What is a Callable CD?

Get the basic facts about callable CDs to decide if they're right for you

Callable CDs are certificates of deposit issued by a financial institution that allow that institution the right to release the CDs before they reach maturity. This is what's known as "calling" the CD. In other words, your CD can end before it reaches its full term, which is also known as it maturity date.

How does a callable CD work?

When you first open a callable CD, you are made aware of the maturity date, but also of the call date. The call date is the first opportunity the bank has to settle your CD, paying out the principal and earned interest before it reaches full term. If the bank chooses not to call on the initial call date, they must wait the exact period of time from the time the CD was opened to the call date before they have the opportunity to call the CD again. For example, if your call date is set for six months into the term of your CD, the bank can call the CD in six months or every six months after that.

Why are callable CD rates higher than standard CD rates?

Generally, callable CD interest rates are higher than standard CD interest rates to compensate you for taking on more risk associated with the investment. With standard CDs, the bank takes the risk of paying higher interest rates despite market changes. However, in a callable CD, the bank can call a CD and then reissue it at a lower interest rate if interest rates decrease. You take the risk of this happening when you open the account. If it does happen, you would then be left to re-invest your money in CDs with lower interest rates. If the CD is not called and you leave it invested until the end of the term, you will earn more money than you would have on a standard high-yield CD invested for the same amount of time.

Alternatives to callable CDs

Consider the risks you're taking with callable CDs. While they do offer higher rates than standard or breakable CDs, you may not have the opportunity to take full advantage of those rates in the event the bank calls them. Instead, consider creating a more diverse portfolio by investing in several standard CDs with different term lengths as they are less risky than callable CDs. They will remain in bank until the maturity date and will become available at different times. Another CD option is to invest in breakable CDs. Breakable CDs have a higher minimum deposit but provide you the option to access the funds in your account once without penalty before the term is up.

Certificates of deposit from Citizens Bank

Open a standard certificate of deposit with Citizens Bank. A more secure method to grow your savings, CDs earn a higher rate of interest than savings or money market accounts. Remember, unless you invest in a breakable CD, you will not have access to these funds until the end of the term without incurring a fee. Talk to a Citizens Bank representative at 1-877-360-2472 for more information, or open a CD online.


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