What Is a CD Term Loan and How Does It Work?

Ever find yourself in a pinch, needing money that's tied up in savings? You are not alone. Many people struggle with the choice between dipping into their savings or racking up credit card debt, especially when unexpected expenses come up. But what if there was a way to leverage your savings without losing a cent of interest? Enter the CD term loan—an often-overlooked financial tool that could be your next best friend. In this guide, we will explore what CD term loans are and how they work, making financial emergencies less stressful and more manageable.

What is a Certificate of Deposit?

Before diving into CD term loans, let's understand certificates of deposit (CDs). A CD is a savings tool from banks or credit unions that holds your money for a set length of time exchange for earning interest, which is a kind of financial reward for letting the bank use your money.

By agreeing to leave your money deposited for a fixed term, typically a few months to a few years, you earn more money compared to regular savings accounts. CDs have set terms and interest rates, offering predictable growth that is safe from economic fluctuations. However, since you must keep your money in the CD until the “maturity date,” early withdrawals come with penalties.

To learn more about how CDs work and whether they are the right fit for you, revisit our previous article: Are CDs Worth It?

What is a CD Term Loan?

But what happens if you need money and want to avoid early withdrawal fees? Enter CD term loans, or CD-secured loans. In simple terms, a CD term loan is a secured personal loan backed by your certificate of deposit. This means that the funds in your CD back the loan, which lowers the lender’s risk and can lead to better loan terms for you. CD term loans are similar to other collateral-based loans such as mortgages or auto loans, which secure collateral in the form of a home or a car.

The greatest benefit of a CD term loan is that you borrow against your own saved money without having to worry about the penalties for early withdrawal. This unique setup makes them a great option for individuals who have money tied up in a certificate of deposit but need cash quickly.

How Does a CD Term Loan Work?

A certificate of deposit term loan can be a smart option when you need access to cash but don’t want to touch your savings or rely on credit cards or unsecured personal loans. The process of taking a CD loan is fairly easy: you go to the bank or credit union where you have a CD and request a loan. This can be completed online or in person. The bank will assess the value of your CD and offer you a loan based on that amount, typically not exceeding the value of the CD itself.

Once approved, you receive the loan and use it for anything you need—whether it's covering emergency expenses, consolidating debt, or making big purchases. Meanwhile, your CD stays in place, earning interest as usual.

Repayment is straightforward thanks to fixed monthly payments. And since your CD serves as collateral, the interest rates are often lower than unsecured loans. Just keep in mind that if you don’t repay the loan, the bank may take your CD to cover the balance, so it’s important to stay on top of your payments!

CD Term Loans at Academy Bank

When it comes to your money, flexibility is key, and CD term loans offer just that. By understanding and using this loan option, you can tackle financial hurdles without dipping into your savings. Whether you're a borrower, saver, or in need of quick cash, a CD term loan is a great solution for your financial goals.

Ready to explore your options? Reach out to Academy Bank to learn how certificates of deposit¹ and CD term loans² can work for you!

More Certificate of Deposit Resources:
Basics of CDs
CD Calculator
Basics of CD Ladders
CD Ladder Calculator
How to Choose the Best Certificate of Deposit
Short-Term CDs vs. Long-Term CDs
Basics of Business CDs
Compare Personal Savings Options
Compare Business Savings Options