Personal CD Accounts

There are many different types of certificate of deposit accounts, but the ones we most commonly refer to as CDs are usually personal CD accounts.

What is a Personal CD Account?

A personal CD account is similar to a personal savings account: it is insured by the FDIC and usually has a fixed interest rate. The main difference is that, unlike a savings account, a CD is a type of time deposit, which means that when you take out a CD from your financial institution, you do so for a specific, fixed term – for example, one, five, or ten years. When you put money in a CD, you are making a commitment to let the bank hold your money for the entire length of the specified term. You should be aware that there are generally stiff penalties for early withdrawal from a CD account.

Generally, a personal CD account will have higher interest rates than a business CD account. A larger principal should also receive a higher interest rate, and a longer term loan also generally carries a higher interest rate, depending on market conditions and the current yield curve. Smaller institutions will generally try to attract investors with the best certificate of deposit rates, because they can offer higher rates than larger institutions.

Are Personal CD Accounts Safe?

Since personal CDs are usually insured by the FDIC or NCUA, they are considered one of the safest investments on the market. Deposits that are at institutions not insured by the FDIC or NCUA also tend to carry higher interest rates, but also carry associated risks. Fixed rates CDs are the most common; however, some banks offer CDs with a “bump-up” feature, which will allow for a single readjustment of the CD’s interest rate during the term of the CD, if interest rates go higher while the owner of the CD is in the middle of their term. Other times, CDs are tied to an index such as the stock market. Shop around and check with various institutions to get the best CD rates available to you.