How a 3-Month CD Works: Breaking Down the Mechanics

Shawn Plummer

CEO, The Annuity Expert

A three-month certificate of deposit, or CD, is a savings product banks offer. It allows you to save money for a fixed amount of time and earn interest on the deposited funds. First, this guide will break down the mechanics of how a three-month CD works. Then, we will discuss how the interest is calculated and what you can expect to earn on your deposited funds.

Best 3-Month CD Rates

When finding the best 3-month CD rates, you’ll want to compare offers from different banks and credit unions. Rates can vary widely, so be sure to shop around for the best deal. Here are some of the best 90-day CD rates currently available:

Understanding 3-month CD rates

A Certificate of Deposit or CD is a financial product that banks and credit unions offer. CDs are often considered a safe and secure investment option as they offer guaranteed returns and are insured by the FDIC (Federal Deposit Insurance Corporation). A 3-month CD is a short-term high-yield CD with a maturity period of 3 months. During this period, the investor cannot withdraw the funds without paying the penalty.

A 3-month CD rate is the interest rate the bank or credit union will pay you for investing your money in their CD for three months. Bank and credit unions’ interest rates can vary based on market conditions, competition, and the amount of money invested. However, the interest rate offered on a 3-month certificate of deposit is typically lower than that offered on longer-term CDs.

How do 3-month CD rates work?

When you invest your money in a 3-month CD, you are essentially lending your money to the bank or credit union for three months. In return for lending your money, the bank or credit union will pay you a fixed interest rate for the duration of the CD. As a result, the interest rate offered on a 3-month CD is usually lower than that offered on a longer-term CD, as the bank or credit union has access to your funds for a shorter period.

Who should consider investing in a 3-month CD?

Investing in a 3-month CD may be a good option for those with a short-term investment horizon and who do not want to tie up their funds for a long time. It is also suitable for risk-averse people who prefer a safe and secure investment option. Finally, if you have some extra cash you do not need in the immediate future, investing in 3-month CDs can be an excellent way to earn a decent return on your investment without taking on too much risk.

Factors to consider when selecting the best 3-month CD rates

Before you invest your money in a 3-month CD, it is essential to consider several factors to ensure that you select the best 3-month CD rates that meet your needs. Here are some factors to consider:

  • Interest rates: The interest rate offered on a 3-month CD can vary from one bank or credit union to another. It is essential to compare the interest rates offered by different institutions to find the best 3-month CD rates.
  • Fees and penalties: Some banks and credit unions may charge fees for opening or maintaining a 3-month CD. Understanding these fees and penalties is essential before investing in a 3-month CD.
  • Early withdrawal penalties: If you withdraw your funds before the maturity date of the CD, you may be charged an early withdrawal penalty. You understand the early withdrawal penalties before investing in a 3-month CD.
  • Minimum deposit requirements: Some banks and credit unions may have minimum requirements for opening a 3-month CD. It is essential to understand these requirements before investing your money in a 3-month CD.
  • Reputation and stability of the institution: Investing your money in a reputable and stable institution is essential to ensure your funds are safe and secure.

How to find the best 3-month CD rates

To find the best 3-month CD rates, you can start by researching your area’s different banks and credit unions. You can check their websites or visit their branches to learn about their 3-month CD rates, fees, and minimum deposit requirements. You can also use online comparison tools to compare the rates offered by different institutions. Considering fees, penalties, and the institution’s reputation is essential before investing money in a 3-month CD.

Tips for maximizing your returns on a 3-month CD

To maximize your returns on a 3-month CD, you can consider the following tips:

  • Invest in a high-yield 3-month CD: Some banks and credit unions offer high-yield 3-month CDs that offer higher interest rates than traditional CDs.
  • Consider laddering your CDs: Laddering your CDs means investing in CDs with different maturity dates. This can help you earn higher returns while still providing liquidity.
  • Avoid withdrawing your funds early: Early withdrawal penalties can significantly reduce your returns on a 3-month CD. Therefore, it is essential only to invest funds that you do not need in the short term.

How Is The Interest Calculated?

The interest on a three-month certificate of deposit is calculated using a simple or compounding interest formula. The formula considers the principal (the amount of money you deposited), the interest rate, and the length of time that the CD is held. The interest rate is set by the bank and will not change during the term of the CD.

We offer a compounding interest calculator on our website that you can use to calculate the interest on your three-month CD.

What Happens At The End Of The 3 Months?

You can withdraw your money plus any interest accrued at the end of the three-month CD term. The interest will be paid out in cash or added to the principal balance of the CD.

You can also transfer the money from the three-month CD into another savings account, roll the CD into a new one, or use the funds to purchase a different financial product.

What Happens If I Die?

If you die before the three-month CD term, your beneficiaries will receive the money in the account, plus any interest accrued.

When Should I Invest in a Three-Month CD?

A three-month CD is a good investment for someone who wants to earn interest on their deposited funds but does not want to commit to a longer-term CD. This type of CD is also a good option if you need easy access to your money and do not want to pay any early withdrawal penalties.

Free Tool: CD Rate Calculator

Earn The Highest Interest Rates On Savings Today

Fixed annuities are almost identical to Certificates of Deposit (CDs) accounts and provide higher interest rates and penalty-free withdrawals for income.

TermInsurance CompanyAPY
N/AMoney Market Account – Optimum Bank5.26%
N/AMoney Market Account – American First Credit Union5.26%
N/ASavings Account – Western Alliance Bank5.26%
12 MonthsBread Savings CD5.60%
48 MonthsClear Spring Fixed Annuity5.15%
5 YearsAthene Fixed Annuity5.30%
10 YearsEquitrust Fixed Annuity6.00%
*Fixed annuities are only for saving money to use in retirement.

Disclaimer: This is a review. The Annuity Expert is not associated with a bank or credit union. However, fixed annuities are sold at most financial institutions. We aim to help you find the highest interest rates for your retirement savings. We may receive a small referral fee if you purchase something using a link in this guide.

Find And Compare The Highest Interest Rates

Find the highest interest rates for your savings, ranging from 3 months to 10 years, all in one place.

The Next Steps

A three-month CD may be a good option if you want a safe and easy way to save money. However, shop around and compare interest rates before selecting a bank. And remember, you will not be able to access your funds during the term of the CD, so be sure to deposit only money you can afford to tie up for three months.

3-Month-Cd-Rates

Compare CD Rates From 423 Banks And Credit Unions

Find the highest interest rates for your savings from 3 months to 5 years.

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us
First
Last

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top