Fixed vs. variable-rate certificates of deposit
A closer look at how fixed and variable CD rates work, how they differ, and which option may serve your savings strategy best.
Key takeaways
A CD allows you to deposit money for a set term in exchange for a guaranteed return, often higher than a standard savings account, as long as funds remain untouched.
Fixed-rate CDs lock in the same interest rate for the entire term, providing predictable, stable earnings regardless of market fluctuations.
Variable-rate CDs adjust their interest rate during the term, which may increase or decrease, making them suitable for savers anticipating rising rates and comfortable with some uncertainty.
What is a certificate of deposit (CD)?
When you're looking to park your money for a set period, a certificate of deposit (CD) might offer an appealing option. With a CD, you set aside a fixed amount of money for a defined term, typically between three months and five years. During that time, your funds stay untouched, and early withdrawals could lead to penalties. In return, CDs may earn higher interest compared to standard savings products, thanks to the agreement that your deposit remains in place.
If you’re wondering, “Are CD interest rates variable or fixed?,” the answer is both options are available, though fixed-rate CDs may be more popular for their predictability. Understanding the difference between variable-rate certificates of deposit compared to fixed-rate CDs could help align your choice with your overall savings goals.
Bank
Product
APY
Maturity
mph.bank, a division of Liberty Savings Bank, F.S.B., Member FDIC
Member FDIC
Callable CD
4.20%
60 months
$2,100.00
Raisin is not an FDIC-insured bank or NCUA-insured credit union and does not hold any customer funds. FDIC deposit insurance covers the failure of an insured bank and NCUA deposit insurance coverage covers the failure of an insured credit union.
What is a variable-rate certificate of deposit and how does it work?
While fixed-rate CDs offer stability, variable-rate options bring a different dynamic to the table. A variable-rate CD comes with an interest rate that can shift during the term. These adjustments may happen quarterly or semi-annually and are typically tied to benchmarks such as the prime rate, Treasury yields, or an index used by the issuing institution. In some cases, banks may use other market indicators.
In a climate where rates are climbing, this type of adjustable rate setup could result in higher returns. However, if rates fall, the variable interest you earn might decrease, putting your total return at risk. Because of this unpredictability, variable CDs require a bit more active monitoring. Variable options may appeal to savers who expect rates to rise and are comfortable with some uncertainty. Some variable-rate CDs also include caps or floors that limit how much the rate can adjust, so it may help to review the specific terms before opening one.
Understanding fixed-rate CDs
One major advantage of a fixed-rate CD is its consistency. The interest rate you earn stays the same throughout the term, no matter what the market does. This can make it easier to plan for your CD's maturity date, since the value won’t shift with interest trends.
Many banks calculate interest daily and credit it monthly, although compounding policies vary by institution, this might slightly boost your total yield depending on your bank. Fixed-rate CDs may offer peace of mind in stable or falling rate environments, where locking in early could mean better returns. These types of CDs might suit savers looking for a more predictable outcome in a largely fixed environment.
Key differences: Fixed-rate vs. variable-rate certificates of deposit
Choosing between a fixed-rate and a variable-rate certificate of deposit could depend on your personal financial habits and long-term savings goals. While both hold your deposit until maturity, their behavior around changing interest rates and market conditions differs widely.
Here’s a side-by-side look at what may matter most when deciding which option aligns with your needs.
Interest rate | Stays locked in throughout the term | Can change during the term based on a benchmark or bank policy |
Predictability | Highly predictable, earnings are known upfront | Less predictable, future earnings may rise or fall |
Earnings stability | Stable, guaranteed returns | Returns fluctuate; they could be higher or lower over time |
Risk level | Low risk | Low to moderate risk due to rate changes |
Best for | Savers who want guaranteed returns and stability; helpful in falling or steady rate environments | Savers comfortable with uncertainty who want potential for higher rates |
Responds to market rates | No, the rate does not change after opening | Yes, rates may adjust with market conditions |
Early withdrawal penalty | Yes | Yes |
Pros and cons of each CD type
Depending on your priorities, the two CD types could offer very different advantages. Here are some pros and cons of fixed-rate CDs and variable-rate certificates of deposit, to help you determine which CD would best suit your needs.
Potential benefits and drawbacks of fixed-rate CDs
Pros
Guaranteed, predictable returns
Protected from falling interest rates
Simple and straightforward to understand
May be helpful for long-term planning
Cons
No benefit if interest rates rise
May have lower rates than high-yield variable CDs in a rising-rate environment
- Early withdrawal penalties apply
Potential benefits and drawbacks of variable-rate certificates of deposit
Pros
Potential to earn more over time if interest rates increase
May start with a promotional rate
Flexibility in rising-rate environments
Cons
Rates can decrease, reducing earnings
Harder to predict future returns
Sometimes tied to less transparent benchmarks
Early withdrawal penalties still apply
When might you consider a fixed- or variable-rate certificate of deposit?
Market direction can be a helpful guide when deciding between fixed-rate and variable-rate certificates of deposit.
You might consider a fixed-rate CD if you are looking for:
Predictability and stability: If you believe rates could fall, locking in a fixed interest rate now might support your long-term savings goals by offering predictable returns regardless of future rate changes.
Fixed returns and capital protection: Retirees or individuals focused on capital protection might lean toward fixed-rate CDs, as they prioritize stability and consistent income. These products support more conservative financial planning by reducing exposure to short-term volatility.
On the other hand, you may opt for a variable-rate CD if you:
Predict a rising rate environment: For those who expect rising rates and are comfortable with some uncertainty, a variable CD could offer the chance to benefit from future increases. Since these rates shift with the market, they may capture gains a fixed product might miss.
