Banks, credit unions, and online brokers all sell CDs, but the rates and terms differ significantly
You can open a CD at a traditional bank, a credit union, an online bank, or a brokerage firm. Each option has different interest rates, minimum deposits, and account features. The place you choose affects how much your money grows and how easily you can access it before maturity.
Most people start with their existing bank because it's convenient, but that bank may not offer the highest rate. A CD opened at an online bank often pays 4 to 5 times what a brick-and-mortar bank offers for the same term. The tradeoff is that you manage everything by phone or computer rather than in person.
Key Takeaways
- Online banks typically offer higher CD rates than traditional banks because they have lower overhead costs.
- Credit unions often match or beat online bank rates and may have lower minimum deposits, but membership requirements vary.
- Brokerage firms let you buy CDs from multiple banks in one account, which simplifies tracking if you own several CDs.
- The FDIC insures CDs up to $250,000 per depositor per bank, so buying from multiple institutions protects larger amounts.
- Rates change daily, so comparing three to five options before you commit takes 15 minutes and can add hundreds of dollars in interest over the CD's life.
Traditional banks and what they typically offer
Your current bank will let you open a CD in a branch or online. The process is straightforward: you walk in or log in, choose a term (3 months to 5 years), deposit your money, and the bank locks it until maturity. You already have a relationship with the bank, so there's no new account setup.
The downside is rate. A traditional bank CD might pay 4.00% annual percentage yield (APY) for a 1-year term, while an online bank pays 4.75% for the same term on the same day. Over one year, that 0.75% difference costs you real money. On a $10,000 CD, it's about $75 in lost interest.
Traditional banks offer lower rates because they maintain physical branches, employ tellers, and spend more on marketing. They rely on customer convenience and existing relationships to keep deposits, so they don't need to compete on rate. If you value in-person service or already bank there, the lower rate may be worth it to you. If you're purely chasing interest, look elsewhere first.
Online banks and why their rates are higher
Online banks operate with no physical locations, no tellers, and minimal overhead. They pass those savings to customers through higher CD rates. Banks like Marcus, Ally, American Express Personal Savings, and Discover all offer CDs, and their rates are typically the highest available on any given day.
Opening a CD at an online bank takes 10 to 15 minutes. You provide your name, address, Social Security number, and bank account information for the initial deposit. The bank verifies your identity electronically and funds the CD within one to three business days. You manage everything through a website or mobile app—there's no branch to visit and no one to call unless something goes wrong.
The catch is that online banks are less familiar to many people. You're trusting a company you've never walked into with your money. That concern is legitimate only if the bank is not FDIC-insured. All major online banks are. Check the bank's website for the FDIC insurance statement, which usually appears in the footer. If it's there, your money is protected up to $250,000.
Credit unions and membership requirements
Credit unions are member-owned financial institutions that often offer CD rates competitive with online banks. Some credit unions pay slightly higher rates than online banks on certain terms. The tradeoff is membership: you must meet the credit union's membership criteria to open an account.
Membership rules vary. Some credit unions are open to anyone who lives or works in a specific county. Others require membership in a profession, employer, or organization—for example, teachers, nurses, or employees of a particular company. A few allow anyone to join by making a small donation to a nonprofit partner. You can search for credit unions you're may be able to access to join at CO-OP.org or MyCreditUnion.gov.
If you may have access to, credit unions are worth checking. They often have no monthly fees, lower minimum deposits than banks, and customer service that's more personal than online banks. The downside is that not everyone qualifies, and credit union websites are sometimes harder to navigate than bank websites.
Brokerage firms and buying CDs from multiple banks
Brokerage firms like Fidelity, Charles Schwab, and Vanguard let you buy CDs from dozens of different banks through a single account. Instead of opening separate accounts at five different banks, you open one brokerage account and buy five CDs from five different issuers within it.
This approach has two real advantages. First, it simplifies record-keeping: all your CDs appear in one login, with one statement, one maturity schedule. Second, it makes FDIC insurance easier to manage. Since each CD is issued by a different bank, each one is insured separately up to $250,000. If you own $1 million in CDs across four different banks, all of it is insured.
The rates at brokerages are usually competitive with online banks, sometimes slightly lower. The process is slower: it can take three to five business days for a brokerage CD to settle, compared to one to three days at a bank. If you already have a brokerage account for stocks or mutual funds, adding CDs there takes two minutes. If you don't, opening a brokerage account adds a step.
How to compare rates across different institutions
CD rates change daily. The rate you see on Monday may be 0.10% lower on Friday. Before you commit money, compare at least three to five institutions for the term you want.
Use BankRate.com, DepositAccounts.com, or NerdWallet to see rates from multiple banks side by side. These sites update rates several times per day. Filter by term length (1-year, 2-year, 5-year, etc.) and sort by APY from highest to lowest. Write down the top three rates and the banks offering them.
Then visit each bank's website directly to confirm the rate hasn't changed and to check the minimum deposit. Some banks offer their best rates only on deposits above $25,000 or $100,000. Others have no minimum. The comparison site may not show these details. Once you've confirmed the rate and minimum at each bank, you're ready to open the CD at the institution offering the best combination of rate and terms for your situation.
Minimum deposits and account features to check
Before opening a CD, confirm three things: the minimum deposit, whether you can add money after opening, and what happens at maturity.
Minimum deposits range from $500 to $25,000 depending on the bank and the term. Most online banks have minimums between $500 and $2,500. Some credit unions have no minimum. If you're opening a CD with $1,000, a bank requiring $25,000 minimum won't work for you.
Some CDs let you add money after opening (called "add-on CDs"). Others lock the amount the day you open it. If you think you'll have extra money to invest during the CD's term, ask whether the bank allows additions and whether additions earn the same rate as the original deposit.
At maturity, the bank will either automatically renew the CD at the current rate or move the money to a linked savings account. Check the bank's maturity policy before opening. If you want the money to stay in a CD but rates have dropped, you'll need to move it to a different bank—and you want to know that's your responsibility, not something the bank will do for you.
Frequently Asked Questions
Is my money safe at an online bank?
Yes, if the bank is FDIC-insured. Check the bank's website for the FDIC insurance statement, usually in the footer. FDIC insurance protects up to $250,000 per depositor per bank, regardless of whether the bank has physical branches. Your money is equally safe at an online bank and a traditional bank.
Can I open a CD at multiple banks at the same time?
Yes. There's no rule against it. Many people open CDs at three to five different banks to diversify rates and maximize FDIC insurance coverage. Each CD is a separate account, so you'll have multiple logins unless you use a brokerage to buy them all in one place.
What's the difference between a CD rate and APY?
APY (annual percentage yield) includes the effect of compounding—how often the bank adds earned interest back into your account. A CD with a 4.50% rate and daily compounding will earn slightly more than one with a 4.50% rate and monthly compounding. Always compare APY, not the stated rate, because APY shows what you'll actually earn.
Do I have to keep a CD until maturity?
No, but early withdrawal usually costs you. Most CDs charge a penalty if you withdraw before the maturity date. The penalty is typically a few months of interest. Some banks offer "no-penalty CDs" that let you withdraw anytime without a fee, but they pay lower rates to offset that flexibility.
Should I open a CD at my current bank or shop around?
Shop around. Spending 15 minutes comparing rates at three banks can add $100 to $300 in interest over the CD's life, depending on the amount and term. Your current bank is convenient, but convenience costs money if the rate is significantly lower. Use a comparison site to see what's available, then decide whether the rate difference justifies switching.