Table of Contents
While it’s unlikely, a certificate of deposit (CD) could lose money if you withdraw funds before you’ve earned enough interest to cover the penalty charged. Typically, CDs are safe time deposits that guarantee an interest rate for the term that you agree to keep money at a financial institution. In fact, CDs are considered one of the lowest-risk savings vehicles available. But if you pull your money out before the maturity date, you might take a loss.
Here’s a closer look at this topic so you can decide if a CD is the right way to grow your money.
Key Points
• A CD could lose money if funds are withdrawn early, incurring penalties that may exceed earned interest.
• CDs are generally low-risk and guarantee a fixed interest rate for the term.
• Early withdrawal penalties can sometimes reduce the principal, not just the interest.
• CDs offer higher interest rates compared to regular savings accounts, especially for longer terms.
• CDs are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), providing additional security against bank failures.
What Is a Certificate of Deposit (CD)?
A certificate of deposit is a savings account offered by banks or credit unions that holds a certain amount of money for a fixed period of time. Some specifics:
• This time frame can typically range from one month to five years, but you might find even shorter- or longer-term products.
• There may be a minimum deposit amount, too, of possibly $1,000 or a similar sum.
• The bank pays you interest over the term of the CD. At the end of your CD’s term (you may hear this referred to as when your CD matures), you receive the money you originally put in, along with the interest earned from having your money locked away.
• CDs can be a more attractive savings vehicle than an ordinary savings account because they may offer higher annual percentage yields (APYs).
• Typically, the longer your money is in the CD, the higher the rates offered.
• If you get a CD from a bank that is insured by the FDIC or NCUA, you’re typically covered up to $250,000 per account holder, per account ownership category, per insured institution in the very rare event of a bank failure.,
💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
How Standard Certificate of Deposits Work
A CD is similar to a standard bank account, but the difference is that CDs have a “lock-in” period where you can’t access the money during that time (the CD’s term). In exchange, you earn interest on the account.
When you open a certificate of deposit, you have to determine how long you’re able to keep your money stowed away. This term length generally ranges from one month to several years.If you need to access the money before the term ends, you’ll usually pay a penalty for withdrawing the money before the account’s maturity. There are CDs that allow early withdrawal without penalties. These are typically called no-penalty CDs, and the trade-off for this flexibility may be a lower APY.
Increase your savings
with a limited-time APY boost.*
Can You Lose Money on a CD?
The risk of having a CD is very low. While the stock market or a Roth IRA can lose money, you typically can’t lose money in a CD.
There’s actually no risk the account owner incurs unless the money is withdrawn before the account reaches maturity. In this case, the early-withdrawal penalty kicks in and typically may eat up some or all of the interest earned. Read your account’s terms or check a bank’s website for the specifics.
But to answer “Can CDs lose money?”: In rare cases, an early withdrawal fee might take a bite out of your principal, too. If, say, you deposit $1,000 in an individual retirement account (IRA) and earn $15 in interest and then decide to withdraw the funds, hypothetically, you could be assessed a $25 fee. In this case, you’d wind up with $990 vs. the $1,000 you deposited.
Pros of Investing in a CD
Investing in CDs can be a convenient way to grow your money. High-yield checking and savings accounts can be as well, though. Or perhaps you’re tempted by other investments and wonder how CDs vs. bonds perform. Here, consider some of the benefits specific to certificates of deposit so you can decide what will work best for you.
• Security: You can count on a CD for its safety. Make sure to open a CD from a federally insured bank or credit union so your money is secure up to the limits of the insurance ($250,000).
• Dependability: Instead of having your money sit in a bank and not be sure what returns you’ll receive as interest rates fluctuate, you can expect to get fixed returns from your CD deposit over a specific period of time.
• Flexible terms: When opening a CD, account holders get to select from a wide range of term lengths. If you prefer a CD with a shorter maturity date, you can choose a term of a couple of months. Looking for a longer duration? Some CDs may be offered with a 10-year term.
Recommended: CDs vs. Bonds: What’s Smart for Your Money?
Cons of Investing in a CD
As with most financial products (and things in life), there are pluses and minuses to certificates of deposit. Here’s a look at the potential downsides of putting your money in a CD:
• Lack of access: Once you add money to a CD, you won’t be able to access it until the term is over. During this time, you’re not able to add money either.
• Possible penalties: When you open a CD, you’re making a commitment with a financial institution that you won’t access that money until the CD matures. (Unless you opt for a no-penalty CD, that is.) If you break that commitment and withdraw money from your CD prior to its maturity date, you’ll incur early CD withdrawal penalties. This could mean the financial institution withholds an amount of interest on the money you withdraw or could even take some of your principal.
• Low returns: Yields on a CD can be competitive, but when comparing their returns to those historically earned in the stock market, they’re relatively low. That said, remember that risk plays a role in the market. If you’re wondering, “Can you lose money with an index fund or other investment?” keep in mind that the answer may well be “yes.”
When you’re investing in stocks and exchange-traded funds, investors take on additional risk and are compensated for that risk. But when putting money in a CD, you aren’t taking any risk, which means the returns are lower.
Recommended: What Does Private Banking Offer?
When CDs Work Best
CDs work best when you’re able to put away money for a period of time and accumulate interest over the term. There are different scenarios in which a CD can be a great option, such as the following:
Saving for a Purchase in the Near Future
If you’re saving up for a big future purchase, such as a home or a car, you can put your money in a CD to help protect it against inflation until you’re ready to access those funds.
Building Short-Term Wealth Before You Invest
If you’re new to investing and want to build up your funds to have a more consistent strategy, a CD can help. You can often use a short-term CD to steadily grow your cash position before you invest it in the stock market.
Ensuring Returns Without Stock Market Risk
Opening a CD can be a way to grow your wealth slowly and steadily with low risk. You might consider building a CD ladder to have funds come available regularly in case you need access. This can be a good balance if you’re also investing in the market.
The Takeaway
A certificate of deposit is an account you can open at a bank or credit union to lock away your cash for a certain amount of time while earning a predetermined annual percentage yield. CDs are usually considered very safe. If, however, you withdraw your funds before the maturity date, in rare cases, the penalty for doing so could possibly eat into your principal, meaning you’d lose money.
Another way to grow your funds without this kind of potential access issue could be with a high-yield checking and savings account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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.
FAQ
Are CDs safe if the market crashes?
Putting your money in a certificate of deposit (CD) doesn’t involve putting your money in the stock market. Instead, it’s in a financial institution, such as a bank or credit union. So, in the event of a market crash, your CD account won’t be impacted or lose value.
Is a CD guaranteed to make money?
In return for allowing the bank or credit union to hold your money for a fixed period of time, the bank pays you interest. These payments are guaranteed.
What determines CD rates?
Certificate of deposit (CD) rates are determined by a combination of a few factors, such as the CD’s maturity (or term) and what the current interest rate environment is — banks will likely use an index rate, typically that of the federal funds rate. Search online to review the best options.
Photo credit: iStock/MicroStockHub
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet
Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOBNK-Q226-002