APY vs. interest rate
The interest rate is the base rate. APY (annual percentage yield) is what you actually earn in a year once compounding is included. A 5% rate compounded daily is a 5.13% APY. Comparing APYs lets you compare CDs fairly.
Value = Deposit × (1 + APY)months ÷ 12
Things to check before you open a CD
- Early withdrawal penalty: taking money out before maturity usually costs several months of interest.
- Deposit insurance: FDIC-insured banks and NCUA-insured credit unions cover deposits up to $250,000 per depositor, per institution, per ownership category.
- Renewal: many CDs renew automatically at maturity at the current rate unless you tell the bank otherwise.
Frequently asked questions
Is a CD better than a high-yield savings account?
A CD locks in a rate for the term, which helps if rates fall. A savings account lets you withdraw any time, but its rate can change.
What is a CD ladder?
Splitting money across CDs that mature at different times, such as 6, 12, and 18 months, so some money becomes available regularly.