Your Guide to a Certificate of Deposit

Regardless of economic trends, it’s always a good idea to save money. And a certificate of deposit, or CD, can be a dependable tool for meeting your financial goals.

Many people open a CD because they are looking for a fixed interest rate to help them grow their money. And for people who don’t expect to need their deposit for a set period, or a set term, CDs can provide reliable and risk-free returns. In exchange for reliability and guaranteed returns, banks typically charge customers an early withdrawal penalty for taking your money out of the CD before the term ends, so CDs are usually best for people who won’t need access to their funds until later on.

For example, let’s say you want to buy a home in five years. You’ve saved $10,000 for your down payment, and you want the amount you’ve saved for your down payment to grow until the day you are ready to buy. The stock market may feel too risky, and the interest rate on a traditional savings account is variable, so neither of these options offer a guarantee of how much you’ll earn over time. With a CD, however, the interest rate is fixed, meaning it will not change throughout the term. A CD can guarantee you a specific rate of interest for a set term, and because you don’t expect to need the $10,000 during the term, the guaranteed earnings are attractive enough for you to make the commitment.

You will not be able to withdraw your deposit without penalty before your CD matures, but you know the value won’t decrease if you leave the funds in the CD for the full term.

This is a very common scenario for those who choose to open a CD like Forbright Bank’s Growth CD.

In this guide, we cover everything you need to know about a CD account. We also explain how Growth CD offers a unique way for Forbright Bank customers to see their deposits grow in cash while making a positive impact on the world around them.

A CD is an interest-bearing savings account that’s considered by many to be a safe and conservative way to build your savings over time. Most banks offer CDs that are FDIC-insured, like Forbright Bank, and some CDs, like Growth CD, help you save more than money with a bank that supports environmental stewards like the National Park Foundation.

In comparison to other high-yield savings accounts, which offer interest rates that can change at any time in exchange for the flexibility to make withdrawals whenever you need cash on hand, CDs offer fixed interest rates that can boost your savings to a guaranteed amount if you’re able to leave your money alone for a set time.

Choosing the best savings account for your deposit generally depends on your savings goals and how long you’re willing to leave it in your account.

Opening and owning a CD is pretty simple. You deposit money into the account for a certain number of months or years. This time period is known as the “term” of the CD. Your deposit earns interest at a predetermined rate until the CD matures at the end of the term.

At the end of the term, you can withdraw your money—the original deposit plus interest—without penalty, or you can renew the CD for another term. (With Growth CD, you can withdraw paid interest before maturity; keep reading for details.)

If you renew, you’re rolling the money over to a new CD, and your guaranteed interest may change based on the current interest rate offered at the time of renewal.

A CD and a high-yield savings account are both valuable tools for building savings, and each one has benefits and drawbacks. It’s wise to compare them to figure out the best savings strategy for you.

High-yield savings accounts typically offer competitive interest rates, but those rates can fluctuate. However, unlike CDs, high-yield savings accounts allow you to access your money at any time without penalty.

CDs, on the other hand, guarantee that your interest rate will not change throughout the agreed upon term. This way, you know exactly how much money you’ll earn over the course of the CD’s term. In return for guaranteed interest if you want to access your principal deposit, you’ll typically need to pay a penalty.

A major benefit of a CD is the ability to lock in a fixed interest rate for a specified term. If you put your money in a CD that offers a competitive rate and leave it alone until the maturity date, you won’t have to worry about how much interest you’re earning, as it’s guaranteed. Depending on the macroeconomic environment and the Federal Reserve’s rate moves, the fixed rate of a CD can be particularly beneficial.

While a CD and a high-yield savings account both offer a high rate of return, there are a few key differences:

If you withdraw your funds from your CD before it reaches maturity, you’ll generally have to pay an early withdrawal penalty. The idea of an early withdrawal penalty, for many people, is an incentive to leave their principal deposit alone. So it’s not necessarily a negative thing.

If you need to withdraw funds from Growth CD early, we’re here to help. Keep in mind, you can withdraw interest without penalty if you set up monthly interest disbursements or make a one-time request. The Annual Percentage Yield (APY) on all certificates assumes that principal and interest
will remain in the account until maturity.

The following penalties will be imposed for withdrawals of principal before maturity. In some cases, you may owe interest that you have not earned, and this can result in a loss of principal.

If you don’t want to tie up your money for years at a time but still want guaranteed interest rates, consider CD laddering.

With a CD ladder, you open several CDs with staggered maturity dates, so some of your cash is available to use or roll over at regular intervals. You can take advantage of competitive interest rates and keep your money growing without having all your savings tied up for years at a time.

The Internal Revenue Service treats interest earned on a CD like income, whether you withdraw your money or roll it into a new CD. The interest you earn on a CD will be reported to the IRS on a Form 1099, as with interest earned on other accounts.

If your CD is part of an IRA (Individual Retirement Account), the interest you earn may be tax deductible until you start taking distributions during retirement. We recommend consulting with a tax advisor to determine your tax liability.

The best time to open a CD depends on your financial goals, timeline, and how often you think you’ll need access to your money.

If you think you’ll want to have access to your funds regularly, a CD probably isn’t the best option. If you’re looking for a safe, reliable place to save over time while earning a competitive rate, a CD could be a good fit. You should also think about how a CD can work alongside the rest of your accounts and broader financial portfolio.

Remember that most CDs have early withdrawal penalties (see above), so make sure you understand what penalties you may face if you need to access your CD before it matures.

If you would like to save at a competitive rate but may need access to your funds unexpectedly, a high-yield savings account like Growth Savings may be right for you.

Forbright Bank’s Growth CD is a 100% digital, high-yield CD featuring competitive rates, a variety of terms, and a superior online banking experience. Your Growth CD account takes just minutes to open online. Simply choose a CD term, enter your information, and deposit a minimum of $1,000 within the first 10 calendar days. (And with our 10-day best rate assurance, you will automatically receive the best published Growth CD rate for your Growth CD term if rates increase during the first 10 calendar days of account opening, inclusive of the account opening date).

Also, by opening Growth CD, you can help support Forbright Bank’s mission of helping to build a brighter future. Learn more about our impact here.

Opening Growth CD is easy. At Forbright Bank, you can open Growth CD online.

During the account opening process, consider your goals. Determine how long you want to keep your money deposited and choose a CD term that best fits your needs and timeline. Remember that you’re depositing your savings at an FDIC-insured bank that offers a guaranteed rate on your CD account.

After you’ve chosen the CD term that’s best for you, follow our instructions to finish setting up your account. You can fund your CD during the account opening process or later through online banking.
The minimum balance requirement to fund and keep your Growth CD open is $1,000. You have 10 calendar days – which includes the day you opened the account – to supply this amount. Otherwise, we will close the account for security purposes.

When you open a Growth CD at Forbright Bank, you get our 10-day best rate assurance. This means you will automatically receive the best published Growth CD rate for your Growth CD term if rates increase during the first 10 calendar days of account opening (inclusive of the account opening date).

It takes only a few minutes to apply for a Growth CD and start meeting your savings goals. If you’re interested in opening a Growth CD account, you can begin by applying today.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.