There are some great opportunities available right now to make money investing in certificates of deposit (CDs). Rates have been higher in the recent past than they’ve been in decades, and you can easily earn upward of 5.00% on your money by buying a CD.
Unfortunately, many people don’t really understand a lot about this investment, and there are some common myths that could keep people from taking advantage of the opportunity CDs are offering right now. To help make sure you aren’t falling victim to misinformation about CDs, check out these facts that you’re probably wrong about.
1. CDs always come with penalties
One of the biggest misconceptions about CDs is the idea that you are always going to be stuck locking up your money or else risk a penalty.
While it is true that most CDs do charge you a fee if you take your money out before the term ends, this absolutely isn’t the case for every single certificate of deposit. In fact, many banks offer CDs without penalties, including CIT and Ally.
Our Picks for the Best High-Yield Savings Accounts of 2024
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American Express® High Yield Savings 
APY 4.25%
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APY 4.25%
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Min. to earn $1 |
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Bask Interest Savings 
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Min. to earn $0 |
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Citizens Access® Savings 
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Min. to earn $0.01 |
If concerns about potential penalties are what’s holding you back from CD investing, it’s worth looking into these options to see if they’re right for you.
2. You can’t lose money
CDs are billed as a risk-free investment, and in some ways, that’s correct. They are FDIC-insured, so there’s no risk of losing your money if the bank goes under.
However, this doesn’t mean there’s no way you can walk away with less than you put in. Most CDs do charge an early withdrawal penalty. If you take your money out before you’ve earned enough interest to cover the penalty, it’s very possible that the fees you’re charged could mean you end up walking away with less than the initial amount you invested.
To avoid this, be sure you pick a CD that has a term you’re confident you can leave your money invested for. The good news is, there are tons of 3-month and 6-month CDs offering really competitive rates right now. You don’t have to make a long commitment to earn a good return, so you should be able to find a certificate of deposit that you won’t have to make an early withdrawal from.
If you can do that and leave your funds invested for the duration, then you can make sure you don’t lose part of your principal.
3. CDs have high minimum deposit requirements
Some people believe you need a lot of money to invest in CDs. And it is true that there are CDs out there with high minimum investment requirements. Sallie Mae, for example, requires a $2,500 deposit to open one of its CDs.
However, there are also CDs with much lower deposit requirements, including some that don’t have any set minimum limit at all. For example, Synchrony Bank offers multiple term options with no minimum deposit required. These make it easy to get started even if you don’t have a fortune to devote to CD investing.
Now that you’ve learned the truth about these three facts you may have gotten wrong, you can make more informed choices about whether CD investing is right for you.
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