Quick Answer
Banks, credit unions and other financial institutions offer a wide variety of CDs, each with unique features and benefits. Among the most common types of CDs available are traditional CDs, no-penalty CDs and jumbo CDs.
The best type of certificate of deposit (CD) for your savings depends on several factors, including whether you’re saving for a short-term goal or building up your long-term nest egg. You’ll also want to consider how soon you’ll need your money, how much you have to deposit and what features you want.
Financial institutions offer a wide range of CD options, including traditional, bump-up, jumbo and IRA CDs. Exploring how different types of CDs work can help you determine which is the best fit for your situation. Here’s a quick breakdown of the most common types of CDs and how they compare.
CD Types Compared
| Type of CD | Key Features | Best For | Drawbacks |
|---|---|---|---|
| Traditional CD | Fixed term, typically 1 to 60 months. Fixed interest rate. Higher rate than traditional savings account | Earning a higher rate for short- or medium-term savings goals than traditional savings accounts | Funds are locked. Early withdrawal penalties |
| No-penalty CD | Withdraw funds early without penaltySome CDs may set conditions (such as withdrawals allowed at term’s midpoint) | Short-term savings goalsFlexible access | May offer lower APY |
| Jumbo CD | Higher minimum deposit (up to $100,000 or more)Often higher rates than traditional CDs | Higher yields | High deposit requirement |
| Bump-up CD | Option to request rate increaseBump up rate if CD rates rise | Flexibility to earn more if rates rise | Limited bumps allowedStarting rate may be lower than traditional CD |
| Step-up CD | Rate increases on preset schedule (such as every six months)Schedule set by bank | Predictable rate increases | No control over timing of rate changes |
| Brokered CD | Open CD through broker or brokerage firm, not bankCan sell brokered CD on secondary market to access money before maturity | May offer higher APY | May incur intermediary fee when purchasingCould lose money if sold early |
| IRA CD | CD opened through an IRATax-deductible contributions and tax-deferred growth | Retirement savers looking for security and tax advantages | Early withdrawal penaltiesContribution and tax rules apply |
| Callable CD | Bank can redeem early after specific dateReceive full principal plus accrued interestHigher rate than some CD account types | Higher yield | Bank may close CD account early |
| Zero-coupon CD | Interest paid at end of termBought at a discountPays full face value at maturity | Long-term savers seeking higher returns | No liquidityMust pay taxes yearly on accrued interestCannot access early unless sold through broker |
| High-yield CD | May offer higher rates than traditional CD or high-yield savings accountsMay require $5,000+ minimum deposit | Maximum returns | Early withdrawal penalty if funds pulled before maturity |
| Add-on CD | Allows additional deposits after openingDeposit rules vary by bank and term length | Savers who want to continue adding to their savings | May offer lower ratesLess widely available |
1. Traditional CD
A traditional certificate of deposit is a type of savings account that allows you to earn interest over a specific term, typically a few months to five years. Interest rates are often up to 10 times higher than what you’ll find with a standard savings account.
To earn this higher rate, however, you must agree to leave your funds in the account for a specified period of time. If you need to withdraw money early, you’ll likely face a penalty equal to several months’ worth of interest, depending on the term length.
Still, traditional CDs are generally a safe investment and are insured by the Federal Deposit Insurance Corp. (FDIC). Expect predictable returns if you keep your money in place until the CD matures.
2. No-Penalty CD
Unlike traditional CDs, no-penalty CDs let you make early withdrawals without penalty. These accounts, which are also referred to as liquid CDs, work like savings accounts but come with a fixed interest rate.
You might prefer a no-penalty CD if you think you may need to withdraw funds from your account early—but understand this flexibility comes at a cost, even if there’s no fee. That’s because the annual percentage yields (APYs) on no-penalty CDs are generally lower than those of traditional CDs.
3. Jumbo CD
Jumbo CDs offer higher yields than traditional CDs, but you may need to deposit a substantial amount, such as $100,000 or more, to qualify for those rates. And like other types of CDs, you’ll incur an early withdrawal penalty if you take out funds before the maturity date.
A jumbo CD may be a good option if you have substantial savings and want a safe place to earn interest. They’re insured by the FDIC up to $250,000 per account holder, per bank. That means large deposits over that amount may only be partially insured.
4. Bump-Up CD
CDs allow you to lock in a higher interest rate through the CD’s term, which helps you earn more if CD rates drop during that time. But the opposite is also true. If rates climb, your money could be stuck earning less than what newer CDs are offering.
