Like savings accounts, CDs earn compound interest—meaning the interest you earn is periodically added to your principal. Then that new total amount earns interest of its own, and so on.

Because of the compound interest, it is important to understand the difference between annual percentage rate (APR) and annual percentage yield (APY). 

The APR represents the fixed interest rate you receive, while APY refers to the amount you earn in 1 year, taking compounding interest into account.