Fixed-Rate CD
What Is a Fixed-Rate CD?
A fixed-rate certificate of deposit (CD) is a savings product offered by banks and credit unions that pays a guaranteed interest rate for a specific period of time. The interest rate remains the same for the entire term of the CD, regardless of changes in market interest rates.
Because the rate is fixed, savers know exactly how much interest they will earn if they keep the funds in the account until the maturity date.
Why It Matters
Fixed-rate CDs provide predictable returns and can help savers grow their money without exposure to market volatility. They are commonly used by individuals who want a stable savings option while earning higher interest than a typical savings account.
However, funds placed in a CD are usually locked in for a set term, and withdrawing money early may result in a penalty.
How Fixed-Rate CDs Work
When opening a fixed-rate CD, the saver chooses a term, such as six months, one year, or five years.
The financial institution sets the interest rate at the beginning of the term. The rate remains constant until the CD matures.
At maturity, the saver may:
- withdraw the funds
- renew the CD
- move the funds into another savings product
Example
A saver deposits $5,000 into a three-year fixed-rate CD with an annual interest rate of 4%. Regardless of changes in market rates, the account earns 4% each year until the CD reaches maturity.
Fixed-Rate CD vs Variable-Rate CD
A fixed-rate CD keeps the same interest rate throughout the term.
A variable-rate CD allows the interest rate to change based on market conditions.
FAQs About Fixed-Rate CDs
Can the interest rate change during the term?
No. The rate remains fixed for the entire term.
Are fixed-rate CDs safe?
CDs from insured institutions are generally considered low-risk savings products.
What happens if money is withdrawn early?
Early withdrawal penalties may apply.
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