Types of Fixed-Rate Savings CDs

There are a variety of options for investing in small-savings certificates of deposit:

Add-on CDs allow you to deposit additional money into them after they have been set up.
Designer CDs allow you to set your own maturity date.
Early-withdrawal CDs permit you to withdraw a part of your principal before the maturity date.
Upgradeable CDs allow you to change the interest rate.
Discount CDs (or zero coupon CDs) are sold for less than their face value. When they mature, the investor receives the face value. The difference between the face value and the discount price is the interest. For example, a $50,000 CD can be sold for $47,500. When it matures, the investor will receive $50,000, and the $2,500 difference will be treated as interest for tax purposes. If a zero coupon CD has a maturity greater than one year, you must report its imputed income (also called "phantom" income) each year on your income tax returns.