Here's the quick answer: Yes, certificates of deposit (CDs) are considered safe. CDs from FDIC-insured banks, such as Ally Bank, are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per account ownership category.
The beauty of CDs is they combine safety with predictable pay outs. Unlike many deposit accounts, where rates can change, CDs earn a fixed interest rate for the full length of your selected term.
Take quiz: Which Ally Bank CD is right for you?
CD safety at a glance
Safety Factor | Details |
|---|---|
FDIC insurance | Up to $250,000 per depositor, per account ownership category at FDIC-insured banks, such as Ally Bank |
Principal risk | None, up to the maximum amount allowed by law (if the bank is FDIC-insured and you don’t incur any early withdrawal penalties) |
Interest risk | None (rate locked at opening) |
Safer than | Stocks, bonds, cryptocurrency, other non-bank investments |
Online CDs | Equally safe if FDIC-insured and may even offer higher rates, since digital banks don't have the overhead costs of brick-and-mortar banks |
Unlike many deposit accounts, where rates can change, CDs earn a fixed interest rate for the full length of your selected term.
What is a CD?
A certificate of deposit is an interest-bearing deposit account in which your initial deposit is held in a savings account for a specified amount of time. A CD has a fixed-term length and maturity date, which typically can be anywhere from a few months to a few years. At the end of the CD’s term, you can withdraw your funds from the CD without penalty.
Think of it as making a deal with your bank: You promise to leave your money untouched for a set period, and in return, the bank pays you a higher interest rate than you’d likely get with a regular savings account.
Learn more: Compare CD rates at Ally Bank
How safe are online CDs?
Online CDs are just as safe as CDs from a physical bank, provided the institution is federally insured. You can typically open your CD online in just a few steps.
In fact, digital banks may even be able to offer higher rates, since they don’t have the overhead costs of brick-and-mortar banks.
Bonus: Ally Bank’s CDs have no minimum deposit required. Plus, you also currently get our Ten-Day Best Rate Guarantee with every CD: If you fund a new CD on the same day you open it or on one of the next 9 calendar days of your open date, you'll get the best rate we offer for your term and balance tier if our rate goes up within that time.
Compare CDs vs. other savings options
Understanding how CDs stack up against other savings options can help you make the right choice for your financial goals.
Product | Liquidity | Best for |
|---|---|---|
CDs | Low (early withdrawal penalties apply) | Guaranteed pay outs; Goals with known time horizons |
Money Market | High (withdraw anytime) | Emergency funds; flexible access |
Savings Accounts | Medium (limited transactions) | Balance of access and pay outs |
CDs vs. savings accounts
CDs typically have a higher annual percentage yield (APY) than savings accounts, but they're more rigid in how you can access your money. You also cannot add money to a CD after the initial 10-day grace period is up. CDs are opened in lump sums while savings accounts let you deposit money whenever you want.
While savings accounts usually have variable interest rates, CDs allow you to lock in a fixed interest rate for a set period, which means you could keep a great rate even if market rates drop. Keep in mind a fixed rate also means you might be stuck with a lower rate if interest rates rise before your term is up.
Common risks to consider
While CDs are among the safest options available, it's important to understand a few possible drawbacks:
1. Inflation risk
If your CD's interest rate is lower than the rate of inflation, your spending power will decrease over time. For example, if your CD earns 3% annually but inflation is running at 4%, the real value of your savings is declining — even though your balance is growing. Keep the inflation rate in mind when shopping around for competitive CD rates.
2. Interest-rate risk, or opportunity cost
Locking your funds in a long-term CD means committing to that rate for the entire term. If interest rates rise during your CD's term, you would miss out on those higher returns. A CD laddering strategy, which spreads funds across CDs with staggered maturity dates, gives you periodic opportunities to withdraw or open those same funds at better rates.
3. Early withdrawal penalties
Most CDs charge a penalty if you withdraw before the term ends. These penalties can reduce your interest earnings and, particularly with short-term CDs, may even impact your principal. That’s why it’s important to fund a CD with money you won't need during the term, or consider an Ally Bank No Penalty CD for more flexibility.
Why should you consider opening a CD?
Certificates of deposits come with a lot of benefits that make them an attractive choice for stashing your savings:
Predictable pay outs: Locking in an interest rate at opening means you know exactly how much you’ll earn. CDs might also offer higher rates than traditional savings accounts
Safety: As long as you’re banking with an FDIC-insured bank, you’ll be protected up to the maximum amount allowable by law. Since CDs are deposit accounts, there are no associated market or volatility risks, plus your principal is protected
Flexibility and convenience: Most banks and credit unions offer CDs, and they’re typically easy to open online, especially with a digital bank. You can select a CD that matches your goal (at Ally Bank, for instance, we offer No Penalty CDs, High Yield CDs and Raise Your Rate CDs, all with multiple term lengths available)
Balance solid pay outs with peace of mind
Before you decide if a CD is right for you, think about when you will need the money, how much you can expect to make and the potential penalties if you need to take the money out early. With the right CDs and a good saving strategy, it's possible to strike a balance between earning interest at competitive rates and protecting your savings against loss.
