Types of CDs

Liquid or No Penalty CDs

Liquid CDs allow you to withdraw your funds early without paying a penalty.5 This flexibility enables you to move your funds to a higher-paying CD if the opportunity arises, but it comes at a price.

Liquid CDs may pay lower interest rates than CDs that you’re locked into.6 This makes sense if you look at it from the bank’s point of view. They’re taking on the risk of rising interest rates. Still, earning less for a short period might be worth it if you can switch to a higher rate later—and if you’re confident rates will rise soon.

Make sure you understand any restrictions if you’re thinking of investing in a liquid CD. Sometimes you’re limited to when you can withdraw funds and how much you can take at any given time. You also might be required to invest a greater amount upfront than with other types of CDs.6

Bump-up CDs

Bump-up CDs provide a benefit similar to liquid CDs. You don’t get stuck with a low return if interest rates rise after you buy one. You get to keep your existing CD account and switch to the new, higher rate your bank is offering.7

You might have to inform your bank in advance that you want to exercise your bump-up option. A bank assumes that you’re sticking with the existing rate if you do nothing. Also, you don’t get unlimited bump-ups.8

Like liquid CDs, bump-up CDs often start out paying lower interest rates than standard CDs.9 You can come out ahead if rates rise enough, but if rates stay stagnant or fall, you would have been better off with a standard CD.

Step-up CDs

These come with regularly scheduled interest-rate increases so you’re not locked into the rate that was in place at the time you bought your CD. Increases might come every six or seven months.10 11

Brokered CDs

Brokered CDs are sold in brokerage accounts. You can buy brokered CDs from numerous issuers and keep them all in one place instead of opening an account at a bank and using their selection of CDs.12 This gives you some ability to pick and choose, but brokered CDs come with additional risks.

Make sure that any issuer you’re considering is insured by the FDIC. Not surprisingly, CDs without insurance are likely to pay more. Getting out of a brokered CD early can be challenging as well.1

Jumbo CDs

As the name suggests, jumbo CDs have very high minimum balance requirements, usually in excess of $100,000. It’s a safe place to park a large amount of money because as much as $250,000 of it is FDIC-insured and you’ll earn a significantly higher interest rate.13

Maturity Dates

CDs mature at the end of their terms, and you’ll have to decide what to do next. Your bank will notify you as you near this date, and it will give you several options. If you do nothing and your CD was subject to automatic renewal, your money will be reinvested into another CD.14 If you were in a six-month CD, it would be rolled over into another six-month CD. The interest rate may be higher or lower than the rate you previously were earning.15

Let your bank know before the renewal deadline if you want to do something other than roll your money into a new CD. You can transfer the funds to your checking or savings account, or you can switch to a different CD with a longer or shorter term.

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