Certificate of deposit (CD) accounts offer a secure place to keep your savings while earning a guaranteed rate of return. You can use CDs to fund short- or long-term financial goals.
If you’re ready to open a CD account, the process isn’t difficult. You can open CDs at traditional banks, credit unions or online banks by following a few simple steps.
Should I Open a CD Account?
Before getting into the logistics of how to open a CD, consider whether CDs are right for you. A CD is an interest-bearing time deposit account. When you open a CD, you agree to leave your money in the account for a set time period, known as the term. It’s possible to find CDs with terms ranging from seven days up to ten years. Once a CD matures, you can withdraw the initial deposit plus the interest earned, or you can roll it over into a new CD.
Withdrawing money from a CD before it matures could trigger an early withdrawal penalty. For that reason, you don’t want to keep money you may need to access, such as an emergency fund, in a CD. That money can go into a high-yield savings account instead.
How To Open a CD
Opening CDs isn’t that different from opening a checking account, savings account or any other bank account. If you’re not sure how to open a CD account, follow these steps.
1. Decide What Kind of CD To Open
There are many different types of CDs, so figure out which one works best for your needs. Your CD options may include:
- Traditional CDs. Traditional CDs pay interest over a set maturity term. They typically have a minimum deposit requirement and often impose early withdrawal penalties.
- Add-on CDs. Normally, you’re not allowed to make additional deposits to a CD account once it’s open. Add-on CDs give you the option to make monthly deposits to grow your savings.
- Raise-your-rate/Bump-up CDs. Raise-your-rate CDs, or bump-up CDs, let you increase your CD rate once or twice during the maturity term if a benchmark rate rises.
- No-penalty CDs. No-penalty CDs let you withdraw money from your account early without triggering an early withdrawal penalty. That said, even the best no-penalty CD rates are usually a little lower than traditional CD rates.
- IRA CDs. IRA CDs offer the tax advantages of individual retirement accounts with the safety and security of a CD.
- Brokered CDs. Brokered CDs are purchased through brokerages rather than banks. These CDs can offer more flexibility and higher rates.
Banks can also offer promotional CDs that carry higher rates than other CD options. Instead of letting you choose your term, these CDs typically have a preset term.
2. Choose Your CD Term
A CD term indicates how long you’re expected to leave your money in the account. Generally, the longer the term, the higher the rate. Selecting the right term matters for two reasons:
- You want to avoid early-withdrawal penalties
- Your choice of term can influence the rate you earn
You can always open multiple CD accounts with different maturity terms to build a CD ladder. For example, you could set up a CD ladder with five CDs that have maturity terms spaced six or 12 months apart. That way, you always have a CD on the verge of maturing should you need to access some cash.
3. Select a Bank To Open CD Account
The next step is finding the right bank. Your options include brick-and-mortar banks, credit unions and online banks. Here are some things to consider when comparing CDs at different banks:
- Annual percentage yield (APY). If maximizing your return is a priority, make sure to shop around for the highest APY. Online banks tend to offer the best CD rates.
- Maturity term. Some banks offer a wider range of terms than others, so look for a bank that offers CDs with the term you’re after.
- Minimum deposit requirements. Depending on where you decide to open a CD account, you may need $500, $1,000 or more to get started.
- Interest payments. Some CDs give you the option of receiving interest payments monthly while others pay it out at the end of the term.
- Early withdrawal penalty. Most CDs charge an early withdrawal penalty. It’s important to know what that amounts to in case you need to close your CD early.
4. Apply for a CD Account
Once you’ve chosen a CD, the next step is submitting an application. Many banks let you open CD accounts online. You typically need:
- Photo ID
- Personal information, such as your name, phone number, address and email
- Identifying information, such as your Social Security number and date of birth
- Opening deposit
If you’re opening CD accounts at a credit union, you’ll first need to join the credit union. Membership requirements vary by institution, and may be based on where you live, work, learn, or worship. In some cases, affiliation with the military or certain nonprofits can qualify you for membership as well.
5. Fund Your CD
Now it’s time to fund your CD. Keep in mind that unless you’re opening an add-on CD, you’ll only be able to deposit money into your new CD account once.
When opening CD accounts online, you should be able to make your initial deposit by transferring money from another bank account. That could be as easy as transferring money from checking or savings if you’re opening CDs at your current bank. If you’re opening CDs at a new bank, you’ll be asked to provide your routing and account numbers to conduct an ACH transfer from an external account to your new CD.
If you’re opening a CD in person at a branch, you can usually fund your CD with cash or a check.
The Bottom Line
CDs can be a useful tool for funding your savings goals, especially when CD rates are high. Figuring out how to open a CD account is simple, but make sure you take the time to compare options and figure out what you need. Once you open a CD, consider marking the maturity date on a calendar so you have time to decide whether to renew the CD or close it when the time comes.
Frequently Asked Questions (FAQs)
How much money do you need to open a CD account?
The minimum opening deposit requirements for CDs vary greatly—they can be $1, $500, $1,000 or more for a traditional CD. Jumbo CDs, designed for super savers, can require a minimum deposit of $25,000 or more.
Is putting money in a CD worth it?
Opening a CD account could be worth it if you want a secure place to keep your money while earning a guaranteed interest rate. These accounts are even more worthwhile when interest rates are high. However, early withdrawal penalties can make a CD less worthwhile if you have to access your money before the CD matures.
What are the requirements for a CD account?
The main requirement to open a CD account is the minimum opening deposit. These can be in the neighborhood of $500 to $1,000 or more. You’ll also need to provide proof of ID and be at least 18 years old, though adults may be able to open CD accounts on behalf of minors.
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