Are Certificates of Deposit Worth It?

By Rebecca Lake. January 24, 2025 · 9 minute read

SoFi does not currently offer all the products and services in this article. Our content covers a variety of financial topics for educational purposes only.

Are Certificates of Deposit Worth It?

Certificates of deposit (CDs) offer an opportunity to keep your money safe while earning a higher rate than you could in a standard savings account. On the flipside, CDs lock up your money for a set period of time and returns may not always outpace inflation. So are CDs a good investment? It depends on your financial goals and market conditions. Here’s a look at the pros and cons of incorporating CDs into your savings strategy.

Understanding Certificates of Deposit

To determine if CDs are worth it, it helps to understand exactly what they are and how they work.

What Is a Certificate of Deposit?

A certificate of deposit or CD is a type of savings account offered by banks and credit unions that involves depositing a fixed amount of money and leaving it untouched for a specified term, which can range from a few months to several years. In return, the institution pays you a fixed interest rate, which is often higher than rates offered by traditional savings accounts.

CDs typically have a minimum opening deposit, which can range anywhere from $1,000 for a traditional CD to $100,000 for a jumbo CD. Like other types of savings accounts, CDs are typically insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to the standard limit of $250,000 per depositor, per institution. As a result, they are considered low-risk investments.

How CDs Work

When you open a CD, you deposit money with the agreement that you’ll leave it in the account for the entire term of the CD. At the end of the term, or maturity date, you can withdraw your original deposit along with the earned interest. You typically also have the option to roll the funds over to a new CD.

Unlike regular savings accounts, you generally can’t add any funds to a CD after your initial deposit. And should you need to access your money before the CD matures, you typically get hit with a penalty, which may be equal to some or all of the interest earned.2 Some banks offer no-penalty CDs to allow early withdrawals, but rates tend to be lower.

Pros and Cons of Certificates of Deposit

Like any financial product, CDs come with both benefits and drawbacks. Here are some to keep in mind when deciding whether or not to open one.

Pros

•  Higher rates: CDs typically offer a higher annual percentage yields (APYs) than traditional savings accounts or money market accounts.

•  Safety: CDs are insured up to $250,000 per depositor so you can’t lose any of the money you put into a CD (up to the insured limit) unless you withdraw it early and get hit with a penalty.

•  Guaranteed returns: Unlike regular savings accounts (which have variable rates), CDs typically offer fixed rates and predictable returns. When you open the CD, you lock in the rate and know exactly how much you’ll earn over the CD’s term.

•  Various terms: CDs are available in a wide range of terms, from short-term options of three months to long-term options of five years or more. This allows you to pick a term that works with your savings goals.

Cons

•  Relatively low returns: While CDs generally offer higher APYs than traditional savings accounts, they’re not likely to provide you the returns you could earn by investing in the market over the long term.

•  You lose access to your money: Once you deposit money into a CD, you can’t access it until the CD term ends (without paying a penalty). If you may need your money sooner, or you’re looking for a place to stash your emergency fund, a high-yield savings account may be a better option.

•  Inflation risk: The fixed rate on a CD may not be high enough to keep pace with inflation, resulting in a decline in the purchasing power of your money over the CD’s term.

•  Minimum deposit requirements: Banks and credit unions often require a specific opening balance to score the highest CD rates. You’ll want to be sure you find the best rate based on how much you have to deposit.

Recommended: Savings Account Calculator

Comparing CDs to Other Savings Options

To determine if opening a certificate of deposit is worth it, it’s important to compare it to other savings and investment vehicles. Here are other options you might consider.

•  High-yield savings accounts: Typically found at credit unions and online banks, these accounts generally offer higher-than-average yields along with flexibility, since your money isn’t locked in for a set period of time. However, their rates can fluctuate with market conditions.

•  Money market accounts (MMAs): MMAs combine the features of a savings account with some of the conveniences of a checking account, such as check-writing privileges and a debit card. They tend to offer higher APYs than traditional savings accounts, but typically require higher minimum balances.

•  Bonds: With a bond, you’re lending money to the bond issuer (such as a corporation or the federal government), who is required to repay you with interest. Bonds pay a fixed interest rate for a set period of time and are generally considered lower risk than stocks.

•  Dividend-paying stocks: If you’re willing to take on more risk, you might look into dividend-paying stocks. Many large companies share profits with investors in the form of dividends, often paid out on a set schedule. These stocks can offer higher yields than CDs, but you could potentially lose some of your principal (if the stock value goes down).

Recommended: Money Market Account vs Certificate of Deposit

When CDs Make Sense

CDs can be worth it for specific financial situations and goals. Here are three scenarios where you might consider getting one.

