What Type of CD Is Right for You?

Eve Chin, VP Deposit Planning and Strategy, First Republic Bank, First Republic Bank
September 10, 2019

The Certificate of Deposit (CD) is an alternative to regular savings accounts that typically accrues higher interest. However, there are a few different types of CDs that function slightly differently from one another. It’s important to select the type(s) of CDs that are right for you based on your financial goals and liquidity needs. Read on to learn more about the main certificate of deposit options and whether they may be right for you.

Short-, mid- and long-term CDs

CDs can be a great way to potentially earn higher interest than other regular savings deposits, on cash you won’t need for a certain amount of time. Traditional CDs all work in a similar manner, but they come with different term lengths. Short-term CDs have term limits less than 12 months, while long-term CDs can tie up your money for one to five years or longer.

Short-term CDs are great for people who want to test out the benefits that CDs offer but aren’t quite ready to invest long-term or don’t have access to liquid cash in other accounts, should they need it immediately. People with more time to save for specific goals (like a future down payment on a home) and alternative contingency savings in case they need cash could try a long-term CD.  Long-term CDs also work well for people with excess funds who have an extended time to save and want to make the most of current interest rates.

For each of these CD options, the longer your term, the higher interest you will earn. This CD rate calculator can help you determine the amount of interest your CD will have accrued at maturity.

Liquid CDs

With regular CDs, investors must keep their cash in the account for the given term limit, since taking it out earlier could subject them to early withdrawal penalties. Liquid CDs work in much the same way a traditional CD would, but investors can make limited withdrawals without penalty fees.

If you want to earn interest on your money while saving but need the flexibility to potentially withdraw some money before their term is up, a liquid CD could be a good option for you.

In exchange for flexibility, liquid CDs typically offer lower interest rates than traditional CDs, and there are usually minimum balances and a maximum number of penalty-free withdrawals allowed. Legally, the funds in a liquid CD must stay there for at least seven days before being withdrawn, although individual banks can set their own additional waiting periods beyond seven days.


Individual Retirement Accounts (IRAs) are a popular retirement savings vehicle for people who are self-employed. They are also an excellent additional option for people who qualify and want to diversify their retirement portfolio by saving somewhere other than their employer-sponsored 401(k). There are different tax advantages to this type of account, depending on the specific one you have, and consumers can allocate the money held in their IRA in a number of ways. While Traditional, Roth and SEP IRAs are fairly common, people might not be aware that some banks offer CDs within their IRA as a way to save conservatively with bank deposits instead of investing in the stock market. Most IRAs allow you to invest in any type of CD within the account, but combining an IRA with a retirement-specific CD can provide additional benefits, like higher interest rates tailored to long-term retirement goals.

IRA CDs could be a smart choice for those with 10 or more years until retirement who are looking for a straightforward way to invest with a guaranteed rate of return. IRA CDs are also better for people who will use them in conjunction with other types of retirement accounts for an overall diversified portfolio.

IRA CDs guarantee a predictable rate of return and could come with lower fees than other traditional retirement investment options, but the rate you’ll receive from a CD potentially won’t match other riskier options.

CD ladders

CD ladders aren’t a type of CD. They are a strategy when savers put their cash into multiple CDs with varying term lengths. The multiple CDs mature sequentially over time, allowing savers to reinvest in further CDs or use their money elsewhere.

CD ladders have several advantages. They allow savers with a large sum (to meet the minimum deposit amounts of several CD’s) to potentially offset re-investment risk. This means, if interest rates are rising, a saver can take advantage of higher rates on new CDs as their existing CDs mature, without incurring early withdrawal fees.  The stepped cadence of maturity also provides the saver with the ability to access their savings sooner than if they invested in a single long term CD. While also taking advantage of potentially higher interest rates on their longer term CDs in the ladder. While not as flexible as a Liquid CD, this strategy typically yields a higher interest rate.

The risk of organizing your CDs in a laddered strategy is, if interest rates fall in the future you may earn less interest than if you had a single long-term CD.

CDs can be an easy way to earn higher interest on the money you’re saving compared to regular savings accounts. Learning more about the different types of CD options available is crucial to taking advantage of everything this type of savings account has to offer. Learn more about First Republic’s CD offerings today and view CD rates in your city.


The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use.