Flexible vs. Fixed-Rate CD [Infographic] (2024)

FAQs

What is the difference between a flexible CD and a fixed CD? ›

The two CD types are fundamentally different. Fixed-rate CDs feature an interest rate that generally stays the same for the length of the investment. Flexible-rate CDs, however, have an interest rate that may increase or decrease over the term. Each has investing advantages, but often in differing contexts.

Characteristics of a Flex CD

With an attractive Annual Percentage Yield (APY) of 3.85%, you can achieve impressive returns that outpace traditional savings accounts. From the onset, you know how much interest you will earn if you don't withdraw before the maturity date.

However, our opinions are our own. See how we rate banking products to write unbiased product reviews. Depending on the bank, a $5,000 CD deposit will make around $25 to $275 in interest after one year.

Losing money in a CD is highly unlikely. However, it's not impossible. If you're thinking about opening one, read the fine print about early withdrawal penalties, and be sure to compare more flexible options that don't have a maturity date.

Fixed-rate CDs offer stability and security, but this comes at a cost. Fixed-rate CDs generally provide lower returns compared to volatile investments like stocks or mutual funds.

Your money earns guaranteed rates for a fixed period of time. With a 9-month Flex CD, you get the benefits of a traditional CD with the added flexibility of being able to make additional deposits or withdrawals ¹.

Banks and credit unions are not currently offering 7% CDs, but many high-yield CDs with rates from 5% to 6% or higher are available. Two Californian credit unions offer special CDs with rates of 9.5% APY and 6.5% APY. Financial institutions set CD APYs based on the benchmark rates set by the Federal Reserve.

What is the biggest negative of putting your money in a CD? ›

1. Early withdrawal penalty. One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.

Finding CDs offering 6% interest

There isn't a nationwide bank offering a 6% CD rate today, but there is one local credit union with a CD that pays 6% APY (although you'll need to meet membership eligibility requirements).

How much interest would you earn? If you put $20,000 into a 5-year CD with an interest rate of 4.60%, you'd end the 5-year CD term with $5,043.12 in interest, for a total balance of $25,043.12.

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

As the name suggests, a jumbo CD is a type of savings account that requires a large initial deposit—typically $100,000 or more. The money you deposit will earn interest that compounds in regular intervals, generally daily or monthly, throughout the life of the CD.

Change in Frequency

A fixed exchange rate is one that is set by the monetary authorities and does not change frequently. A flexible exchange rate, on the other hand, is one that is set by the market and changes frequently.

Key Takeaways

A variable interest rate loan is a loan where the interest charged on the outstanding balance fluctuates based on an underlying benchmark or index that periodically changes. A fixed interest rate loan is a loan where the interest rate on the loan remains the same for the life of the loan.

A CD, or certificate of deposit, is a type of savings account with a fixed interest rate that's usually higher than the rate for a regular savings account. A CD also has a fixed term length and a fixed withdrawal date, known as the maturity date.

Both CDs and annuities are very safe investments. Both offer a set return on your money and are insured or guaranteed by the FDIC or insurers. CDs can be more flexible than annuities, with shorter terms and lower penalties if you need to withdraw your money in an emergency.