How to Open a Certificate of Deposit (CD) in 5 Steps

Do some comparison shopping before you commit your money

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Updated September 02, 2024
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Male banker assists his customer in setting up her CDs

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To open a certificate of deposit (CD), you must choose the type of CD you want, choose a bank or credit union to buy the CD from, and then submit an application for buying the CD. You must also choose how you want the CD's interest and then you have to fund it.

The best CDs are easy to buy. You can open a CD online or at almost any bank or credit union with these five key steps outlined below. Learn more about buying a CD and what factors to weigh when you choose from the different options.

Key Takeaways

  • To open a certificate of deposit (CD) with a bank or credit union, choose the type of CD you want.
  • Find a bank or credit union to work with and then submit an application.
  • You must also choose how you want to receive the CD's interest.
  • Finally, you will fund the CD.
  • CD rates vary widely from one bank to another, so be sure to compare your options to get the best return on investment.

Buying a CD is a straight forward process that you can complete in just a few steps. Learning how to buy a CD will help you invest your money in this type of asset, which can provide steady yields with low risk. Here's how to buy a CD in five steps.

1. Choose a Type and Term

A CD is considered a low-risk investment choice that can help you grow your money. But not all CDs are the same. Your own financial goals and current situation will play a role in which type of CD and which term length may be right for you.

  • Type of CD: A standard CD has penalties for early withdrawal, whereas liquid CDs (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our CD Guide.
  • Length of CD: CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment.
  • Single or joint account: You can open a CD as a joint account as with other bank accounts. Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000.

2. Choose a Provider

Banks or credit unions are common choices for buying CDs, and you have plenty of options. Investopedia's regularly updated list of Best Bank CD Rates is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution:

  • Insurance coverage: Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered.
  • Interest rates: Shop around for the best interest rate. The top-paying CDs can pay three to five times the national average.
  • Early withdrawal penalties: If you access your money early, you will pay a penalty. Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can roll it over into a new CD when it expires.

Consider splitting your money among several CDs with different maturities in a CD ladder strategy. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need.

3. Complete the Application

The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution.

4. Choose How to Receive Your Interest

Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, take regular disbursements.

5. Fund the CD

You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdrawal your money or invest it in a new CD.

Frequently Asked Questions (FAQs)

Is a CD Right for Me?

Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks.

What Is the Difference Between a CD and a Savings Account?

CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed return. However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money.

Which CD Term Should I Choose?

That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate.

Do CDs Have Fees?

You don't typically have to pay fees to open or hold a CD. However, if you withdraw funds before the CD term ends, you will likely face an early withdrawal fee.

What Is a Minimum Balance Requirement for CDs?

When you open a CD, the bank will require a minimum amount. That amount, also called the minimum opening amount, can range be up to about $10,000 and will vary by bank. That balance will be locked up for the duration of the CDs term as it earns interest. If you withdraw the funds early, you'll face an early withdrawal penalty, which can also vary by bank.

Can You Add Money to a CD?

Usually, you cannot add money to a CD once you have purchased it. The amount you paid for the CD is essentially locked in as it earns interest. However, you can buy as many CDs as you'd like as long as you meet the minimum opening amounts for each.

The Bottom Line

Opening a certificate of deposit (CD) is easy, and choices are plentiful. Because interest rates vary widely from one financial institution to another, it pays to shop around. Investors should understand the type of CD you want and for how long you are comfortable having your money tied up in it.

For more guidance on whether a CD is right for your portfolio, consider consulting a professional financial advisor.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. National Credit Union Administration. "Share Insurance Fund Overview."

  2. Federal Deposit Insurance Corporation. "Are My Deposit Accounts Insured by the FDIC?," Select "Individual Accounts" and "Joint Accounts."

  3. FDIC. “Deposit Insurance FAQs.”

  4. Office of the Comptroller of the Currency. "What Are the Penalties for Withdrawing Money Early from a Certificate of Deposit (CD)?"

  5. Financial Industry Regulatory Authority. "Certificates of Deposit (CDs)."

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