit from opening one.

You can easily check today's CD interest rates here to determine if it makes sense for you or use the table below to explore some local options.

What is a CD?

A CD is a kind of account provided by banks or some credit unions in which account holders earn interest by depositing their money for a specified period of time. This interest is typically higher than the 0.33% many would get with a regular savings account, although you'll need to keep the money stored in the CD for the full agreed-upon term to fully earn it. 

CDs are popular for their terms (the amount of time you agree to leave your money untouched in the account). For many, it acts like forced savings that won't be subject to constant withdrawals or charges. 

Terms vary significantly; it could be months or it could be years, depending on what you chose when you opened the account. Once the term is completed the account holder can take their money (and the interest earned) out of the CD. They can also renew it or open up a new one with different terms. 

If this sounds advantageous to you then start by checking today's CD interest rates and options now to see how much interest you could be making. 

Who benefits from opening a CD?

Anyone who wants to earn more interest than they are currently earning with a regular savings account - and can afford to temporarily deposit a portion of their savings - would likely benefit from opening a CD. Interest rates for CDs are currently around 4% to 5%. Some banks and credit unions may even offer higher rates so shop around before signing on the dotted line.

For those who prefer to see their earnings in a figure form, consider $5,000 deposited into a regular savings account with an annual percentage rate (APR) of 0.33%. Twelve months later, that account will have earned $16.50. But if it was left in a CD for that same period that $5,000 would turn into $5,225 (at 4.5% interest). That's a lot more money for very little work on the behalf of the account holder.

CDs are also good for people who are having difficulty growing their savings. It can be tempting to continuously swipe a debit card only to pay yourself back with the next direct deposit. You frequently won't save this way and will wind up noticing your account decrease over time. But by putting that money into a CD you can rest easy knowing it's safe (and earning interest).

There are generally little to no maintenance fees. Not only does this mean that you'll be able to hold on to all the interest you earned, but it also means that the principal you deposited will remain untouched. Compare that to the normal fees you typically see deducted from your other accounts and you can quickly see the benefit of putting that money into a CD instead. 

Explore your local CD options by using the table below and start earning more money now

The bottom line

CDs offer account holders a unique way to protect their money and earn more interest by depositing those funds into an account for a set period of time. CDs can't be accessed during this time frame (which can last months or years) but the account will typically earn significantly more interest than it would have if it was left in a typical savings account. This is an attractive option for both those who want to start earning more money and those who want a safe way to protect what they already have.

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