•  You don’t want to put your money at risk: If you’re near (or in) retirement or you’re simply a risk-averse investor, you may not want to run the chance of losing funds due to temporary swings in the stock market. With a CD, your return is guaranteed and your principal is protected (up to insured limits).

•  You’re saving for a short-term goal: If you’re saving for something with a specific (not-too-far-off) timeline, such as buying a car in six months or putting a downpayment on a home in a year, a CD with a six- or 12-month term could be a good option for safely storing and growing your funds.

•  You want to keep your savings off-limits. If you’re worried you might spend your savings on something frivolous, a CD could be a smart savings choice. Knowing you’ll get hit with an early withdrawal penalty can help ensure you don’t spend the money impulsively.

•  You’re looking for a diversification strategy: If you already have funds invested in the market, adding one or more CDs to your portfolio can provide stability and balance, especially during periods of market uncertainty.

Strategies for Maximizing CD Returns

If you decide to open a CD, consider these tips to get the most out of your investment:

•  Shop around: CD rates can vary widely, so it pays to scour the market and see which banks and credit unions are offering the best rates for the terms you’re considering.

•  Use a ladder: CD laddering is a strategy that involves opening multiple CDs with varying terms. This allows you to take advantage of higher rates from different banks, while also providing regular access to your funds.

•  Avoid automatic rollovers: When a CD matures, you generally have a week or so to withdraw the money without penalty. If you do nothing, however, the bank will typically automatically renew the CD for the same term at whatever APY they currently offer for that term. That may or may not be a good deal, so be sure to put maturity dates on your calendar.

The Impact of Economic Factors

CD rates are tied to the Federal Funds rate, which influences the rates banks use to borrow and lend money to each other. When the Federal Reserve (aka “the Fed”) raises this benchmark rate, banks tend to raise APYs on consumer products like CDs and savings accounts. The opposite happens when the Fed lowers rates.

To determine if CDs are a good investment, it’s helpful to consider where savings rates may be headed in the near future. If rates are expected to fall, locking in a CD rate can be a good deal. If rates are expected to go up, on the other hand, you might not want to tie your money up in a long-term CD at the current market rate.

Alternatives to Traditional CDs

If the limitations of traditional CDs don’t align with your financial goals, here are some alternatives to consider.

•  No-penalty CDs: No-penalty CDs allow you to withdraw your funds before maturity without incurring penalties. While they may not offer the best interest rates compared to traditional CDs, APYs may still beat the average savings account.

•  Brokered CDs: These are CDs offered through brokerage firms rather than banks. Historically, they have paid higher returns than bank CDs because they are in a more competitive market, but this is not always the case.

•  Bump-up CDs: Bump-up certificates of deposit allow you to request a rate increase during a CD’s term, provided the bank has raised the rate on newly issued bump-up CDs. This option can be beneficial during a rising-rate environment.

The Takeaway

CDs can be worth it if you’re looking to put aside money for a set period of time and earn more than you could in a regular savings account. With their fixed returns and safety, CDs may also appeal to risk-averse investors or those looking to diversify their investment portfolios. If you’d prefer to have more access to your funds, however, a money market account or high-yield savings account could be a better option.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

🛈 While SoFi does not offer certificates of deposit at this time, we offer a high-yield savings account that can help you reach financial goals.

FAQ

How do CD rates compare to inflation?

Certificate of deposit (CD) rates may lag behind or outpace inflation depending on interest rates and the current inflation rate. During normal economic times, a CD with 2% to 3% annual percentage yield (APY) would likely keep up with inflation and preserve your money’s purchasing power, while an APY over 3% could help you stay ahead of rising prices. Comparing current rates on CDs to inflation can help you determine if they line up with your financial goals.

What happens if I need to withdraw money before the CD matures?

Withdrawing money from a certificate of deposit (CD) before its maturity date typically results in an early withdrawal penalty, which can range from three to 12 months’ worth of interest. To avoid penalties, you might consider a no-penalty CD or a short-term CD.

Are online bank CDs safe?

Yes, online bank certificates of deposit (CDs) are safe as long as the institution is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). These protections cover deposits up to $250,000 in the event of bank failure. Online banks may offer higher CD rates than traditional banks due to lower operating costs. However, not all online banks offer CDs.

How often do CD rates change?

Certificate of deposit (CD) rates typically remain fixed once you open an account. However, banks frequently adjust their rates on new CDs to stay competitive in the market. Factors influencing rate changes include inflation, market demand for CDs, and overall financial market conditions. Shopping around and monitoring rate trends can help you secure the best available rate when you’re ready to open a CD.


Photo credit: iStock/AlexSecret

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBNK-Q424-047

TLS 1.2 Encrypted
Equal Housing Lender