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How Certificates of Deposit Work
A certificate of deposit is a time deposit designed for money that can remain untouched until a stated maturity date. It can provide rate certainty, but usually offers less liquidity than a savings account.
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Direct answer
A certificate of deposit, or CD, generally holds a deposit for a defined term and pays a disclosed rate or APY. At maturity, the saver can usually withdraw or renew the balance during a grace period. Withdrawing principal earlier may trigger the agreement's penalty.
CD terms and maturity
The term is the period between opening and maturity—for example, 6, 12, 24 or 60 months. Maturity is the date the term ends. A longer term does not automatically mean a better choice; it also means giving up access to principal for longer.
Use the CD Calculator to estimate the maturity balance for a specific deposit, APY and term.
How APY relates to a CD
APY is the annual percentage yield after compounding is considered. It is annualized, so a CD lasting less than one year does not earn the full APY percentage in dollars.
For formulas, examples and the difference between APY and a stated rate, read what APY means for a CD.
Grace periods and automatic renewal
After maturity, many institutions provide a grace period during which the owner can withdraw, transfer or renew the balance without the normal early-withdrawal penalty. The length and available actions vary.
If the owner does nothing, an automatically renewing CD may start a new term. The renewed APY may differ from the original APY, so review maturity notices and current terms promptly.
Early withdrawal and liquidity
Many CDs are less liquid than savings accounts because withdrawing principal before maturity may trigger a penalty. The penalty can reduce interest and may reduce principal under some agreements.
Read the detailed guide to CD early withdrawal penalties or model written terms with the early withdrawal calculator.
Deposit insurance basics
Eligible deposits at an FDIC-insured bank can receive federal deposit insurance within applicable limits and ownership categories. Credit union share certificates may instead be covered by the National Credit Union Share Insurance Fund when issued by a federally insured credit union.
Insurance depends on the institution, ownership category and combined deposits—not on a calculator label. Confirm coverage with the relevant federal insurer before depositing funds.
What to check before opening a CD
- APY, stated rate, term and maturity date.
- Minimum deposit and balance requirements.
- Early-withdrawal penalty and partial-withdrawal rules.
- Grace period, automatic renewal and renewal-rate policy.
- Interest-crediting and distribution options.
- Institution and ownership eligibility for applicable deposit insurance.
Related calculators and guides
Frequently asked questions
How does a certificate of deposit work?
A CD is a time deposit that generally pays a disclosed yield for a defined term. In exchange for rate certainty, access to principal is limited and early withdrawal may trigger a penalty.
What happens when a CD matures?
The institution may offer a grace period to withdraw, renew or transfer the balance. If no action is taken, an automatically renewing CD may renew under the agreement's current terms.
Are CD rates fixed?
Many traditional CDs have a fixed rate for the term, but variable-rate, bump-up, callable and market-linked products can work differently. Verify the product disclosure.
Can you add money to a CD after opening it?
Traditional CDs commonly limit additional deposits after opening, while add-on CDs may permit them. The account agreement determines the rule.
Can you withdraw money from a CD before maturity?
Many institutions permit early closure or withdrawal subject to a penalty, but availability, partial withdrawals and exceptions vary by agreement.
Are CDs FDIC insured?
Eligible deposits at an FDIC-insured bank may be insured within applicable limits and ownership categories. Confirm the institution and ownership structure directly with the FDIC.
Sources and methodology
Background sources include the Consumer Financial Protection Bureau CD overview and the FDIC deposit insurance resources. Product terms vary, and the institution's current disclosure is controlling.
Examples are educational estimates produced from the formulas stated in this article. Read our editorial policy for sourcing, update and correction practices.
This calculator provides estimates for educational purposes only. It is not a bank quote, tax advice, legal advice or personalized financial advice. Actual earnings and penalties depend on the financial institution's terms, compounding method, dates, taxes and rounding.