Enter bump-up CDs, which allow you to change your interest rate during the CD’s term. As its name suggests, you can “bump up” your rate if the CD issuer raises the rate on the same term CD after you’ve opened your account. This is usually a one-time option, but some longer term accounts may let you do it more than once during the life of the CD.
5. Step-Up CD
Step-up CDs are similar to bump-up CDs in that your rate may rise during the term. But instead of requesting a bump-up when the rate rises, the increase with step-up CDs happens automatically at scheduled intervals, such as every six months or annually.
You might explore step-up CDs if you believe interest rates will rise during your CD’s term. That way, you’re guaranteed to earn a top rate on your savings. Be aware, however, that the starting interest rate may be lower than with a traditional CD. In that case, you could earn less from your CD if rates don’t rise during its term.
6. Brokered CD
Brokered CDs are unique because you buy them through a broker or brokerage firm, not a bank or credit union. They come with numerous benefits, such as higher yields than standard CDs and the ability to hold multiple CDs in one brokerage account. That’s more convenient than opening several CDs at different financial institutions. And if you need your money early, you can even withdraw funds early without a penalty by selling the CD on the secondary market.
Tip: Before opening a brokered CD, confirm with the brokerage that your savings are insured by the FDIC. Also ask whether the CD is callable, which means the company can end the CD before it matures. If that happens, you’d still receive your deposit back plus any accrued interest to date, but you would miss out on full-term earnings
7. IRA CD
IRA CDs are held within individual retirement accounts (IRAs), which means your interest grows tax-deferred or tax-free like other investments inside an IRA. That also means IRS contribution limits apply, as they do with traditional and Roth IRAs. So if you’re opening an account with new funds, you can only place $7,000 in the account for 2025, or $8,000 if you’re 50 or older. But there’s no limit if you roll over funds from another IRA.
An IRA CD can help you grow your retirement savings with tax-advantaged interest, but you should only open one if you’re confident you won’t need the money before retirement. If you’re not yet age 59½ and you take money out before the CD matures, you could face a 10% early distribution tax from the IRS on top of the CD’s early withdrawal penalty.
8. Callable CDs
Callable CDs work much like traditional CDs but differ in that the CD issuer can end the term early. If that happens, you’ll get back your original deposit and any interest earned up to that point. But you might consider a callable CD because they generally provide higher yields than standard savings accounts. They’re also considered low risk since they’re federally insured up to their limits.
While callable CDs typically offer a safe place to stash your cash while earning a decent interest rate on your savings, they’re not completely without risk. The interest rate isn’t guaranteed for the full term. So if your CD issuer calls back the CD when interest rates fall, your account will stop earning interest immediately. This could affect your returns and cause you to adjust your investment plans.
9. Zero-Coupon CD
With a zero-coupon CD, all the interest is paid out at the end. You buy one at a discount and receive the full face value, including interest, when it matures. This type of CD often comes with higher returns than you’ll find with other CDs, so it may be a safe and profitable place to park your cash if you don’t need access to the funds right away.
Still, these CDs aren’t for everyone. One notable disadvantage is that you’ll owe taxes on the interest as it builds each year, even though you won’t receive it until the term ends. Consequently, you should probably only consider opening a zero-coupon CD if you’re certain you can leave the money in the account until maturity.
10. High-Yield CD
High-yield CDs offer just that—a higher APY than traditional CDs so you can grow your money faster. They work like traditional CDs, locking you into a term in exchange for the higher rate. Rates vary by issuer, and many top CDs offer rates above 4%. Minimum deposit amounts also vary, and some financial institutions don’t have a minimum at all.
If you put $5,000 into a three-year traditional CD at a brick-and-mortar bank at the average rate of 1.35%, you’d earn about $203 in interest. But with a top high-yield CD offering 4.5%, that potential earnings climb to $675. That’s nearly $475 more just for choosing a higher-yield option.
11. Add-On CD
Unlike other CD types, an add-on CD lets you make additional deposits after opening the account. You open your account with an initial deposit and can continue adding funds during the CD’s term depending on the bank’s rules. For example, you may be able to add funds every 12 months or three years.
Note that these CDs may come with lower rates than other kinds of CDs, and they aren’t as widely available as traditional CDs. Still, if you’re looking for a way to grow your savings with the option to make additional deposits over time, an add-on CD may be a good fit.
