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How Do Certificates of Deposit Work?

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When you open a Certificate of Deposit (CD) you agree to leave your funds untouched for a certain period known as the CD term. Longer terms generally offer higher interest rates.

You may access your funds at the end of your term, or maturity date. If you need to withdraw funds early, you will likely need to pay a penalty. Read on for complete answers to your question, “How do certificates of deposit work?”

What Is a Certificate of Deposit (CD) Account?

A certificate of deposit is a type of savings account that usually offers a higher yield than regular savings options. You can open a CD with your local credit union or another financial institution.

When you open your account, you’ll need to deposit a minimum amount of money and choose a CD term that matches your plans and goals. Here’s what you need to know about how this type of account may affect your finances and fit into your savings strategy.


Certificates of Deposit usually have a minimum deposit needed to open the account. At Jeanne D’Arc Credit Union, the minimum opening deposit is just $250. Other institutions may require deposits of $500 or more. Most CDs don’t let you add additional funds once you’ve opened the account.

Interest Rates and APY

CDs earn compound interest, which means you earn interest on your deposited funds then you also earn interest on the interest you’ve earned. Interest may be compounded daily or monthly. Some CD accounts may let you withdraw the compounded interest.

  • The interest rate is how much you’ll earn on your balance.
  • The annual percentage yield (APY) is the total amount you may earn in a year, including your compounded interest.


CD terms may range from a few months to a few years. Longer terms generally equal higher rates. When choosing your term, you want to be realistic about whether or not you’ll need to access the funds during that time.

Special Offers

A financial institution may offer special, higher rates for certain CD terms. For a limited time only, you may benefit from this higher rate without needing to choose the longest available CD term.

Penalties and Fees

In most cases, you’ll be penalized if you request to access your funds before the end of your CD term. The penalty is usually equal to a certain number of months’ interest, based on your CD term. There could also be a flat fee.

CDs do not usually have any monthly or annual fees.

Maturity Dates

The end of your CD term is the maturity or maturation date. At that time, you may withdraw all your funds with no penalty. Some accounts will automatically renew for the same term if you don’t withdraw the funds.

It’s a good idea to assess your options each time a CD reaches its maturity date and decide if you could earn more with a different CD term or a different type of account.


Unlike the risky stock market, your CD funds are safe and secure because they’re insured by the National Credit Union Administration (NCUA) up to $250,000. Jeanne D’Arc is also insured by the Massachusetts Share Insurance Corporation (MSIC) for anything over $250,000.

Types of CDs

Most CDs offer fixed rates and you can’t add funds over time or withdraw funds before the end of your term. But you may be able to find accounts that waive these limitations:

  • No-penalty CDs: Let you withdraw funds whenever you choose with no fee.
  • Step-up CDs: The CD rate increases once or twice during a term at set intervals.

When to Open a CD

We’ve answered the basic features of your query, “How do Certificates of Deposit work?” But now it’s time to dive a little deeper and see if a CD is right for you. Here are a few situations when it makes sense to open a CD.

  • You have existing savings and you don’t need access to the funds right now.
  • You see that CD rates are higher than you can get for regular savings, and you don’t mind the withdrawal restrictions.
  • You want to save for a long-term goal, like a down payment or major purchase.
  • You want to withdraw from risky investments and place your funds in a CD to protect your existing wealth, especially if you’re close to retirement.
  • You’ve made gains from various investments and now want to spread out when you make new investments, with a wider range of accounts and tools.

What to Consider Before You Open a CD

If any of the above scenarios sound like you, then it’s time to take the next steps. Here are a few questions to ask yourself before you hit the Open Account button.

  • When do you think you’ll need the funds?
  • Do you have other funds available for emergencies, so you don’t need to reach for a credit card?
  • If you need the funds early, are you prepared to pay the penalty?
  • Is your compounded interest paid monthly or annually?
  • Can you take the interest/dividends out and deposit into another account?
  • If you’re depositing more than the insured amount of $250,000, is the financial institution a safe bet?

How to Open a CD

The last thing you need to know is how to open an account. Here are the easy steps:

  1. Save up the minimum deposit.
  2. Choose your term based on how long you want to leave the funds untouched and what rates are available, including any special offers.
  3. Choose how you want to apply: Online, in-person, or over the phone.
  4. Make sure you have your ID and documents ready so you can join the financial institution if you’re not yet a member.

Alternatives to Certificates of Deposit

Maybe you’re thinking a CD sounds great for the future, but it’s not the best option for you right now. In that case, there are a few different product options that could work better for you.

High-Yield Savings

This type of account may offer higher rates when you meet certain conditions. For example, our Statement Savings offers a great rate on your first $500.

Money Market Account

The name may sound a bit complex but Money Market accounts are really simple. You can earn better rates than regular savings and can make up to eight free withdrawals each month. Plus, you get higher rates on higher balances.

Next Steps: Make a Deposit and Start Earning!

We hope we’ve answered your question about how Certificates of Deposit work, and now we want to offer you the chance to open a CD account with Jeanne D’Arc Credit Union.

You can choose from a wide range of CD terms with competitive rates. And make sure you don’t miss out on our limited-time special offers!

See our Certificates of Deposit options & benefits.