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Understanding Certificates of Deposit (CDs)

June 28, 2023

What is a CD? | Short- and Long-Term GoalsBenefits and Considerations | Options at Maturity | CDs with FSB

No matter what method you use to save money, you've likely heard of a Certificate of Deposit, commonly known as a CD. While the term CD may be familiar, many fail to consider them simply because they lack awareness of what this type of account does and how it can benefit them. If you're looking for a savings account that provides higher returns than a regular savings account, consider a CD.

Certificate of Deposits with FSB

What is a CD?

Put simply, a CD guarantees the interest rate on the money you deposit, assuming you do not withdraw the funds before the end of the term. These rates are almost always higher than regular savings accounts and are fixed for the duration, meaning they will not change. The interest compounds over the life of the CD, growing your initial deposit.

Typically, the longer the CD term is, the higher the interest rate is. Financial institutions can be flexible with their rates, often depending on bank size, business, and deposit amounts. Be sure to shop for a CD to find the best rate and get the most out of your money!

Meeting Short- and Long-Term Goals with CDs

Most often, CDs help meet savings goals, both short- and long-term.

Deposit minimums are required for most accounts and vary based on term length and across different financial institutions.

  • For short-term goals: If you're preparing to make a large purchase the following year, a 12-month CD term can ensure your money is saved instead of spent, allowing it to grow over the CD term.
  • For long-term goals: Long-term CDs with higher interest rates are commonly used to meet retirement goals. You can maximize your initial deposit by taking advantage of compounding interest over a long period. Consider opening multiple CDs with varying term lengths to align with your mix of short- and long-term goals.

Benefits and Considerations of CDs

What are some of the benefits and considerations of CDs?

  • Safer than stocks and bonds: While CDs may offer a lower return than stocks and bonds, the return is guaranteed, eliminating market risk.
  • FDIC-insured*: CDs are FDIC-insured for up to $250,000, providing an additional layer of security.
  • Early withdrawal penalties: It's essential to leave the money in a CD until it reaches maturity. If you need to withdraw early, penalties or fees may apply. Discuss exit options and potential penalties with a banker to make an informed decision.

Options at Maturity

When your CD reaches maturity, you have a few options:

  • Withdraw without penalty: If you need the money immediately, you can withdraw it without facing any penalties.
  • Renew or start a new CD: You can put the funds from your mature CD into another CD, starting the process over. This is particularly beneficial for retirement savings.
  • Consider a CD ladder: A CD ladder strategy can be helpful for individuals with multiple CDs. You can continually reinvest and optimize your savings by holding CDs with varying terms and rates.


CDs offer a safe and flexible way to compound interest on your initial deposit. Whether you're searching for a short- or long-term CD, various options are available to suit individuals in all stages of life. Find out how FSB can help you reach your saving goals today!

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