Certificate of Deposit (CD) Term Loans and How They Work

Ever feel like you are in a tight spot with cash, but your savings are locked away? You’re not the only one. Many people hesitate to touch their savings or rack up credit card debt when handling surprising expenses. But what if you could access your savings without losing any earned interest? That’s where certificate of deposit loans—or CD term loans—come into play. They are a powerful financial tool that flies under the radar. Keep reading to learn about CD term loans and how they can serve your borrowing needs.

Certificate of Deposit Definition:

Before exploring CD term loans, let’s first understand the foundation on which they stand—the certificate of deposit (CD). A CD is a savings tool offered by banks and credit unions that locks your money in for a set period of time in exchange for interest—essentially a reward for letting the bank hold your funds.

By agreeing to keep your money in the CD for a fixed term—usually ranging from a few months to several years—you can earn more money than with a regular savings account. CDs offer predictable growth, and since they are not affected by economic fluctuations, they provide stability. However, because the money must remain in the account until the term ends (the "maturity date"), withdrawing early comes with a penalty.

If you would like to revisit the basics of certificates of deposit, read the article: Is Opening a CD Worth It?

What Are CD Term Loans?

If you need cash but want to avoid early withdrawal fees, a CD term loan could be the perfect alternative. Simply put, a CD term loan—also known as a CD-secured loan—is a type of personal loan backed by your certificate of deposit. Since your CD serves as collateral, it lowers the lender’s risk, often resulting in more favorable loan terms. This works similarly to other secured loans, like mortgages or auto loans, which use a house or car as collateral.

The best part about taking out a CD term loan is you can access cash without being penalized for early withdrawals. This makes them a great choice for people who need liquid funds but want to keep their money growing in the CD.

How Do CD Term Loans Work?

A certificate of deposit term loan can be a reliable option when you need access to money without tapping into your savings or relying on credit cards or other loans. The process is clear-cut: simply reach out to the bank or credit union where you hold a CD and request a loan. This can be done online or in person. Then, the bank will review the value of your CD and offer a loan based on that amount, typically not exceeding the CD’s value.

Once approved, you receive the loan and can use it for any purpose, such as covering unexpected expenses, consolidating debt, or making a large purchase. At the same time, your certificate of deposit stays in place and continues earning interest.

The fixed monthly payments make the repayment process straightforward. And because your CD acts as collateral, the interest rates are typically lower than those of unsecured loans. Just remember, if the loan isn’t repaid, the bank may seize your CD to cover the balance. Stay on mission with your payments!

CD Term Loans at a Military Bank:

When it comes to managing your money, flexibility is the most important part. Thankfully, CD term loans provide just that. This loan option can help you overcome financial challenges without touching your savings. Whether you are borrowing, saving, or need money quickly, CD term loans offer a smart solution to help you meet your financial goals. Ready to see how it works for you?

Contact Armed Forces Bank today to discover the benefits of a certificate of deposit¹ or CD term loan!²

More About Certificates of Deposit:
Basics of Certificates of Deposit
Certificate of Deposit Calculator
Basics of CD Laddering
CD Ladder Calculator
How to Find the Best Certificate of Deposit
Short-Term CDs or Long-Term CDs?
Basics of CDs for Business
Compare Personal Savings Options
Compare Business Savings Options