A Beginner’s Guide to Certificates of Deposit (CDs)
Security
Apr 27, 2026
New to CDs? Learn how this low-risk option can help your money grow faster.
If you’re looking for a simple, low-risk way to grow your savings, a CD may be worth considering. CDs are a popular savings option that provide a predictable return on your money. For people who are new to investing or want a safe place to set aside funds, CDs can be a great starting point.
Here’s what you should know about how they work.
What it is
A CD is a type of savings account that pays interest on your money for a fixed time period. When you open a CD, you deposit a specific amount and agree to leave it in the account for a set term. In return, the credit union pays you interest at a fixed rate.
CD terms can range from a few months to several years. Common terms include six months, 12 months, two years, and five years.
Example: You deposit $5,000 into a 12-month CD. The credit union pays interest on that deposit throughout the year. When the term ends (this is known as the maturity date), you receive your original deposit plus the interest earned.
Why choose a CD?
Many savers choose CDs because these are easy to understand and provide predictable returns. Unlike investments tied to the stock market, CDs typically offer a guaranteed interest rate for the full term.
Some key benefits are:
- Higher interest rates: CDs typically offer higher interest rates than standard savings accounts. Because you agree to leave your money in the account for a fixed time period, the credit union often rewards you with a better rate.
- Low risk: CDs from federally insured credit unions are protected up to $250,000 per depositor by the NCUA.
- Predictable growth: Your interest rate stays the same during the term, so you know how much your savings will earn.
CDs can be helpful for setting aside money for future expenses, such as travel, home improvements, or other planned purchases.
Need to know: interest rates and APY (annual percentage yield)
When comparing CDs, you will often see two important details: interest rate and APY.
- Interest rate is the percentage of interest the credit union pays on your deposit each year.
- APY reflects the total amount you earn in a year, including compounding interest. Compounding means that the interest your money earns also begins earning interest.
Because APY includes compounding, it usually provides a clearer picture of what your savings will earn. When comparing CD options, APY is often the most helpful number to review.
Early withdrawal penalties
CDs are designed to hold your money for the full term. If you withdraw funds before the maturity date, you may face an early withdrawal penalty, often equal to several months of interest. For this reason, CDs are best for money you are confident you will not need right away.
A stable way to grow savings
For people new to investing or who prefer stability, CDs offer a straightforward way to earn interest while keeping savings secure. While CDs may not deliver the higher returns sometimes associated with stock investments, they provide something many savers value just as much: certainty.
Understanding how CD terms, rates, and APY work can help you decide whether this type of savings account fits your financial goals.
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