CD Loans: How To Borrow Against Your Certificate of Deposit and Should You? (2024)

Certificates of deposit are among the most secure investments on the market. They are insured by the federal government and typically have a higher interest rate than a traditional savings account. Because of those factors, CDs generally are considered a good step toward investing in your financial future.

What Does It Mean To Borrow Against Your CD?

What is the meaning of a CD loan? Even though you might not want to withdraw from your CD and pay the penalties, there are other ways to have your money work for you if you do need cash quickly. For instance, it’s possible to use your CD as collateral for a term loan.

How Does a CD Loan Work?

Some banks will allow you to borrow against a CD as long as your certificate of deposit is at that same financial institution. Typically, a financial institution can lend up to 100% of the value of your CD principal, and the length of the loan can be as long as the term of the CD.

Talk to your bank about the details before you sign anything and always try to only take out what you need. Even though you can get money back from a CD, don’t take the entire amount offered just because you can. You still have to pay it back.

Are There Disadvantages To Getting a CD Loan?

Your money can be tied up for an extended period while you wait for the CD to mature – that can be anywhere from six months to six years, or even shorter or longer, depending on your financial institution. If the roof on your house collapses, or if you or someone in your family has significant medical expenses, you won’t be able to liquidate this asset to cover this cost without paying substantial closing penalties for early CD withdrawal.

Should You Take Out a CD Loan?

It might seem counterintuitive to take out an interest-bearing loan against an interest-bearing CD, but there can be sound financial reasons for doing so.One reason might be to improve yourcredit scoreby making a series of on-time payments on asecured loan. If you establish a good payment history, taking out a loan against your CD can be a good alternative to obtaining asecuredcredit cardand could helpyou rebuild creditwith the three credit bureaus.

Another reason to take out aloan against a CDis if you need your money in a hurry.Banks like Wells Fargo can approve loans against a CD within hours and provide you with the funds on the same or the following business day.

CD Loan Fees and Costs

It might seem counterintuitive to take out an interest-bearing loan against an interest-bearing CD, but there can be sound financial reasons for doing so. One reason might be to improve your credit score by making a series of on-time payments on a secured loan. If you establish a good payment history, taking out a loan against your CD can be a good alternative to obtaining a secured credit card and could help you rebuild credit with the three credit bureaus.

Another reason to take out a loan against a CD is if you need your money in a hurry. Some banks can approve loans against a CD within hours and provide you with the funds on the same or the following business day.

Remember, too, that if you need that new roof in an emergency, the interest rate if you pay by credit card likely will be higher than the interest rate you pay on the CD loan.

How To Take Out a CD Loan

Borrowing against a CDis usually a straightforward process. You’ll even continue to earn interest on the CD you own. Here are the steps:

1. Open an account at a bank or other financial institution.
2. Purchase a CD.
3. Inform a banker that you wish to take out aCD-secured loan.
4. Examine the rates and terms of aloan against a certificate of deposit, including all fees.
5. Take out the loan and receive your money.

Note that the first two steps do not apply if you already own a CD.

Is a CD Loan a Good Idea?

Borrowing against your CD can be a viable option. To find out more, talk to your financial institution about what it can do for you, or check out other current CD rates that are available. Borrowing against your CD can be a viable option. To find out more, talk to your financial institution about what it can do for you, or check out other currentCD rates that are available.

Jami Young, John CsiszarandJose Vazquezcontributed to the reporting for this article.

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