Best CD Rates of 2025

How To Choose a CD Account

The term of a CD is the length of time you commit to keeping your funds in the account. When opening a CD, you’ll select the “term,” which locks your money in until it matures. Typical CD terms range from three months to five years. Here are some key takeaways: 

• You cannot access the money in your CD until maturity without incurring early withdrawal penalties.
• When opening a CD, you’ll pick the length of the fixed term — usually from three months to several years — and the money will be locked in for that period. 
• CDs offer higher, fixed interest rates compared to regular savings accounts, allowing your money to grow faster.

Before you open a CD account, there are a few things you should assess. You can follow these steps to choose the best CD for you.

Step 1: Make Sure You Understand How CDs Work

A CD is a type of savings account offered by banks and credit unions. It provides a safe and easy way to invest and make a return on your money. Unlike traditional savings, however, it’s not a liquid account that you can easily withdraw money from. To earn the highest CD rate, you need to leave your CD account untouched for the entirety of the term length, until it reaches maturity.

Step 2: Factor in the Fees and Minimums

While most CDs don’t charge monthly fees, you’ll face penalties for early withdrawals. Additionally, CDs often have minimum deposit requirements, so ensure the amount fits within your budget. If you’re looking for banks with the highest CD rates, be sure to compare both APYs and minimum deposit requirements.

Step 3: Figure Out if a CD Is Right for You

CDs are best for those who want a low-risk way to save and earn higher interest. If you don’t need access to the funds during the term, a CD could be a smart way to meet your goals.

Step 4: Open a CD Account

Once you have decided on the right account for you based on CD rates and details, you can open an account quite easily. Here is what you’ll need to do:

1. Make sure you have two forms of identification, such as your driver’s license or passport.
2. Present personal information and required documents, such as your name, address, birthday and Social Security number.
3. Decide if you want the interest disbursed at the end of the term or regularly.
4. Fund the account with your opening deposit.

Pros and Cons of CDs

CDs have many benefits, as well as some drawbacks. Here are some pros and cons to consider.

Pros

• Higher interest rates: CDs typically offer higher interest rates compared to traditional savings accounts. Depending on the length of the CD you choose, the APY could be 4% or higher.
• Encourages saving: Because the money in a CD can’t be withdrawn until the term ends, it keeps you from spending and helps you stay on track with savings goals.
• Guaranteed rates: If you open your account when interest rates are high, you can lock in that rate for the whole term — even if rates drop later.

Cons

• No access to the funds: Your money is locked in for the full term. Early withdrawals often mean penalties, unless you choose a liquid CD with lower rates.
• Rates are locked in: If interest rates rise after you open your CD, you can’t take advantage of those higher rates.
• Opportunity cost: CDs are safer than stocks or other investments, but your money could potentially earn more elsewhere, especially over the long term.

Best for: People who want a safe, predictable return on their money and don’t need immediate access to their funds.

Types of CDs

There are several types of CDs, each with its own benefits and terms:

• Traditional: Deposit a set amount that stays locked in for a predetermined time. This option typically offers the highest interest rates but requires you to leave your funds untouched until maturity.
• No penalty: Also known as a liquid CD, this option allows for penalty-free withdrawals before the CD matures. Financial institutions may set waiting periods or withdrawal limits, and the interest rate is usually lower than with a traditional CD.
• Bump-up: Lets you request a higher interest rate if rates rise during your term. This offers flexibility but often starts with a slightly lower initial rate.
• Add-on: Allows you to make additional deposits after opening the CD, which can help you grow your balance without opening multiple accounts.
• Jumbo: Designed for large deposits, typically $100,000 or more, with higher rates to reward the bigger balance.

Alternatives to CD Accounts

Here are some alternatives to CDs and how they stack up:

CDs vs. Traditional Savings Accounts

Savings accounts let you withdraw funds anytime, while CDs lock in your money for a set term and charge penalties for early withdrawal. CDs usually earn more interest, so they’re better if you don’t need immediate access.

CDs vs. High-Yield Savings Accounts

High-yield savings accounts allow account holders to earn significant interest on their balance. Many use these accounts for emergency funds. CDs are better if you’re saving for a big purchase because you can’t access your money until the term ends.

CDs vs. Money Market Accounts

Money market accounts have checking account features, like the ability to write checks or link a debit card. A CD is a time-deposit account, and a money market account isn’t, so it generally pays less than a CD.

CDs vs. Bonds

CDs and bonds are both considered safe-haven investments. They both yield higher returns than a standard savings account. However, when interest rates are high, CDs may be a better option. This works reverse for bonds, which are preferable when interest rates are low.

CDs and Taxes

Anytime you earn money, you should always be aware of the tax implications.

Are You Taxed When a CD Matures?

For CDs with terms of 12 months or less, interest is taxed at maturity. This can help defer taxable income to the next year. For CDs longer than 12 months, interest is typically taxed as it accrues each year, even if it’s not credited to your account until the CD matures.

Are CDs Taxed at the End of a Term?

Yes. The IRS considers CD interest to be taxable income. If you earn more than $10 in interest, you’ll receive a Form 1099-INT for tax reporting.

Does Cashing Out a CD Count as Income?

Only the interest portion of your CD is taxable income — not your original principal. If you withdraw funds early and pay a penalty, the IRS may allow you to deduct the penalty amount from your taxable income.

*Capital One interest rates accurate as of Sept. 4, 2025. See website for all current rates.

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