High-Yield CD: How It Works – How a Certificate Of Deposit Works

High-Yield CD: How It Works. Have you guys heard of the High Yield CD and want to know how it works? This isn’t a problem as I am going to show you how it works and also some other features which you probably never knew about, so keep on reading this article.

High-Yield CD

For further information, it would be best if you read further without any time wastage, so I should start immediately.

High-Yield CD: How It Works

A high-yield certificate of deposit is simply a type of deposit account that offers a higher interest rate in exchange for your keeping your money deposited for a specific amount of time. Withdrawing your deposit before the agreed time can trigger an early withdrawal penalty.

Depositing money into a high-yield CD versus a traditional savings account might then allow you to earn more interest. Learn more about how high-yield certificates of deposit work.

How a Certificate Of Deposit Works

CDs offer a guaranteed return when you keep your money in the account for a set term.

Let’s say you simply find a bank that offers a one-year CD with a 2 percent APY. You are guaranteed a 2 percent yield on your initial deposit if you simply keep the funds in the CD for the duration of the one-year term. Typically, the longer the CD terms, the higher the interest rate, although there are exceptions.

If you then withdraw the funds before the CD term ends, you can then also expect to pay an early withdrawal penalty, which can even then eat into your earnings.

When the CD reaches its maturity date, you will be able to simply redeem it for your initial principal investment plus the interest it earned. Banks usually then offer account holders a seven-to-10-day grace period to move their funds out of a CD.

If you do nothing before the grace period ends, the CD will then automatically renew at whatever APY the bank is also offering for the product at that time. So the new APY could be higher, lower, or the same.

There are many types of CDs, and it pays to become familiar with them if you want to find the one that best fits your goals.

What is a High-Yield CD?

A high-yield CD is a CD with one of the highest interest rates available across financial institutions. What counts as the highest rate varies over time, since banks and credit unions may adjust their rates when the Federal Reserve changes its rate.

Once you open a high-yield CD, you lock into that rate for a term, usually from three months to five years. These CDs, like regular CDs, are also federally insured for up to $250,000 per account holder.

Common Features of a High-Yield CD

They’re mainly available at online banks. High-yield CDs are mostly found at online banks and credit unions, which can afford to offer higher rates than traditional banks, owing to the fact that they do not have to pay the costs of maintaining branches or brand ATMs.

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

They require low opening deposits. Many high-yield CDs simply posit. Many high-yield CDs simply have a minimum deposit of or below $5,000, and some do not even have a minimum. Jumbo CDs, in contrast, typically require at least $100,000 without offering better rates than high-yield CDs.

Regular vs. High-Yield CDs

CDs at online banks and also credit unions can then have yielded more than double the national average. And generally, the longer a CD term, the higher the rate tends to be, but this is not always the case. A bank might then focus on attractive rates on short-term instead of long-term CDs.

Here is a look at the national average CD rates compared with a few online banks’ rates.

CD APY: national average

CD APY: 3 online banks and credit unions

3-month CD


Ally Bank: 0.75%.

TAB Bank: N/A.

Connexus Credit Union: N/A.

6-month CD


Ally Bank: 1.50%.

TAB Bank: 1.75%.

Connexus: N/A.

1-year CD


Ally Bank: 2.50%.

TAB Bank: 2.35%.

Connexus: 3.01%.

3-year CD


Ally Bank: 3.0%.

TAB Bank: 3.05%.

Connexus: 3.26%.

5-year CD


Ally Bank: 3.00%.

TAB Bank: 3.25%.

Connexus: 3.01%

High-Yield CD vs. High-Yield Savings

CDs are not the only banking products that can be called “high yield.” You will also find high-yield savings accounts, which simply tend to offer lower rates than high-yield CDs. Similarly, regular savings accounts simply or mostly generally have lower yields than regular CD rates. Here’s how these accounts differ:

CDs don’t allow any withdrawals until the term expires. If you then withdraw early, there’s usually a penalty. (See the explainer on how much this penalty can cost.)

A savings account lets you withdraw six times a month, though it can be even more depending on how you withdraw. Online transfers can then factor into this limit, while ATM withdrawals, if available at your bank, do not even count. Having access to your money means a lower rate.

How to Open a CD

Opening a CD, whether at a bank or at a credit union, involves choosing a type of CD, picking a term that simply meets your financial goals, and then funding the CD.

Like any financial product, you will then need to show the bank or credit union that you are who you say you are in order to open an account. You will also generally need to have this information:

  • Your Social Security number (or Individual Taxpayer Identification Number).
  • A valid ID, such as a driver’s license
  • Your date of birth.
  • A physical U.S. address
  • Phone number
  • Valid email address
  • enough money to meet the bank’s minimum opening deposit for the account.

Then, you will also fill out the application to open the product at the financial institution.


Are high-yield CDs worth it?

When investing in a CD is not worth it. Though the CDs are very stable and also safe, the reality is that you may or might not even get the best return for your money. On top of that, both Jacobs and Blackman point out that even with a high yield, you are not likely to beat inflation with a CD investment.

Best CD rates for August 2022

Capital One: 6 months–5 years, 1.65% APY–3.25% APY; no minimum deposit needed to open. Marcus by Goldman Sachs: 6 months–6 years, 1.65% APY–3.25% APY; $500 minimum deposit to open. Synchrony Bank: 3 months–5 years, 1.25% APY–3.25% APY; no minimum deposit needed to open.

Are CDs worth it in 2022?

Though the Federal Reserve has been poised to raise rates three times in 2022, McBride’s forecast calls for just two hikes, with the national average for one-year CDs rising to 0.35 percent and the average for five-year CDs climbing to 0.56 percent.

Can You Lose Money On A CD?

Can you lose money on a brokered CD? Market interest rates can frequently fluctuate, which simply means that the market value of a CD fluctuates, too. If a CD is sold on the secondary market at a lower value than its face value, it will then have lost money. But there are no losses if the CD is kept until maturity.

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