Banks, credit unions, and online brokers all sell CDs, but the rates and terms differ
You can open a CD at a bank, credit union, or brokerage firm. Each type of institution offers different interest rates, terms, and features. Banks and credit unions typically offer CDs with terms ranging from three months to five years, while brokerages can access longer-term CDs and sometimes offer more competitive rates. The institution you choose affects how much interest you earn and how easily you can access your money before maturity.
Your choice also depends on whether you want simplicity or the ability to shop across many options. A bank or credit union near you may be convenient, but online banks and brokerages often pay higher rates because they have lower overhead costs. If you already have a checking or savings account somewhere, opening a CD at the same place requires less paperwork—but that does not mean it offers the best rate.
Key Takeaways
- Banks and credit unions are the most straightforward places to open a CD, and your deposits are insured up to $250,000 by the FDIC (banks) or NCUA (credit unions).
- Online banks typically offer higher CD rates than brick-and-mortar branches because they have lower operating costs.
- Brokerages let you buy CDs from multiple banks and issuers in one account, making it easier to compare rates and ladder CDs across different maturity dates.
- Money market funds and bond funds are not the same as CDs and carry different risks, even though they may be sold by the same brokerage.
- CD rates change daily, so comparing rates across institutions before you commit your money takes only a few minutes and can add hundreds of dollars in interest over the CD's life.
Banks: the most common place to open a CD
Most people open CDs at the bank where they already have a checking account. The process is straightforward: you walk in, speak to a banker, or log into your online account and select the CD option. You choose the term (how long you lock in your money) and the amount, and the bank credits the interest to your account when the CD matures.
The trade-off is that banks often pay lower rates than online competitors. A large national bank like Chase, Bank of America, or Wells Fargo may offer rates that lag behind smaller online banks by 0.5% to 1.5% per year—a meaningful difference on a $10,000 CD. However, convenience and the ability to manage your CD alongside your other accounts can matter more to you than a slightly higher rate.
Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per bank, per account type. If you have a CD and a savings account at the same bank, they are insured separately, so you can have $250,000 in each without losing coverage.
Credit unions: often competitive rates with a membership requirement
Credit unions are member-owned financial institutions that often pay higher CD rates than large banks. Because they are not-for-profit, they return earnings to members rather than shareholders. Many credit unions offer rates that rival online banks, especially if you maintain a checking account or direct deposit with them.
The barrier is membership. You can only open a CD at a credit union if you meet their membership criteria, which usually means living or working in a specific area, belonging to a particular employer, or being related to a current member. Some credit unions have opened membership to broader groups in recent years, so it is worth checking whether you are may be able to access at a credit union near you.
Deposits at credit unions are insured by the National Credit Union Administration (NCUA), which offers the same $250,000 per account protection as the FDIC. If you belong to multiple credit unions, each one's deposits are insured separately.
Online banks: higher rates because they have lower costs
Online banks like Marcus, Ally, American Express Personal Savings, and Discover typically offer the highest CD rates among traditional deposit institutions. Because they have no physical branches, they spend less on overhead and pass those savings to customers in the form of higher interest rates. The difference between an online bank and a brick-and-mortar bank can be 0.75% to 1.5% per year on the same term.
Opening a CD at an online bank is entirely digital. You create an account, verify your identity, and fund the CD by transferring money from another bank account. The process usually takes a few minutes. You receive statements and manage your CD through the bank's website or mobile app.
Online banks are FDIC-insured just like traditional banks, so your $250,000 per account is protected. The main drawback is that you cannot walk into a branch to ask questions or make changes in person, though most online banks offer phone and email support.
Brokerages: access to CDs from many banks in one place
Brokerages like Fidelity, Charles Schwab, and Vanguard offer brokered CDs, which are CDs issued by banks but sold through the brokerage. Instead of opening a CD at one bank, you can view and buy CDs from dozens of banks through your brokerage account. This makes it easy to compare rates and terms side by side.
Brokered CDs are useful if you want to ladder your CDs—that is, buy multiple CDs with different maturity dates so that one matures every few months or years. You can do this all in one account rather than opening separate accounts at multiple banks. Brokerages also sometimes offer longer-term CDs (up to 10 or 20 years) that are harder to find at traditional banks.
The catch is that brokered CDs may have less FDIC protection than CDs you buy directly from a bank. If a brokerage holds your CD and the bank that issued it fails, your coverage depends on how the brokerage registered the CD. Most major brokerages register brokered CDs in a way that preserves full FDIC coverage, but you should confirm this before buying. Additionally, if you sell a brokered CD before maturity on the secondary market, you may receive less than you paid if interest rates have risen.
Comparing rates across institutions
CD rates change daily and vary by term. A one-year CD at one bank might pay 4.5%, while the same term at another bank pays 5.2%. Over one year, that 0.7% difference adds up: on a $25,000 CD, it means roughly $175 more in interest.
To compare rates, visit the websites of banks, credit unions, and brokerages you are considering. Most display current rates for each term prominently on their home page or in a rates table. You can also use rate-comparison sites like Bankrate, DepositAccounts, or CDs.com, which aggregate rates from many institutions and update them daily. Spend 10 to 15 minutes comparing before you commit your money.
Pay attention to the annual percentage yield (APY), not just the interest rate. The APY accounts for how often interest is compounded and shows you the true return on your money. Two banks might advertise the same rate, but if one compounds interest more frequently, its APY will be slightly higher.
What to avoid: money market funds and bond funds
Brokerages also sell money market funds and bond funds, which are not CDs and should not be confused with them. Money market funds and short-term bond funds may offer yields similar to CD rates, but they carry market risk—their value can go down if interest rates rise or if the underlying investments decline. CDs have a fixed rate and a may provide return of principal at maturity, regardless of what happens to interest rates.
If your goal is safety and a may provide return, stick with CDs. If you are willing to accept some risk in exchange for potentially higher returns, money market funds or bond funds might fit your goals, but that is a different decision with different trade-offs.
Frequently Asked Questions
Can I buy a CD from a bank I don't have an account with?
Yes. You can open a CD at any bank or credit union without having a checking or savings account there. You will need to provide your name, address, Social Security number, and proof of identity, and you will fund the CD by transferring money from another bank account.
Do I need a minimum deposit to open a CD?
Most banks and credit unions require a minimum deposit, which typically ranges from $500 to $2,500. Some online banks have lower minimums or no minimum at all. Check the institution's website or call to confirm the minimum before you open an account.
What happens if the bank fails after I buy a CD?
If your CD is FDIC-insured and the bank fails, the FDIC will pay you the full value of your CD plus any accrued interest, up to $250,000. You do not lose money. The FDIC takes over the CD and either transfers it to another bank or pays you out directly.
Can I move a CD from one bank to another without breaking it?
You cannot transfer a CD directly, but you can let it mature at one bank and open a new CD at another bank with the proceeds. If you break the CD early, you will pay an early withdrawal penalty, which typically costs three to six months of interest. It is usually not worth breaking a CD to move it unless rates have changed dramatically.
Why would I buy a brokered CD instead of a CD directly from a bank?
Brokered CDs let you compare and buy from many banks in one place, making it easier to ladder CDs or find longer terms. However, if you only want one CD, buying directly from a bank is simpler and avoids the secondary market risk if you need to sell before maturity.