# How do Certificates of Deposit work? **URL:** \ **Category:** Factual Questions\ **Created:** [January 6, 2026, 12:09am UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387 "2026-01-06T00:09:38Z")\ **Posts on this page:** 15\ **Page:** 2
**Author:** ![jjakucyk](https://avatars.discourse-cdn.com/v4/letter/j/3d9bf3/32.png) [@jjakucyk](https://boards.straightdope.com/u/jjakucyk)\ **Post date:** [January 6, 2026, 2:02pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/21 "2026-01-06T14:02:55Z")
I looked into my bank’s offerings a year or two ago when rates were up, and the whole thing came off as very scummy. The rates were good, but that was only for “new” money, so simply transferring money from my checking or savings account wasn’t eligible for the better rate. When the CD matures they only gave 7 or 10 days to withdraw the funds, which had to be done in-person at a branch, not online. Otherwise it would automatically roll over to a new CD at whatever the new rate was at the time of maturity. No thanks. ---
**Author:** ![mixdenny](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mixdenny/32/2962_2.png) [@mixdenny](https://boards.straightdope.com/u/mixdenny)\ **Post date:** [January 6, 2026, 5:21pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/22 "2026-01-06T17:21:22Z")
> [@LSLGuy](#): > > originally CDs really were fixed-term. Either you couldn’t get your money out at all before they matured, or if you could you forfeited 100% of the interest earned to date. So you really had to think twice about buying a CD. But you can always get a “no fee” CD that has no penalty. Usually 0.10 or 0.15 less interest. I moved my saving account money to CDs a few years ago when the rates went up. I’m 79. No way I’m going to “invest”. The highest interest money market account my bank offers is 0.75% Where are you guys finding 4-5% money markets? ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [January 6, 2026, 5:33pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/23 "2026-01-06T17:33:38Z")
Note that my comment about the 100% interest forfeiture was in the context of the old days: 1960s. Not in the context of this year when, as you say, there are plenty of ways to get CDs with much less draconian early withdrawal penalties. As to higher rate money markets, any brokerage will offer that. Banks exist only to take money from unsophisticated savers. Not to provide anything approaching an actual rate of return on anything they sell. For example, here’s Fidelity’s MM product: **[VMFXX | Vanguard Federal Money Market Fund;Investor Overview | MarketWatch](https://www.marketwatch.com/investing/fund/vmfxx)**. Average return over the last 52 weeks: 4.24%. You don’t need to use Fidelity to buy, sell, or own it; any brokerage can handle that for you. The other big name consumer financial companies all offer similar funds with effectively identical returns. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [January 6, 2026, 5:40pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/24 "2026-01-06T17:40:24Z")
> [@mixdenny](#): > > Where are you guys finding 4-5% money markets? Yeah! My credit union is currently offering a **60-month** CD for a pitiful 3.5% and a money market account for 2.25%. My savings account is a negligible 0.75%. Granted, credit unions have traditionally paid lower interest than banks, so I checked a nearby bank. Their CD rates are 3.45% for a six-month CD and 2.5% for an 11-month. But like **mixdenny** , at my age I’m not particularly interested in the “investing” angle of what to do with my ready cash. My 401K is doing quite well, (the money market sliver in that is paying 3.35% - not exactly Mr. Pennybags territory) and I’ll stick with that and taking only the required distribution. ---
**Author:** ![robby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robby/32/11048_2.png) [@robby](https://boards.straightdope.com/u/robby)\ **Post date:** [January 6, 2026, 6:13pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/25 "2026-01-06T18:13:12Z")
> [@LSLGuy](#): > > For example, here’s Fidelity’s MM product: **[VMFXX | Vanguard Federal Money Market Fund;Investor Overview | MarketWatch](https://www.marketwatch.com/investing/fund/vmfxx)**. Average return over the last 52 weeks: 4.24%. You don’t need to use Fidelity to buy, sell, or own it; any brokerage can handle that for you. The other big name consumer financial companies all offer similar funds with effectively identical returns. This fund is invested in federal government securities and is undoubtedly very safe and seeks to preserve capital, but it is not federally insured and you can theoretically lose money. I worry about this more with the current political situation here in the U.S. over the last year. I have CDs right now with interest rates ranging from 3.6% to 4.6% that _ **are** _ federally insured. I also have a couple of retirement accounts that are invested in the market. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [January 6, 2026, 6:29pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/26 "2026-01-06T18:29:25Z")
