Certificates of deposit (CDs) allow you to grow your savings with little to no risk. They offer guaranteed returns, and they're FDIC insured up to $250,000 per bank, per depositor.

But while CDs are simple investments, they aren't foolproof. If you're not careful, you could make costly mistakes that reduce your earnings or lock your money away when you need it most.

Here are three of the biggest mistakes you can make when investing in CDs -- and how to avoid them.

1. Locking in a CD without shopping around

One of the worst mistakes you can make is settling for the first CD you come across. Some banks offer much higher interest rates than others.

Our Picks for the Best High-Yield Savings Accounts of 2025

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.70% Rate info 3.70% annual percentage yield as of March 2, 2025. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.70% Rate info 3.70% annual percentage yield as of March 2, 2025. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
SoFi Checking and Savings Member FDIC. APY up to 3.80%² Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings On SoFi's Secure Website. Member FDIC.	up to 3.80%² Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.	$0	Open Account for SoFi Checking and Savings On SoFi's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.70% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Feb. 6, 2025. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.70% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Feb. 6, 2025. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.

Let's say you want to invest $5,000 in a 5-year CD.

• If you choose a CD with a 1.31% APY (the national average), you'll earn about $336.
• If you choose a CD with a 4.00% APY, your earnings jump to $1,083.

You'd earn three times the interest just by selecting a higher-yield CD. And the more you invest, the more you stand to gain from a higher APY.

How to avoid this mistake:

• Compare CD rates from multiple banks before making a decision.
• Consider online banks, which often offer higher rates than brick-and-mortar banks.
• Check for promotional CDs, which may offer better rates for a limited time.

2. Choosing the wrong CD term

Another potential big mistake is picking a CD term that doesn't work for you. If you withdraw your funds before the CD's maturity date, you'll likely face an early withdrawal penalty, which can reduce or even wipe out your earnings.

For instance, if you invest in a 5-year CD but suddenly need the money in two years, you may have to pay a penalty equivalent to six months' or even a full year's worth of interest.

Some banks offer CDs called "no-penalty CDs" with no early withdrawal penalty, but these tend to have lower APYs.

How to avoid this mistake:

• Choose a CD term based on when you'll need access to the money.
• If you're unsure, consider a short-term CD or a CD-laddering strategy. That way you'll be able to access at least some of your money as soon as three months.

Want to earn an APY of over 4.00% and withdraw money whenever you want? Check out our list of the best high-yield savings accounts to open a new account today.

3. Not watching out for the CD maturity date

When your CD matures, you have some options when it comes to what happens next.

Namely, you can:

• Withdraw your original deposit plus the earnings
• Roll the funds over into a new CD with the same term (also known as "renewing")
• Invest the funds in a different CD

You generally have seven to 10 days after the CD's maturity date to make a decision; this is the "grace period." If you don't take action, your bank may automatically reinvest your money in a new CD with the same term -- but potentially a different interest rate.

Most banks will notify you when a CD is maturing soon (and in some cases, they're required by law to do so). But it's best not to assume that you'll get a heads up.

How to avoid this mistake:

• Find out in advance what your bank will do if you leave your CD funds untouched past the grace period.
• Mark your calendar or set a reminder for your CD's maturity date.
• When the time comes, check out the CD rates offered by your current bank and other banks. Then you can decide whether it's best to renew, invest elsewhere, or cash out.

How to open a CD the right way

Opening a CD is a straightforward process, and it's easy to avoid the pitfalls. Here's a simple step-by-step guide:

1. Compare rates: Look at multiple banks and credit unions to find the best interest rates.
2. Choose the right term: Select a CD term that aligns with your financial needs.
3. Decide how much to invest: Make sure you keep some savings accessible for emergencies.
4. Open the CD: It's easiest to do this online or through the bank's mobile app. Some banks require a minimum deposit, so check the terms before opening an account.
5. Keep track of interest rates: If rates rise significantly, you may want to reinvest when your CD matures.
6. Don't miss the maturity date: When your CD matures, you want to have control over what happens with your money next.

Ready to open a CD and start earning an APY of 4.00% or more? Check out our list of the best CD rates to get started.