Five Tips for Buying a Certificate of Deposit (CD)

Consider these factors when you're ready to open a CD account

Once you've committed to getting serious about saving, it's time to start comparing savings account options. A certificate of deposit is a good choice for many individuals due to its high interest rate. But, there's more to it than just CD rates. To be sure you're making an informed savings decision, consider the following factors in your decision:

1. Your financial goals

Whether or not CDs in general - or a specific CD type - will work for you depends largely on your personal financial situation. Do you prefer the more aggressive growth rate and associated risks of investments like stocks? Or, do you play it safe with basic savings accounts, like CDs and money market accounts?

Buying a certificate of deposit makes the most sense for people looking for long-term savings opportunities that come with very low risk. CDs are FDIC-insured up to a certain dollar amount, so you can rest assured that if you invest within the guidelines your money will be there, even if something happens to the financial institution. Certificate of deposit rates are also attractive when compared to other savings vehicles. But, if you want to see more aggressive growth and are willing to ride the ups and downs of the market, then CDs may not be the choice for you.

2. The term of the certificate of deposit

Be strategic in your choice of CD term. You may very well see different terms associated with different interest rates, so strongly consider the term and how it will fit into your future savings plan. Remember that your money is locked into the CD for the duration of the term, so you'll want to be as sure as you can that you won't need to access the money before the CD matures. If you have an immediate need for cash, you'll pay early withdrawal fees.

3. Certificate of deposit interest rates

CD interest rates are represented in terms of APY (Annual Percentage Yield). Using APY to compare earnings potential gives investors a more level way to compare rates than the APR (Annual Percentage Rate), which can vary depending on whether compounding takes place monthly, quarterly or annually. APY already takes into account compounding and accurately shows you your earnings potential for the whole year.

4. Early withdrawal fees for certificates of deposit

Even with cautious planning, surprise expenses can arise, and you may find yourself in need of your funds before the CD term ends. To account for this, be sure you understand all fees associated with the CD before you open it. If the fees are substantial, you may choose to keep more money in liquid savings accounts so you can access your reserves first before having to withdraw funds from a CD. If you're willing to pay the fees in the unlikely event you'd have to withdraw money early, this factor may not impact your plan at all.

5. Your savings strategy

Choosing the right certificate of deposit may also be decided by your savings strategy.

  • Are you keeping a substantial amount of money in more liquid savings accounts? In that case, you may want a longer-term CD with a higher interest rate that can really get you a great return.
  • Are you employing a CD laddering strategy? In that case, choose a CD that will fit into that existing ladder.
  • Are you using this as your sole savings vehicle? If so, it's better not to put your money out of reach for more than a year or so, which would make a shorter CD term more attractive.

Open a CD account with Citizens Bank

Buying a certificate of deposit is a great way to build your savings, whether it's your first savings account or part of your larger financial plan. To learn more about the CDs available from Citizens Bank, speak with a customer care representative at 1-877-360-2472 or visit your local Citizens Bank branch.


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