The Different Types of Certificates of Deposits (CDs)

A certificate of deposit (CD) is a savings account offered by banks, credit unions, and brokerages that requires you to keep your money on deposit. You’ll receive a fixed interest rate that’s typically higher than the interest rate offered by a standard savings account. CDs are relatively risk-free, and you can purchase them directly from financial institutions and through your 401(k), IRA, and Roth IRA.

Before investing in certificates of deposits, many people use our debt payoff planner to identify the best ways to pay off credit card debt. Why pay debt before investing in CDs? Paying off credit card debt is often a better route because the debt has a higher interest rate. A CD’s interest rate generally won’t surpass that of a credit card’s; therefore, the best practice is to pay debt first. Our intuitive application lets you simulate debt paydown techniques using various techniques, such as the debt avalanche method and the debt snowball method.

Once you’ve paid your debt (or the debt has become more manageable), it might be good time to place your funds in CDs. You can choose from various CDs, and we recommend carefully evaluating your options beforehand. Here’s an in-depth look at some of the most common certificates of deposits:


An IRA CD is relatively straightforward – it’s an IRA where you invest your money in certificates of deposits. You can invest in CDs with traditional IRAs and Roth IRAs. Both IRAs have a tax advantage. A Roth IRA enables you to contribute funds using after-tax dollars and make qualified withdrawals without paying tax. When you have a traditional IRA, you make pre-tax contributions and pay taxes once you withdraw funds from the account. If you withdraw money from an IRA before reaching 59 ½, you’ll have to pay a 10% tax penalty. Investing in CDs through an IRA is relatively low-risk. Still, you won’t see gains comparable to individual stocks and exchange-traded funds (ETFs).

Jumbo CDs

As the name implies, a jumbo CD generally requires a significant upfront deposit ($50,000 to $100,000). However, you typically receive a higher interest rate because you’re tying up more cash. Jumbo CD term lengths range from three months to five years. Most financial institutions pay a higher APY when you invest in a CD with a longer term. You can get jumbo CDs from credit unions, banks, and investment brokerage firms. Almost all Jumbo CDs come with $250,000 of FDIC insurance.

Traditional CDs

Traditional CDs are the most common, and you’ll find them offered by various financial institutions. Most standard CDs require a $1,000 deposit, and you can choose a term ranging from a few months to ten years. Traditional CDs typically pay a higher interest rate for longer terms. The going interest rate is approximately 0.30% APY for a 3-month CD up to 2% APY for a five-year CD. If you withdraw money early from a CD, most banks will charge you the greater of three months’ interest or $25.

Add-on CDs

Add-on CDs are similar to traditional CDs, but there’s one key difference: you can deposit additional funds throughout the term. Contrarily, financial institutions only allow you to deposit an initial deposit amount when you invest in a traditional CD. Therefore, add-on CDs are an excellent way to store your savings and earn higher interest than a conventional savings account. While add-on CDs aren’t as popular as traditional CDs, you’ll still find them offered by various banks and credit unions. Before purchasing an add-on CD, you should be mindful of the guidelines set forth by the financial institution. For example, some banks may only allow you to deposit a fixed amount of money each year. 

Foreign Currency CD

Investing in a foreign currency CD is a promising way to gain exposure to international markets. Investors purchase foreign currency CDs with USD, and the financial institution subsequently converts the USD to the foreign currency. At the maturity date, investors receive their money in USD. Compared to traditional CDs, it’s rather challenging to find foreign currency CDs. One of the largest providers of foreign currency is TIAA Bank. The bank lets its customers purchase CDs in major currencies (Australian Dollar and British Pound) and emerging currencies (Brazilian Real and Indian Rupee). You must deposit a minimum of $10,000 to open a foreign currency CD with TIAA Bank. You can choose from 3-month term maturity dates.

Brokered CD

If you already have an account with a brokerage like Vanguard or Fidelity, you may want to consider purchasing a brokered CD. These CDs differ from traditional ones in that you buy them on a secondary market through a broker. Purchasing CDs through a broker is highly convenient since you can house them in one location (versus buying four CDs from four banks). Another advantage of a brokered CD is that you can sell them when you see fit – you don’t need to wait for the maturity date. Therefore, you don’t have to tie up a significant amount of cash and pay early withdrawal fees. You may be able to get a higher interest rate with brokered CDs, but these CDs are sometimes riskier than standard CDs.

No-Penalty CD

One could best describe a no-penalty CD as a traditional and brokered CD fusion. As its name implies, a no-penalty CD lets you withdraw funds early without paying a fee (similar to a brokered CD). However, you typically purchase no-penalty CDs through financial institutions instead of a brokerage. There are a few downsides to no-penalty CDs, including lower interest rates. Furthermore, banks may not allow you to withdraw partial amounts (instead, you’ll have to withdraw the entire balance of the CD).

What CD Is Right for You?

Before choosing a CD, you should consider various factors – how much you want to deposit, whether or not you need access to the funds, and the APR you wish to earn. A traditional CD is a popular choice if you don’t want to make a large deposit, but a jumbo CD will inarguably pay more interest. No matter what CD you choose, use our debt repayment apps to ensure that you’re in a good financial position beforehand.

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