Certificate of Deposit (CD) – Simple Guide for UK Investors

A Certificate of Deposit, or CD, is a fixed‑term deposit you place with a bank or building society. You lock in your cash for a set period—usually from a month to five years—and earn a guaranteed interest rate that’s higher than a regular savings account.

How a CD Works

When you open a CD you agree on the amount, the term and the rate. The bank pays you the interest either at the end of the term or periodically, and you can’t touch the money without paying a penalty. The longer the term, the higher the rate you’ll usually get.

Choosing the Right CD

To pick a good CD, start by comparing the annual percentage yields (APYs) offered by different banks. Online‑only banks often have the best rates because they have lower overheads. Think about laddering—spreading your money across several CDs with staggered maturities—so you keep some cash accessible while still earning top rates.

In the UK the interest you earn on a CD counts as taxable savings income. It’s added to your other interest and falls under the personal savings allowance (£1,000 for basic‑rate taxpayers, £500 for higher‑rate). If you’re under the allowance you won’t pay tax, but keep an eye on your total earnings.

CDs are low‑risk, but they’re not risk‑free. Inflation can erode the real value of your returns, especially on short‑term CDs. If you need the cash early you’ll face a penalty that can eat into the interest. The good news is that any UK‑registered bank or building society is covered by the Financial Services Compensation Scheme up to £85,000 per person.

A CD works best when you have a specific cash goal that’s several months away—like a deposit for a house, a car purchase or a tuition bill. It’s also handy for parking an emergency fund that you don’t plan to touch, because the guaranteed rate beats most current‑account interest.

Opening a CD is straightforward. You’ll need proof of identity, proof of address and the cash you want to lock in. Most banks let you apply online, choose the term, lock in the rate and transfer the money in minutes. Always double‑check that the institution is FSCS‑protected before you commit.

Quick FAQ: you can’t add more money to an existing CD—you’d need a new one. When a CD matures you can let it roll over into a new CD at the current rate, or withdraw the funds. Some banks let you set up automatic rollovers so you never miss a beat.

Bottom line, a Certificate of Deposit is a simple tool to earn higher, predictable interest on money you don’t need right away. Use the tips above to compare rates, match terms to your goals and keep an eye on tax. Add CDs to your treasury toolkit and watch your savings grow without the guesswork.