How to open a CD
If you have a sum of money that you want to save securely, a certificate of deposit, usually called a CD, is a good option. CDs, similar to savings accounts, are insured by the FDIC. However, once you open and fund a CD, your money has to remain tucked away for a fixed period of time.
Read on to understand if a CD is the right kind of savings vehicle for you, and how to open one if it is.
How a CD works
A CD stores and grows your money for a fixed period, known as its term, usually ranging anywhere from a month to five years, though longer-term CDs are available. A CD can be ideal if you want to save for a long-term goal, such as purchasing a home.
However, if you think you may need access to your money for unexpected costs, a CD probably isn’t the best choice. If you withdraw money from a CD before its term ends, you’ll likely pay an early withdrawal penalty, reducing — or even eliminating — any interest you may have earned. In some cases, you could even lose some of your initial deposit.
Go deeper: How to choose the right CD.
Decide what kind of CD to open
There are several different types of CDs, and it’s important to choose the one most suited to your savings goal.
Here are the most common types:
Traditional CD: The most common type of CD; your initial deposit must remain untouched for a fixed term. If you withdraw your money early, you’ll pay a penalty.
Jumbo CD: A traditional CD but with a higher minimum opening deposit, usually at least $100,000. It will pay a higher annual percentage yield, or APY.
No-penalty CD: A CD without an early withdrawal penalty but with a lower APY.
Add-on CD: You can add more money to this CD even after opening the account.
Bump-up CD: You can choose to increase the APY a limited number of times during the term to keep up with rising interest rates.
Traditional CD: The most common type of CD; your initial deposit must remain untouched for a fixed term. If you withdraw your money early, you’ll pay a penalty.
Jumbo CD: A traditional CD but with a higher minimum opening deposit, usually at least $100,000. It will pay a higher annual percentage yield, or APY.
No-penalty CD: A CD without an early withdrawal penalty but with a lower APY.
Add-on CD: You can add more money to this CD even after opening the account.
Bump-up CD: You can choose to increase the APY a limited number of times during the term to keep up with rising interest rates.
Not every financial institution will offer all CD types. When you’re shopping for a CD, read the fine print on the deposit agreement to ensure you know what you’re signing up for.
Go deeper: How to save with CDs.
Choose a term and shop for the best rate
CDs with longer terms usually offer higher annual percentage yields — up to a point. CD APYs tend to reflect market expectations for interest rates. So if rates are expected to rise in the short term but fall in a couple of years, CDs with terms up to two years may offer higher rates than those with a three-year term.
Be sure to compare APYs and terms carefully so you get the best rate for the term that suits your financial goals. For example, if you want to buy a house in a year and are keeping your down payment in a CD, choose one with a 12-month term or less.
A CD’s APY is a calculation of the total return you’ll earn, including compound interest. Compound interest is the interest you earn on previously accrued interest. Like savings accounts, CD APYs will differ depending from bank to bank. Online banks often offer better APYs than traditional banks. And don’t overlook credit unions, which call CDs share certificates, and sometimes offer higher APYs.
Go deeper: What is APY?
Where to open a CD account
Once you choose a bank, credit union or neobank, you can complete an application online or in person. If you’re opening a CD online, you'll have to create an account with the bank or credit union if you don't have one already.
To open a CD, you'll usually have to provide the following information:
Full legal name
Social Security number or taxpayer identification number
Birth date
Current address
Full legal name
Social Security number or taxpayer identification number
Birth date
Current address
You must be 18 or older to open a CD. If you are younger than 18, a parent or legal guardian can open a custodial CD for you.
Fund your CD
Once you select the CD and term, you’ll transfer funds to the financial institution. If you're opening a CD you can write a check to fund the account.
FAQs
Many online banks and credit unions do not have minimum deposit requirements, but some major banks have a minimum opening deposit requirement starting at $1,000. If you don’t have that much money, look for a bank with a low or no minimum deposit. The maximum you can deposit also varies depending on the bank or credit union.
CDs are insured for up to $250,000. If you have more than that to put aside, you may want to speak to a professional financial adviser about how to proceed.
Opening a CD does not come with a separate fee.
Before you fund your CD, check your bank or credit union’s policies to see if it offers a grace period at the time of opening. These are not common, so it’s best to be sure before you open your account.
There is no limit to how many CDs you can open in general, but some banks may have a maximum number of CDs you can open with them.