I will suggest that if you’re worried about the federal government not paying out on their short term debt instruments you should also be worried about them not paying out on deposit insurance. Whether through evil, incompetence, or lack of funds to do so in the volume required. Maybe not equally worried. But still some worried for both scenarios. I certainly agree w your larger point that the current political situation in the USA is unprecedented and has the potential to destroy our financial system and enormous amounts of nearly everyone’s paper wealth. As has been discussed over here in depth for almost a year now. > [@Investment general discussion thread](https://boards.straightdope.com/t/investment-general-discussion-thread/1015169): > > There have been some threads lately concerned about what people should do with their investments in light of recent… instability as well as some politics prediction threads revolving around performance of the economy in which people start discussing investment strategy. So I thought it might be a good idea to start a thread for any sort of investment discussion. Advice, strategy, predictions, news, questions, even bragging about your success or complaining about your losses, why not. So I’ll st… ---
**Author:** ![Randy\_Seltzer](https://avatars.discourse-cdn.com/v4/letter/r/ee7513/32.png) [@Randy\_Seltzer](https://boards.straightdope.com/u/Randy_Seltzer)\ **Post date:** [January 6, 2026, 7:12pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/27 "2026-01-06T19:12:14Z")
> [@HeyHomie](#): > > Let’s say I put a grand in a six-month CD for 4% fixed APY. Does that mean that at the end of six months, the bank cuts me a check (or deposits to my account or whatever) for $1000 + 20 (four percent of a thousand is $40, and this is six months, so … $20?)? Minor quibble. APY is calculated based on daily compounding of APR over an entire year. After six months, you would be a few cents short of $20. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [January 6, 2026, 8:45pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/28 "2026-01-06T20:45:28Z")
My mother moves money from one bank to another in search of higher CD rates. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [January 6, 2026, 10:53pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/29 "2026-01-06T22:53:02Z")
Nothing inherently wrong with that, but if she only has a few thousand to move around she might find it’s not worth the effort. The difference between 3% and 4% for a $10,000 1-yr. CD is about $100. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [January 6, 2026, 10:56pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/30 "2026-01-06T22:56:17Z")
No, it’s several hundred thousand dollars she’s moving around. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [January 7, 2026, 12:58am UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/31 "2026-01-07T00:58:32Z")
It’s still the case that an e.g. 0.10% is immaterial. If you only have $1000 the dollar doesn’t matter enough to pay you for the hassle of switching. If you have a million, the thousand doesn’t matter enough either. Etc. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [January 7, 2026, 4:20pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/32 "2026-01-07T16:20:27Z")
> [@Dewey\_Finn](#): > > No, it’s several hundred thousand dollars she’s moving around. In that case she should be looking at Treasury bills or bonds. The interest is exempt from federal income tax, which more than makes up for any interest rate disadvantage they might have. ---
**Author:** ![mixdenny](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mixdenny/32/2962_2.png) [@mixdenny](https://boards.straightdope.com/u/mixdenny)\ **Post date:** [January 7, 2026, 6:16pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/33 "2026-01-07T18:16:35Z")
I was looking at a Treasury bill site and the interest-is taxable. ---
**Author:** ![muldoonthief](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/muldoonthief/32/3188_2.png) [@muldoonthief](https://boards.straightdope.com/u/muldoonthief)\ **Post date:** [January 7, 2026, 6:19pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/34 "2026-01-07T18:19:53Z")
Treasury bills and bonds are exempt from state and local income taxes, not federal. So any tax advantages are completely dependent on your location. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [January 7, 2026, 6:40pm UTC](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387/35 "2026-01-07T18:40:32Z")
I got my jurisdictions mixed up, sorry. [Previous page](https://boards.straightdope.com/t/how-do-certificates-of-deposit-work/1026387.md?page=1)