High-Yield CD: How It Works - NerdWallet (2024)

What is a high-yield CD?

A high-yield CD is a certificate of deposit with one of the highest interest rates available across financial institutions. You can often find high-yield CDs at online banks or credit unions, and if in doubt, a high-yield CD is more about the rate than whether a bank calls it “high yield.” See our list of the best CD rates for current examples.

What counts as the highest rate varies over time for new CDs, though. (CDs have fixed rates once they’re opened.) When the Federal Reserve raises or lowers its rate, banks and credit unions may take their cue to move rates in the same direction. High-yield CD rates are particularly sensitive to changes, according to NerdWallet analysis.Check out our CD rate forecast to understand where rates are headed.

Once you open a high-yield CD, you lock into that rate for a term, usually from three months to five years, and lose access to the funds until the term’s maturity. These CDs, like regular CDs, are federally insured up to at least $250,000 per account holder, meaning that if a bank or credit union fails, you get your money back up to the coverage maximum.

Pros and cons of high-yield CDs

Common features of a high-yield CD

They’re mainly available at online banks. High-yield CDs are generally found at online banks and online credit unions, which can afford to offer higher rates than brick-and-mortar banks in part because they don’t pay the costs to maintain branches or branded ATMs. Community credit unions can offer competitive rates too, but watch out for maximum deposit requirements or membership restrictions.

They have high interest rates. There’s no exact threshold or regulatory definition, but if you’re looking at a CD rate well above the national average rate for a certain CD term, it’s safe to say that it’s probably a high-yield CD. A CD rate usually is written as annual percentage yield, or APY, which is the interest rate that factors in compounding.

They require low opening deposits. Many high-yield CDs have minimum deposits of $5,000 or less, and some don’t have a minimum. Jumbo CDs, in contrast, typically require at least $100,000 and usually without offering better rates than high-yield CDs, according to NerdWallet analysis. The exception: Jumbo CD rates can be slightly better than high-yield CD rates at the same institution. (See our list of the best jumbo CDs.)

High-yield CD vs. high-yield savings

CDs aren’t the only banking product that can be called "high yield.” You’ll also find high-yield savings accounts. Here’s how these accounts differ:

CDs often have higher rates than savings accounts, high yield or not. Since CDs require you to lose access to your funds for a term, a higher rate can serve as an incentive.

CDs don’t allow any withdrawals until the term expires. If you withdraw early, there’s usually a penalty, such as multiple months of interest earned. (See penalties by bank.) If you’re willing to take a less competitive rate than high-yield CDs, no-penalty CDs can be worthwhile.

A savings account might limit withdrawals to six times a month. Although the Federal Reserve stopped requiring this limit as a rule early in the COVID-19 pandemic, banks can still apply it. When a bank enforces the limit, online transfers can factor in, while ATM withdrawals, if available at your bank, don’t count. (Learn more about savings account limits.) Having this access to your money often means a lower rate.

Current CD rates: high-yield and national averages by term

See how three high-yield CD rates per term compare to the national averages.

Bottom line: Go for a high yield

You can find CDs at most banks (and the equivalent — share certificates — at credit unions), but you don’t have to get a CD where you have your checking or savings account. You might benefit from comparing CD rates outside your main bank if it doesn’t offer high-yield CDs.