How to Open A Certificate of Deposit

A CD—short for certificate of deposit—is a low-risk investment that offers a moderate (but guaranteed) return in exchange for a commitment to lock in your money for a set amount of time. CDs are similar to checking and savings accounts in that most are Federal Deposit Insurance Corporation (FDIC) insured up to the $250,000 per depositor limit. CDs can sometimes offer substantially higher interest rates than savings or money market accounts. And since many CDs are available with minimum deposits as little as $500, they’re a valuable tool for investors who don’t have a lot of cash to throw around quite yet.

Opening a CD account is pretty straightforward at most major banks—any U.S. citizen or permanent resident aged 18 or over who has the available funds can do so. But there are some important steps to take first that will help ensure you’re buying into the best possible investment for your needs. Let’s take a closer look.

How to open a CD account in 7 simple steps

While the specifics will vary depending on the financial institution you choose, here are the basic steps for opening a CD account:

1. Choose the type of CD

Before you start shopping around, it’s a good idea to spend some time considering which type of CD you want. That way, you can narrow your future search based on which providers offer what you’re looking for.

There are many different variations of CDs, but most are just twists on the traditional certificate of deposit arrangement described above, which is known as a traditional CD.

But if you’re curious, some of these types include:

• Jumbo CDs carry much higher minimum deposit requirements than traditional CDs (starting at $100,000 or so).
• No-penalty or liquid CDs allow you to withdraw your money before the term ends without paying a penalty.
• Add-on CDs allow you to make additional deposits during the CD’s term.
• High-yield CDs, as their name suggests, offer higher interest rates than their traditional counterparts.

This is not a complete list. For most beginning investors, a traditional CD is a great place to start. If you have more in-depth questions about a specific bank’s offerings, one of their representatives should be able to help you.

2. Choose your desired term

Once you have an idea of what type of CD would work best for your needs, the next question is, how long can you afford to lock your money up?

A CD’s lifetime, also known as its term, is the amount of time you’ll need to commit your money in order to get the guaranteed return. CD terms can range from a few months to as many as 10 years. Interest rates aren’t directly correlated with the length of the term, necessarily. But because more time in the CD means more time for interest to accrue, longer term lengths usually result in higher earnings. For the same reason, the more you can afford to deposit, the more you stand to earn over time.

3. Choose a financial institution

Now that you know what type of CD and term you want, it’ll be much easier to sift through the various financial institutions and find the right one for your needs. You can narrow your search by CD types and term lengths, as well as required deposit.

Some banks and credit unions offer CDs starting with minimum deposits as low as $500, but others have higher initial deposit requirements—$2,500 or even more.

Furthermore, it’s worthwhile to ensure that the bank you’re considering offers FDIC insurance for CDs , so you can enjoy the benefits without putting your hard-earned money at risk.

4. Grab your ID

Next up is the application itself. As mentioned above, there aren’t major eligibility requirements to open a CD. You’ll simply need to prove your identity and your residence. However, you will need a government-issued ID in order to do that, so make sure you’ve got that handy. Depending on the financial institution, you may be asked to provide two different forms of identification.

5. Apply

Now you’re ready to apply for your new CD account. These days, many banks allow you to complete the entirety of your CD application online, though it may still be possible to apply by calling on the phone or visiting a brick-and-mortar location. The application process itself might take as few as five minutes if done online, or longer if you’re interacting with a representative. If you’re already a customer of a specific bank, the steps may be streamlined. In any case, the provider you’ve chosen will have the best information as to their specific application process.

6. Choose when to receive interest

In most cases, you’ll have the opportunity to choose between two different interest-disbursal strategies. You can receive interest all at once at the end of the CD’s term (the most common option), or you can choose to receive interest at regular intervals (for example, monthly or annually).

While having access to regular interest payments may be attractive if money is tight, keep in mind that you’ll earn more interest if you choose to receive all of it at the end—thanks to the power of compounding.

7. Fund your CD account

Once you’ve completed the application steps, you’ll be asked to fund your account with your initial deposit—which, in most cases, will also be the only deposit you’ll make. The exception is add-on CDs.

You may be able to do so by initiating a transfer directly from your bank account or by mailing a check to the CD provider (or bringing a check, physically, to a branch).

What to know before opening a CD account

As discussed above, before opening a CD account, it’s a good idea to have a sense of what kind of CD account you want and the term length you’re willing to commit to. You can also take a look at your finances to determine how much money you can afford to commit to a CD for a given period of time and how much interest you’re hoping to earn in return.

By doing the legwork ahead of time to understand the best possible CD terms for your needs, you’ll have an easier time narrowing your search when it comes time to choose a provider.

Along with looking for a bank or credit union that offers the specific product you’re looking for, it’s also worth checking into their customer service reputation, ease of use, and more. Fortunately, online reviews of available CDs make that information easy to come by, even before you apply for a new account.

More about opening a CD account

Should I open a CD account?

Whether or not a CD is the right investment choice for you depends on your personal circumstances and goals. If you’re looking for a low-risk way to earn a modest return, and can afford to have your money tied up for a term length of several months or years, a CD can be a way to earn interest and is likely to outpace the earnings of many savings accounts.

That said, you should think twice before placing your emergency fund in a CD. The whole point of an emergency fund is to have extra money available whenever you need it. Most CDs will charge you an early withdrawal penalty if you take the money out before the term is up. This could cut into, or even eclipse, any earnings you’d stand to make.

When should I open a CD account?

Most financial institutions will allow any U.S. citizen or permanent resident over the age of 18 to open a CD account, as they have the minimum required deposit. Financially speaking, CDs are best suited for short- or medium-term savings goals.

Can I open multiple CD accounts?

Yes, as long as you have the money, you can open multiple CD accounts at the same financial institution—or multiple accounts at different providers. Keep in mind that FDIC insurance only covers up to $250,000 per depositor per insured bank, so if you’re putting large amounts of money in multiple CDs, it may make sense to work with multiple providers.

TIME Stamp: CDs offer a low-risk way to grow and save

While CDs don’t usually offer the high return potential of the stock market, for risk-averse investors and savers alike, they can be a smart way to round out your financial portfolio and put your money to work for you.

Frequently asked questions (FAQs)

Can anyone open a CD?

While each specific bank has its own requirements, most major financial institutions allow anyone aged 18 or over who is also a U.S. citizen or permanent resident to open a CD account, as you have the minimum initial deposit.

How much does it cost to open a CD at a bank?

Each specific bank—and specific CD product—has its own minimum initial deposit. At many banks, the minimum deposit for a CD ranges from $500 to $2,500, though with jumbo CDs the initial deposit may be substantially higher.

What documents are needed to open a CD?

You’ll likely need to provide at least one, and possibly two, types of identification to open a CD. You’ll also need the bank information for the account you’ll use to fund your new certificate of deposit or a physical check from that account, which you can mail or bring to a branch.