Debunking CD myths
Key takeaways
Certificates of deposit aren’t always inflexible or low-yield — today’s CDs can offer competitive rates, short terms, and options like no-penalty withdrawals.
Rather than being “set-and-forget” products, CDs can be used for short-term goals, rate protection, and diversification alongside savings and money market accounts.
Knowing the facts about rates, penalties, and liquidity can help you avoid misconceptions and choose CDs that align with your financial goals and risk tolerance.
When it comes to longer-term savings, certificates of deposit can make for a great, lower risk investment with guaranteed returns. However, as simple as CDs are, misconceptions still abound when it comes to them. Some people steer clear of CDs because they think they're complicated or outdated, while others simply don't understand how they work. In reality, CDs are generally a secure and straightforward way to grow your savings. Below, we'll debunk some of the common myths surrounding CDs to provide clarity and help you better understand them.
What is a certificate of deposit?
Before we dive into myths, let's establish what exactly a certificate of deposit is. A certificate of deposit, or a CD, is a time deposit offered by banks and financial institutions. It involves depositing a specific amount of money for a fixed period, during which the funds earn interest at a predetermined rate. CDs are typically considered low-risk investments, making them attractive to those seeking stable returns.
Myth 1: CDs are complicated and outdated
The intricacies of how a CD works at a bank or credit union can be a source of confusion. However, CDs are simple and transparent savings tools.
When you open a CD, you deposit a fixed amount of money for a predetermined term, typically ranging from a few months to several years. The bank pays you interest on the principal and, at the end of the term, you receive your initial deposit plus accumulated interest.
CDs are far from outdated and provide a simple, secure method to grow your savings.
How does a CD account work?
A CD account is a simple yet effective way to earn interest on your savings. It provides a set interest rate, allowing you to anticipate your returns accurately. The fixed term ensures that your money is "locked up" for a specific period, providing both stability and a guaranteed return. There is typically a penalty for early withdrawals to help deter you from breaking your CD prior to maturity.
Myth 2: CDs offer low interest rates
Another prevalent myth is that CDs offer low interest rates. In reality, the interest rates on CDs can be highly competitive. To ensure you get the best rates, shopping around and comparing offerings from different banks and credit unions is essential. Online banks, credit unions, and even traditional banks may have varying rates, and exploring all options allows you to maximize your returns.
How to find the highest CD rates
Finding the highest CD rates is easy. There are plenty of websites that aggregate rates from banks and credit unions across the internet. When it comes to securing those rates, however, things can be a bit more complicated. If you would like to open CDs at multiple financial institutions, you’ll need to share sensitive financial information multiple times, keep track of multiple passwords, deal with varying minimum starting deposits, and gather monthly statements and tax documents from each institution separately.
With a free online savings platform like Raisin, you can find and fund CDs from an exclusive network of 70+ financial institutions — all from a single login. Sign up requires securely sharing your personal information just once and only takes a few minutes. All CDs on Raisin have a $1 minimum deposit and the only fees you may encounter are early withdrawal penalties. Plus, your monthly statements and tax documents are streamlined and all accessible with that single username and password.
Myth 3: CDs have unreasonable early withdrawal penalties
Another common concern is the perception that early withdrawal from a CD results in exorbitant penalties. While it's true that CDs typically have penalties for withdrawing funds before the maturity date, these penalties may be less severe than you might think — typically calculated as a percentage of interest earned, a flat fee, or a fixed dollar amount. Understanding the terms of early withdrawal is essential to making informed decisions.
How does a CD penalty for early withdrawal work?
CD early withdrawal penalties are usually expressed as a percentage of the interest earned or a certain number of months' worth of interest. While penalties can vary, they are designed to discourage early withdrawals. However, they are generally not intended to be punitive. By being aware of these penalties, investors can plan accordingly and weigh the benefits of liquidity against potential financial consequences.
How to avoid CD penalty fees
The most obvious means of avoiding CD early withdrawal penalty fees is letting a CD reach maturity. In this best-case scenario, you won’t need your funds until the end of the CD’s term, at which point you can withdraw your principal and all accrued interest.
Life isn’t always that easy, however. Sometimes you have funds that you aren’t expecting to need but an emergency arises prior to maturity and you’re in need of cash. This is where the no-penalty CD comes into play.
A no-penalty CD is a variation on the certificate of deposit where funds are deposited for a set term and earn a fixed interest rate. This interest rate is typically lower than a fixed-term CD of similar length but higher than that of a high-yield savings account.
The difference with a no-penalty CD is that they typically allow for an early withdrawal without an associated penalty fee. They can be a great option for an emergency fund or other money that you want to grow at a competitive, fixed rate without forgoing interest earnings if you need it prior to maturity.
Best of all, you don’t lost any of your accrued interest.
Myth 4: CDs are not worth it
Some people question the overall worth of CD accounts, believing better investment options are available. However, the value of a CD depends on an individual's financial goals and risk tolerance. CDs may be particularly suitable for those seeking stability and a guaranteed return on their investment.
Are CD accounts worth it?
Consider your financial objectives before dismissing the worth of CD accounts. While other investment options may offer higher return potential, the key word there is “potential.” Investments like stocks, ETFs, and crypto all come with the potential of great gains, but also the potential of loss of principal.
Want to increase the amount of money you have covered in a single account? With Raisin, you can spread your deposits across as many of our partner banks and credit unions as you’d like.
If stability, lower risk, and predictable returns align with your goals, a CD may be a valuable addition to your investment portfolio.
Myth 5: CD accounts tie up your money
One of the biggest misconceptions about CDs is that once money is invested in a CD, it becomes inaccessible until maturity. While CDs do have fixed terms and making early withdrawals typically incurs penalties, you can still find some flexibility. Investors can choose CDs with varying maturity periods to align with their anticipated financial needs, allowing for strategic planning.
CD laddering for high returns and high liquidity
To strike the right balance of returns with liquidity, consider building a CD ladder. CD laddering is an easy way to spread your funds across CDs of varying terms, ensuring you can take advantage of higher interest rates while always having funds approaching maturity.
For example, if you have $75,000 to save, you could deposit $25,000 each in 1-year, 2-year, and 3-year CDs. Once the first CD reaches maturity, you could then either reinvest in a new 3-year CD, or spend the money as you’d like. In this scenario, you never have funds more than a year away from maturity.
If you’d prefer a tighter timeline, you could deposit $25,000 each in a 3-month, 6-month, and 9-month CD. Now, funds would always be maturing within the next three months and your funds would never be locked up for a full year.
Understanding and saving with CDs
Debunking the myths surrounding certificates of deposit is essential for making informed financial choices. By understanding how CDs work at a bank or credit union, the truth about interest rates and early withdrawal penalties, and the overall worth of CD accounts, investors can confidently navigate the financial landscape.
Explore the best rates on certificates of deposit, compare offerings, and evaluate your financial goals. Certificates of deposit, when utilized strategically, can be valuable instruments for achieving stability and predictable returns in your investment portfolio. Don't let myths cloud your judgment – empower yourself with knowledge for a financially secure future.
Remember, the key to successful investing is choosing the right financial instruments, staying informed, and adapting your strategy to align with your evolving financial goals.
Ready to get started with certificates of deposit? With Raisin, it’s easy to find and fund a CD with a range of terms to suit your financial goals. Click below to view all of the current CDs on Raisin.
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.
© 2026 Raisin SE. All rights reserved.
The Raisin name and logo are trademarks of Raisin SE. All other trademarks, logos, marks, and brand names are the property of their respective owners.
*APY means Annual Percentage Yield. APY is accurate as of [todayDate]. 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 insuranc eonly 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.