Are comfortable with some rate uncertainty: If you have extra liquidity and a longer outlook, a variable-rate CD may offer flexibility to benefit from rising rates, while still protecting your principal.
Common mistakes to avoid when choosing CD rate types
While CDs can be a reliable way to grow your money, some choices might work against you if you're not careful. Here are some common mistakes to avoid when choosing a CD type.
Skipping a direct comparison between fixed-rate and variable-rate certificates of deposit. Without this step, your selection may not match your financial priorities or tolerance for market shifts.
Opting for a fixed-rate CD when interest rates seem likely to rise could limit your overall gains, since your return would remain static even as market yields move up.
Some savers may also misjudge how often variable interest rates adjust, creating unrealistic expectations for returns by the time the CD reaches maturity.
Choosing a CD term that doesn’t match your cash needs could lead to an early withdrawal, which might trigger a penalty and shrink your potential earnings.
Finally, overlooking how different providers calculate compounding and APY could reduce what you earn across the full CD term, especially if your bank uses less frequent compounding.
Bottom line
Both fixed-rate and variable-rate CDs can support your savings goals, but their value depends on how much stability you want and what you expect from the interest-rate environment. Fixed-rate CDs deliver certainty and protection when rates are steady or falling, while variable-rate CDs may reward savers who anticipate rising rates and don’t mind some fluctuation. Choosing the right type comes down to your timeline, risk comfort, and outlook on where rates are headed.
If you’re ready to open a CD, Raisin is here to help. The Raisin marketplace gives you access to a variety of high-yield savings products, including CDs, to help reach your savings goals faster. Explore account types, compare rates, and sign up today to start maximizing your savings potential!
FAQs on fixed-rate vs. variable-rate certificates of deposit
Can I switch a fixed-rate CD to a variable-rate CD once opened?
Generally, no. Once a CD is opened, its rate type is locked for the full term. You would typically need to wait until maturity to switch to a different CD product.
What happens to a variable-rate certificate of deposit if interest rates fall?
The rate on your CD may decrease, which lowers your future earnings. This is a primary risk associated with variable-rate CDs.
Are variable-rate CDs riskier than fixed-rate CDs?
Yes, but only in terms of interest-rate fluctuation. Your principal is still protected if your bank is FDIC insured, but your returns may be less predictable and could decline.
Do variable-rate CDs typically have shorter terms than fixed ones?
Many banks offer similar term lengths for both types, but some variable-rate CDs may come in shorter or promotional terms depending on the institution.
Do fixed-rate and variable-rate certificates of deposit have the same withdrawal penalties?
Usually, yes. Both tend to carry early withdrawal penalties, though the exact fees depend on the bank and CD term.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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*APY means Annual Percentage Yield. APY is accurate as of July 5, 2026. Interest rate and APY may change after initial deposit depending on the terms of the specific product selected. Minimum opening deposit is $1.00.
Raisin is not an FDIC-insured bank, and FDIC deposit insurance only covers the failure of an insured bank.
Raisin is not an NCUA-insured credit union. NCUA deposit insurance only covers the failure of an insured credit union.
Raisin does not hold any customer funds. Customer funds are held in various custodial deposit accounts. Each customer authorizes the Custodial Bank to hold the customer’s funds in such accounts, in a custodial capacity, in order to effectuate the customer’s deposits to and withdrawals from the various bank and credit union products that the customer requests through Raisin.com. The Custodial Bank does not establish the terms of the bank or credit union products and provides no advice to customers about bank or credit union products offered by the applicable bank or credit union through Raisin.com. Each customer also authorizes the Service Bank to move funds among the various banks and credit unions at the customer’s request. First International Bank & Trust (FIBT), Member FDIC, is the Service Bank. Bell Bank and Starion Bank, each Member FDIC, are the Custodial Banks.
†Based on $250,000 in FDIC or NCUA insurance coverage per insurable category of ownership at each partner bank or credit union on the Raisin platform (each a "Product Bank"), when aggregated with all other deposits held by you at such Product Bank and in the same insurable category. Deposits made through Raisin will be eligible to receive deposit insurance from the FDIC or the NCUA (each a "Deposit Insurer") in accordance with and up to the maximum amount permitted by law at each Product Bank. Raisin is not a bank or credit union and does not hold any customer funds. Funds are held at FDIC-insured banks and NCUA-insured credit unions. Deposit insurance covers the failure of an insured bank or credit union. Certain conditions must be satisfied for pass through deposit insurance coverage to apply. Customers may choose to deposit funds with identically registered accounts at different Product Banks on the Raisin platform to be eligible for Deposit Insurer coverage up to $10 million for individual accounts and $20 million for joint accounts when at least 40 Product Banks are utilized. Please be aware, however, that any deposits you have at a Product Bank, whether through the Raisin platform or outside the Raisin platform, that you may hold in the same capacity (such as in an individual capacity or joint capacity) count toward the applicable Deposit Insurer's deposit insurance maximum amount, and any such amounts that you hold in the same capacity at a Product Bank that exceed the maximum insurance coverage by the applicable Deposit Insurer will not be insured. For more information on FDIC deposit insurance, please see here. For more information on the NCUA share insurance fund, please see here. You are solely responsible for monitoring the amount of funds you have on deposit at each a Product Bank, whether through the Raisin platform or outside the Raisin platform, to confirm that the deposits you hold in the same capacity at each Product Bank do not exceed the maximum deposit insurance coverage provided by the applicable Deposit Insurer.