Banks are the most straightforward place to open a CD

Your own bank or credit union is usually the easiest starting point. You already have an account there, you know the staff, and you can walk in or log into your existing online account to open a CD without filling out new paperwork. Most banks offer CDs alongside their regular savings accounts, and the process takes minutes.

The tradeoff is that your bank's CD rates may not be the highest available. Banks set their own rates based on what they think they need to pay to attract deposits. A large national bank like Chase or Bank of America typically offers lower rates than smaller institutions because they have plenty of customer deposits already. A local or regional bank may offer better rates because they need to compete harder for your money.

You can compare your bank's current CD rates on their website or by calling the branch. Most banks list rates publicly, and they change frequently—sometimes weekly—so the rate you see today may not be the rate you get next week.

Online banks often pay higher rates because they have lower costs

Online-only banks like Marcus, Ally, and American Express Personal Savings have no physical branches, which means lower overhead. They pass some of that savings to customers through higher CD rates. If you do not already have an account with an online bank, you will need to open one before you can open a CD there, but this is a straightforward process done entirely through their website.

The main drawback is that you cannot walk into a branch if you have a question or problem. You will communicate by phone, email, or online chat. For most people this is fine; for others, the lack of face-to-face service is a dealbreaker. You should also verify that the bank is FDIC-insured (federally insured), which protects your money up to $250,000 if the bank fails. Every legitimate online bank displays this information on their website.

Online banks typically update their rates daily or weekly, so you can check their website anytime to see what they are currently offering. The rates change more often than at brick-and-mortar banks because online banks are competing directly on rate.

Credit unions may offer competitive rates to members

Credit unions are member-owned financial institutions, and many offer CDs to their members. If you belong to a credit union—through your employer, a professional association, or your community—you may find CD rates that are competitive with or better than online banks.

The catch is that you must be a member to open a CD. Membership requirements vary widely. Some credit unions are open to anyone in a geographic area; others require you to work for a specific employer or belong to a specific group. If you are already a member, ask your credit union what CD rates they currently offer. If you are not a member, you can search for credit unions you might be able to join at CO-OP or Alliant, which maintain directories of participating institutions.

Credit unions are also FDIC-insured (or covered by an equivalent federal insurance program called NCUA), so your deposits are protected the same way they are at banks.

Brokerage firms offer CDs but add an extra layer

Brokerage firms like Fidelity, Charles Schwab, and Vanguard can help you purchase CDs, but they do not issue the CDs themselves. Instead, they connect you with banks that do. This is called a brokered CD. The advantage is convenience if you already have a brokerage account—you can buy a CD without opening a separate bank account.

Brokered CDs can sometimes offer higher rates than you would find on your own, because brokers have relationships with many banks and can shop around. However, brokered CDs come with a complication: if you want to cash out before maturity, you sell the CD on the secondary market rather than simply withdrawing it from a bank. The price you get depends on interest rate movements, and you could lose money if rates have risen since you bought it.

For a first CD, a brokered CD is usually unnecessary. A direct CD from a bank or credit union is simpler and more predictable. Brokered CDs make more sense if you are an experienced investor managing a large portfolio.

Treasury Direct lets you buy CDs issued by the U.S. government

The U.S. government issues short-term savings products called Treasury Bills (T-Bills) through a program called Treasury Direct. These are not CDs in the traditional sense, but they work similarly: you give the government money for a fixed period, and you get it back with interest at maturity.

Treasury Bills are extremely safe because they are backed by the U.S. government. You can buy them directly through Treasury Direct (treasurydirect.gov) without going through a bank or broker. The minimum purchase is $100, and you can hold them for 4 weeks, 8 weeks, 13 weeks, 26 weeks, or 52 weeks.

The rates on Treasury Bills fluctuate based on market conditions and are set through an auction process. They are often lower than bank CD rates, but they offer unmatched safety and liquidity. Most people use Treasury Bills as part of a diversified savings strategy rather than as their primary savings vehicle.

Money market accounts are a flexible alternative if you want access to your money

If you like the idea of a CD but want the ability to withdraw money without penalty, a money market account (MMA) might be worth considering. Money market accounts pay interest like CDs do, but they do not lock your money away for a fixed term. Instead, you can withdraw funds anytime, though you are usually limited to a certain number of withdrawals per month.

The tradeoff is that money market account rates are typically lower than CD rates because you have the flexibility to access your money. Banks and online banks both offer money market accounts, and rates vary the same way they do for CDs. Money market accounts are FDIC-insured just like regular savings accounts and CDs.

A money market account makes sense if you are saving for something you might need sooner than you originally thought, or if you are uncomfortable locking money away. A CD makes sense if you are confident you will not need the money for the full term and you want the highest rate available.

Key Takeaways

  • Your own bank or credit union is the simplest place to open a CD if you already have an account there, though their rates may be lower than other options.
  • Online banks typically offer higher CD rates than brick-and-mortar banks because they have lower operating costs, but you cannot visit a branch in person.
  • Credit unions may offer competitive CD rates to members, but you must meet their membership requirements first.
  • Brokered CDs through investment firms add complexity and are usually unnecessary for a first CD purchase.
  • Treasury Bills through Treasury Direct are backed by the U.S. government and offer safety, but rates are often lower than bank CDs.

Frequently Asked Questions

Which type of institution offers the highest CD rates?

Online banks and some credit unions typically offer the highest rates because they have lower costs or are competing aggressively for deposits. Rates change frequently, so you should compare current offers across a few institutions before deciding. Your own bank will almost always offer lower rates than online alternatives.

Is my money safe in an online bank CD?

Yes, as long as the online bank is FDIC-insured. Check the bank's website for the FDIC insurance logo or statement. Your CD is protected up to $250,000 if the bank fails. Online banks are regulated the same way as traditional banks and must meet the same safety standards.

Can I move a CD from one bank to another before it matures?

You can withdraw the money early, but most banks charge a penalty—usually a few months of interest. The penalty amount varies by bank and CD term. If you think you might need the money sooner, ask about the early withdrawal penalty before you open the CD, or consider a money market account instead.

What is the difference between a CD and a Treasury Bill?

Both lock your money for a fixed period and pay interest, but Treasury Bills are issued by the U.S. government and are extremely safe. CDs are issued by banks and credit unions. Treasury Bills typically pay lower rates but offer more safety. CDs usually pay higher rates but depend on the bank's stability.

Do I need to open a new bank account to buy a CD?

Not if you already have an account at a bank or credit union—you can open a CD within your existing account. If you want to use an online bank or brokerage firm, you will need to open an account with them first, but this is a quick online process.