How to Open a Certificate of Deposit (CD)
Updated May 7, 2024 at 11:29 am
Certificates of deposit (CDs) let you lock in a fixed interest rate for a set period of time that typically spans from a few months to five years or longer. However, the CD rates banks and credit unions offer can vary widely, and some feature much better rates for certain CD durations overall.
This detail is just one reason you’ll want to shop around before you lock in a new CD, or even multiple CDs. Once you find a CD with a rate and term that suits your needs and goals, you’ll also need to know the steps required to open a CD and fund your account.
Our Methodology Newsweek Vault’s banking experts have done hundreds of hours of research to present you with all the latest information about your banking options. Whether you’re interested in opening a new checking account or savings account, our research spans all the top online banks, credit unions and brick-and-mortar branches.
We assessed the following five key factors to help you choose the best account for your personal finance needs.
- Associated fees
- ATM access
- Balance requirements
- Customer service
- Interest-earning potential
Vault’s Viewpoint
- You can open most certificates of deposit (CDs) online within a matter of minutes, although some financial institutions may require you to open an account in person.
- Make sure you compare CDs rates and terms across multiple banks and credit unions before you commit to an account.
- Information you’ll need to open a CD includes your full name, address, Social Security number and information for the bank account you want to use to fund the CD.
5 Steps to Open a Certificate of Deposit (CD)
The following steps can help you find, open and fund a CD.
Step 1: Consider Different Types of CDs
Make sure you know about the different CD types and durations that exist, and be aware that not all banks and credit unions offer every type. Compare options based on the following factors:
- CD Type: Most certificates of deposit offer a fixed rate for a set term and charge early withdrawal penalties if you need to access your money early. However, “no-penalty CDs” offer fixed rates without charging early withdrawal penalties. Another type of CD known as a “bump up CD” lets you request a higher interest rate if market rates increase due to economic conditions.
- CD Term: Consider different terms available with CDs, keeping in mind that the right term for you depends on when you’ll need to access the money. CDs are typically offered in terms that range from 3 months to 5 years.
- Early Withdrawal Penalties: Make sure you know about early withdrawal penalties that apply with CDs, how much they can be and when they come into play. Note that most banks chargeCD early withdrawal penalties in tiers based on the original CD term.
Step 2: Choose a Bank or Credit Union
Once you have an idea of the type of CD you want and how long you want it to last, you should spend some time shopping for a certificate of deposit (CD) with several banks and credit unions. The goal here is finding a CD with best rates and terms you can possibly qualify for.
In addition to comparing CDs based on their rates and terms, you’ll also want to check for minimum deposit requirements—especially if you’re saving a relatively small amount. Where some banks and credit unions let you open a CD in any amount, others have minimum requirements to open that can be $1,000, $2,500 or more.
Also remember that some banks and credit unions make it easy to open a joint CD with another person. However, you may need to open an account on your own first, then add a joint accountholder after the fact.
Step 3: Create An Account
Once you find a financial institution and CD you want to sign up for, you’ll need to supply a range of personal and financial information. Some details you may need to open a certificate of deposit (CD) include:
- Your full legal name
- Email address
- Phone number
- Residential address
- Country of citizenship
- Employment status
- Date of birth
- Social Security number (SSN)
If you’re opening a CD online, you’ll need to share the information for the bank account you want to use to fund your CD. This information includes your bank’s routing number and your account number. If you’re opening a CD in-person, you may decide to fund your CD with a check or cash instead.
Step 4: Decide When You Want Interest
Some certificates of deposit (CD) let you receive the interest you earn in periodic payments, whereas others pay the total of the interest your CD earns once it reaches maturity. You’ll have advantages and disadvantages that come with either option, so it’s really up to you to decide when you want to receive interest payments.
Step 5: Fund Your CD
Once your account is open and you’ve decided when you want to receive interest payments, you can move toward funding your CD with the bank account you designated for this purpose when you signed up. Unlike high-yield savings accounts (HYSAs) that let you add money regularly if you prefer, you can only fund certificates of deposit once with the amount of money you want to earn fixed interest on.
This isn’t to say you’re stuck with one CD and one CD only. If you wind up having more money to save after you open a CD, you can always open subsequent CDs to lock in a fixed interest rate for a set period of time.
Some people even opt for CD laddering, which entails getting multiple CDs in different terms. For example, they might have $20,000 to save and put the money into four different CDs that last 12 months, 18 months, 24 months and 36 months. This move lets savers increase the liquidity of their funds while still benefiting from the fixed interest rates CDs offer.
Important: Make sure you open a CD with a bank or credit union that offers federal insurance for your deposits. This coverage may come in the form of FDIC insurance for bank accounts through the Federal Deposit Insurance Corporation, or as NCUA Insurance through the National Credit Union Administration. Both options offer up to $250,000 in protection for deposits for each depositor and each ownership category.
Should I Open a CD?
Opening a CD is a breeze, especially if you choose a bank or credit union that lets you create and fund your account entirely online. Now that you know how to open a certificate of deposit, however, you need to decide if you should.
The following factors can help you decide:
- Savings: How much you have to save can play a role in whether a CD is a good choice for you or not. Most experts recommend keeping emergency savings in an account that’s easier to liquidate than a CD (e.g. a high-yield savings account), so make sure to keep that in mind before you commit to a CD with an especially lengthy term.
- Timing: Avoid opening a CD with funds you may need before the CD reaches maturity. If you know you have an upcoming expense in six months, for example, you wouldn’t want to lock up the money you need to pay it in a CD that lasts for 12 months.
- Penalties: Early withdrawal penalties are typically conveyed to you as lost interest earnings. While forfeiting some of the interest you earn to access your money is never ideal, paying this fee can be well worth it in an emergency.
What Is the Difference Between a CD and a Savings Account?
High-yield savings accounts can also offer generous amounts in interest on your deposits, but rates with these accounts change frequently based on market conditions. Savings accounts don’t make you commit to saving a specific amount of money, either. Most let you deposit money and begin earning interest on it regularly.
Another difference between savings accounts and CDs is that, unlike certificates of deposit, savings accounts don’t charge penalties if you need to access your money at any point. Note, however, that both savings accounts and CDs can come with FDIC or NCUA insurance.
Frequently Asked Questions
What Is the Minimum Opening Deposit for Certificates of Deposit (CDs)?
Some banks and credit unions let consumers open a CD in any amount, whereas others require minimum deposits of $1,000, $2,500 or more. This is a good reason to shop around and compare CDs across different institutions, especially if you’re saving in smaller increments at a time.
Do Certificates of Deposit (CDs) Charge Any Fees?
Certificates of deposit (CDs) typically do not charge any account fees, but early withdrawal penalties can apply if you need to access the money before the account reaches maturity. The exception is with no-penalty CDs that don’t charge these fees but typically offer lower interest rates as a result.
Where Do I Find the Best CD Rates?
The best CD rates come from a range of banks and credit unions, and top offers can change over time. Also note that many of the best CD offers come from online banks instead of brick and mortar institutions.
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