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How to Open a Certificate of Deposit (CD) Account with Confidence

Certificates of deposit, known as CDs, offer higher-than-typical interest rates in exchange for leaving your money in place for a period of time. You can open a CD at a bank, credit union, or brokerage, and typically you’ll have the option to do so online, by phone, or in person.

Before applying for and funding the account, it’s important to make sure you’ve chosen the right CD for your goals. Follow these steps to open a CD account with confidence.

1. Review CD Options

There’s more than one type of CD, and several different ways financial institutions structure their interest rates and fees. Here are the various types of CDs you’ll have to choose from:

• Traditional CDs: Provide a guaranteed rate of return and insurance on up to $250,000 per account holder at banks and credit unions. You’ll need to keep your money in the account for a fixed term, such as six months or a year, otherwise you may pay an early withdrawal penalty.
• No-penalty CDs: Allow you to withdraw your entire balance without a penalty. These may come with lower rates or additional fees.
• Jumbo CDs: Require a much higher initial deposit, usually $75,000 to $100,000, and in return, you’ll receive a higher interest rate.
• Bump-up CDs: Offer the opportunity to increase your interest rate if it’s gone up since you first opened the account.
• Step-up CDs: Incorporate the option to increase your interest rate throughout the term automatically at predetermined times.
• Brokered CDs: Can be bought through a brokerage firm and often carry a higher interest rate with the option to get your money before the maturity date penalty-free.
• IRA CDs: As part of your retirement savings strategy, you can invest in an IRA CD, which provides security in the form of guaranteed interest.

2. Compare Interest Rates, Terms, and Fees

Because a high interest rate is often the primary benefit of choosing a CD, compare rates among various CDs to find the best one. You can start by checking in with CD rates available at your existing bank or credit union, then compare their offers to current rates at other banks, credit unions, brokers, and online lenders. Rates can change often, so check back regularly.

Keep in mind that your rate will likely be higher the longer the term you choose, so identify how long you’re comfortable keeping your money locked up. While you can always go for a no-penalty CD, you won’t be able to access the highest possible rates that way.

You may also find promotional CD rates, which are even higher than what the financial institution usually offers for a period of time. Take a close look at each CD offer to make sure you understand all fees, including early withdrawal penalties and intermediary fees for brokered CDs, and when your rate could change if it’s a promotional, step-up, or bump-up CD.

3. Apply for the CD

You can apply for the CD you’ve chosen online, or in person or by phone if you wish. When you apply, you’ll receive a disclosure statement with more details about how the CD works. Find out, for example, when, how often, and by what means—such as by check or direct deposit—your interest will be paid to you.

Understand, too, whether it’s possible the CD could be called by the issuer. That means the CD term will end. You’ll get your money back plus interest accrued, but you’ll need to find another CD account elsewhere.

4. Fund the CD

To start earning interest on your CD, make an opening deposit either online or in person. Some CDs, such as jumbo CDs, may require a minimum deposit, while others do not. You won’t add money regularly to a CD like you would to a traditional savings account. Deposit an amount that you’re comfortable going without during the CD’s term (six months, one year, or five years, for example).

FAQs

Are CDs FDIC-Insured?

Yes, CDs are FDIC-insured up to $250,000 per account holder at banks and credit unions.

Can You Add Money to a CD?

No, you cannot add money to a CD once it has been funded. You will need to open a new CD if you want to invest more money.

What to Do When Your CD Matures

When your CD matures, you can either withdraw your money, including the interest earned, or roll it over into a new CD. Be sure to review your options and choose the best one for your financial goals.

The Bottom Line

Saving in a CD is a smart way to earn more interest than you would if your money stayed in a traditional savings account, but it’s also safer than investing only or primarily in stocks or other more volatile instruments. To best take advantage of a CD’s unique features, open the CD that best fits your personal financial goals—in the type of CD, the length of the term, the type of interest rate, and the method of renewal.

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