Isn't That Rich Podcast

What Is a CD and Should You Open One?

If you’ve ever wondered what a CD is (and no, not the kind that plays music) or whether it’s the right move for your money, you’re not alone. At Farmers State Bank, one of the most common questions we get is: “Should I open a CD?”

In this blog post, based on our latest Isn’t That Rich podcast episode, we’re breaking down what a CD (Certificate of Deposit) actually is, how it works, and why it might be the right savings tool for you whether you have $1,000 or $2 million.

What Is a CD?

A Certificate of Deposit is a savings account where you agree to leave your money untouched for a set period in exchange for a fixed interest rate. It’s simple, secure, and low-risk. In exchange for locking in your money, the bank pays you a higher interest rate than most traditional savings or checking accounts.

But here’s the catch: If you pull your money out early, you’ll pay a penalty—usually just on the interest you’ve earned, not your original deposit (called the principal).

When Does a CD Make Sense?

If you're the type of person who has a hard time not dipping into your savings, a CD might actually help you stay disciplined. Think of it like a speed bump for your spending habits.

CDs are great for:

• People who want to earn more than a regular savings account offers

• Savers who aren’t comfortable with the ups and downs of the stock market

• Anyone who can afford to park their money for 6 months to 2 years without needing it

Starting Small: $1,000–$10,000

You don’t need to be a millionaire to open a CD. Even $1,000 can get you started.

If you're saving between $1,000 and $10,000, a 6-to-12-month CD is a great way to test the waters. You’ll earn more than you would in a basic savings account, and your money won’t be tied up for too long.

Pro Tip: Compare your bank’s checking account rates, too. At Farmers State Bank, for example, our Kasasa Cash checking pays a high interest rate that may be comparable to some short-term CDs.

How to Boost Returns: Try CD Laddering

Let’s say you have $5,000 to invest. Instead of putting it all into a single 12-month CD, you could split it:

• $2,500 in a 6-month CD

• $2,500 in a 12-month CD

When the 6-month CD matures, you can decide whether to cash out or roll it into another CD—giving you flexibility and regular access to your funds while keeping the rest earning interest.

This strategy is called CD laddering, and it works even better as your savings grow.

Saving More: $10,000–$50,000

If you’re in the $10,000–$50,000 range, you’ve got more flexibility. You might consider spreading your funds across multiple CD terms, like:

• 6 months

• 12 months

• 18 months

• 24 months

This way, you’ll always have a CD maturing every six months. It's a smart way to create a rhythm of steady interest income and still have access to your funds periodically.

And don’t forget—you can choose whether your interest is paid out monthly or allowed to accumulate, earning interest on your interest.

Leveling Up: $50,000–$100,000

With this much in savings, it’s time to start thinking about mixing your options. You could:

• Keep a portion in a high-yield savings account for flexibility

• Ladder the rest across CDs with longer terms for better rates

• Ask if you qualify for a jumbo CD rate (typically available for deposits over $50,000)

Example:

• $10,000 in a 6-month CD

• $10,000 in a 12-month CD

• $10,000 in an 18-month CD

• $10,000 in a 24-month CD

• $10,000 in a high-yield savings account

Protecting Large Sums: $100,000–$250,000+

Now you’re playing in a different league—and FDIC insurance matters more than ever.

FDIC insurance covers up to $250,000 per depositor, per bank, per ownership type.

But don’t worry—you can structure your accounts to increase your coverage:

Ownership Types That Increase FDIC Coverage:

• Individual CD – Covers up to $250,000 per person

• Joint CD – Each co-owner is insured up to $250,000 (total of $500,000)

• Payable on Death (POD) – Adds $250,000 of insurance for each named beneficiary

• Trust CD – Can offer even higher coverage depending on the structure

• IRA CD – Specifically for retirement funds, FDIC insured up to $250,000

Example:
If Mark has $180,000 after selling a rental home, he could:

• Put $50,000 in a 12-month CD

• Put $50,000 in a 24-month CD

• Put $50,000 in a 36-month CD

• Keep $30,000 in a high-yield savings account

• Add beneficiaries to each CD to ensure he’s fully insured

Going Big: $250,000 and Beyond

If you’re sitting on a large amount of cash—think $500,000 or even $2 million—you might want to explore Cedars.

Cedars stands for Certificate of Deposit Account Registry Service. It lets you place large amounts in CDs while keeping every dollar insured.

Your bank splits your money across partner banks, but to you, it looks and feels like a single CD. You get:

• One statement

• One interest rate

• One relationship—with full FDIC protection

What to Ask Your Banker

Here are the top questions to ask before opening a CD or Cedars account:

1. Can I use Cedars to keep my deposit fully insured?

2. What mix of CD terms makes sense for my goals?

3. Should I title accounts individually, jointly, or with beneficiaries?

4. What will my CD ladder look like over time?

Final Thoughts

Whether you’re just starting to save or sitting on a small fortune, CDs can be a smart way to grow your money safely. The trick is not just chasing the highest rate—it’s matching your money to your goals and understanding your insurance coverage.

Want help structuring your savings plan? Stop by any of our branches or visit myfsb.com to chat with a personal banker. We’ll help you build a CD ladder that works for you, no spreadsheets required.