Certificates of Deposit (CDs) became a prime safe harbor during the recent market turmoil, thanks to the very reliability that once made them seem boring.

The dependable (but dull) component of most portfolios, investors discovered they could suddenly earn relatively high returns on CDs.

Buying a CD now lets you lock in a consistent rate or return, with the confidence that your investment is FDIC insured. Click here to see today’s highest CD rates.

How do CDs work?

CDs are low-risk investments you buy through a bank or thrift. For money you don’t intend to use for a specified length of time – 6, 9, or 12 months, or several years – the bank will guarantee you a fixed return CD interest rate, usually substantially more than what you can earn on your checking or savings account, even an online savings account.

But CDs share an important attribute with checking and savings accounts: they are insured by the Federal Deposit Insurance Corporation (FDIC). All CDs you hold in one institution are insured by the FDIC up to $250,000 per person, per deposit category. That’s a safety net you won’t find with stocks, bonds or mutual funds.

Ease and accessibility are two of the many great features of CDs. Unlike stocks or mutual funds, you don’t need a brokerage account to buy a CD. You can purchase CDs from your bank or go online to buy CDs without paying any transaction costs.

While you can access your money in an emergency, there are penalties for redeeming CDs before the maturity dates on each CD, typically equal to CD interest earned over the prior one to three months. One exception to this rule is the “Penalty Free CD” from Discover Bank which allows you to withdraw principal and credited interest penalty-free if you lose your job.

What should I know before buying a CD?

Before buying any CD, make sure you familiarize yourself with the terms and conditions. Just as banking and checking accounts come with different features from bank to bank, the terms of different CDs can vary substantially from one to the other. Make sure you understand the penalties for early withdrawal, which at some banks can be as high as one year of accrued CD interest.

Why are CDs important to banks?

CDs provide banks with a stable source of reserve funds. When banks sell you a CD, they can then turn around and lend the money in your account out to borrowers for more than they’re paying you and other CD account holders. If your CD is earning you 4 percent, for example, the bank might lend it out to other borrowers for 6-7 percent.

While CDs make bank balance sheets look good, in this market, they make investors feel good, too. CDs are investments which let you sleep well at night.

Who should invest in CDs?

CDs are best for investors who need dependable returns on their money, but won’t need the money for a specific period of time. Often these are investors who require predictability and safety in their investments.

Financial planners say it’s important to “ladder” your CD investments. Building a “CD Ladder” means you should buy CDs that mature every couple of months, for example, or every year to ensure your money is constantly being freed up at regular intervals should you need it.

Where can I find the best CD rates?

Rates vary from bank to bank, as you can see on the CD rate tables at RateNerd.com. Often online banks, like Discover Bank, offer significantly higher rates of return for their CDs than traditional banks.