How to Invest in CDs: Rates, Terms and Ladders

Learning how to invest in CDs for beginners is mostly about matching a term to a date. A certificate of deposit (CD) is a deposit at a bank or credit union that pays a set interest rate for a fixed period, such as six months, one year or five years, and returns your money plus interest at the end.

CDs are among the safest places for money with a known purpose, but they lock your cash up and their rates change with the market. This guide covers how rates and terms work, where to buy, the difference between bank and brokered CDs, and how a CD ladder works. It's education, not personal advice.

What is a CD, and how does it earn money?

A CD is a time deposit: you agree to leave a fixed amount with the institution for a fixed term, and it pays you interest in return. Investor.gov describes CDs as one of the safest savings options.

Three things make a CD different from a savings account:

• The rate is set for the term, if it's a fixed-rate CD. A savings account rate can change at any time.
• The money is committed. The CFPB notes that withdrawing early means paying a penalty to the bank.
• There's a maturity date, when you get your principal and interest back or the CD renews.

Insurance. CDs from banks are insured by the FDIC and CDs from credit unions (sometimes called share certificates) by the NCUA, both up to $250,000, according to the CFPB. The FDIC applies that limit per depositor, per insured bank, for each account ownership category, and adds together all your deposits in the same category at the same bank. Investor.gov makes the same point: the limit covers all accounts in your name at one bank, not each CD separately.

Investor.gov also names the main risk: inflation can grow faster than your money and lower your real return.

What are CD rates in 2026?

CD rates move with interest rates generally, and the national averages are lower than what many institutions offer. The FDIC publishes national average rates each month, weighted by deposits. Its update published on September 21, 2026 showed:

Two things stand out. First, longer terms weren't paying more than one-year CDs on average, so locking money up for five years didn't earn extra. Second, these are averages across many banks, so online banks and credit unions often pay more. Always compare the APY (annual percentage yield), which includes compounding, and check that the offer comes from an insured institution.

CDs are one piece of a wider plan. Our beginner's guide to investing shows where low-risk savings fit next to long-term investments.

How to invest in CDs, step by step

Start from the date you need the money, then shop for the best insured rate for that term.

1. Name the goal and the date. A tuition bill in 12 months or a house deposit in two years suits a CD. Money you might need any day doesn't.
2. Pick the term that ends on or just before that date.
3. Compare APYs at banks, online banks and credit unions, and check brokered CDs if you have a brokerage account.
4. Read the disclosure. Investor.gov says it should state the rate, whether it's fixed or variable, how often interest is paid, the maturity date and any early withdrawal penalty.
5. Check the insurance. Confirm the bank on the FDIC's BankFind tool, and keep your total at one institution within the limit for your ownership category.
6. Fund the CD and note the maturity date in your calendar.
7. Decide what happens at maturity before it arrives: withdraw, move it or let it renew.

For money that must stay fully accessible, see where the emergency fund vs investing line usually falls before you lock anything up.

Bank CDs vs brokered CDs: what's the difference?

A bank CD is bought from the bank and cashed in with the bank. A brokered CD is bought through a brokerage and usually sold to another investor if you want out early. Investor.gov's brokered CD bulletin explains that deposit brokers can sometimes negotiate higher rates by bringing the bank a large amount of deposits.

Two traps the SEC flags:

• "One-year non-callable" doesn't mean one-year maturity. It only means the bank can't call the CD in its first year. The maturity could be 15 or 20 years away.
• A secondary market may not exist when you want it. Then you hold the CD until it matures or is called. Your broker may also charge a fee to sell.

Investor.gov adds that deposit brokers aren't licensed or approved by any agency, so check the firm and confirm in writing which bank holds your money.

How does a CD ladder work?

A CD ladder spreads your money across several CDs with staggered maturities, so part of it comes due regularly. It's a way to get longer-term rates on some money without locking up all of it.

Example (hypothetical): you have $10,000 for goals over the next five years. You split it into five CDs of $2,000 with terms of one, two, three, four and five years. Each year, one CD matures. You can spend that money if you need it, or reinvest it in a new five-year CD at the rate available then. After four years, you hold five five-year CDs, one maturing every year.

A ladder doesn't promise a better return. When longer CDs pay less than shorter ones, as the FDIC averages showed in September 2026, a shorter ladder (for example, 3, 6, 9 and 12 months) may make more sense. The same idea works with Treasury bills and notes; see how to buy Treasury bonds.

What does it cost to break a CD early, and how is it taxed?

Breaking a bank CD early usually costs a penalty set by the bank, often a number of months' interest. The exact rule differs by institution and term, so read the account disclosure before you open the CD, not when you need the money. A penalty can be larger than the interest earned so far and eat into your deposit.

With a brokered CD, there's no penalty, but Investor.gov explains that if rates have risen since you bought, buyers will pay less for your lower-yielding CD and you may lose some of your original deposit. If rates have fallen, you might sell for a gain.

Taxes in the US. The IRS says interest on CDs is taxable income, generally in the year it becomes available to you without penalty. If a debt instrument was issued at a discount, the IRS says part of that discount may have to be included in income each year even if you receive no payment, so check the Form 1099-INT or 1099-OID you receive and IRS Publication 550. Holding CDs inside an IRA changes the timing of tax. That's also where most advertised Roth IRA interest rates come from: a CD or savings deposit held inside the account.

When is a CD the wrong choice?

A CD is a tool for known dates, not for every dollar. Skip it, or keep it small, when:

• You might need the money any day. An insured savings account is more flexible for an emergency fund.
• The goal is decades away. Investor.gov warns that inflation can outpace CD interest. Long-term money usually needs growth assets; see the best investments for beginners for the main categories.
• You'd go over the insurance limit at one institution.
• A better insured or government option exists for the same term, such as Treasury bills.

Outside the US, the equivalents have different names: GICs in Canada, term deposits in Australia and fixed-rate savings bonds in the UK. Deposit protection limits and rules differ, so compare them in our guide on where to keep your savings.

Next steps

• See how CDs fit into a complete plan in our step-by-step guide to start investing.
• Compare CDs with government debt in how to buy Treasury bonds.
• Looking to grow the amount you save? Explore our guide to making money online.