5 Steps to Open a Certificate of Deposit (CD)

Do some comparison shopping before you commit your money

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Matt Ryan Webber
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Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.

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Updated October 24, 2023
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Certificates of deposit (CDs) are widely available and easy to buy. You can open a CD online or at almost any bank or credit union.

Key Takeaways

  • Opening a certificate of deposit (CD) with a bank or credit union can be quick and easy.
  • Decide on the CD type and terms before you commit your money.
  • Rates vary widely from one bank to another.
  • Almost all banks and credit unions are covered by federal deposit insurance.

1. Choose a Type and Term

  • Type of CD. A standard CD has penalties for early withdrawal, whereas liquid CDs (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our CD Guide.
  • Length of CD. CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment.
  • Single or Joint Account. You can open a CD as a joint account as with other bank accounts. Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000.

2. Pick a Provider

Banks or credit unions are common choices, and you have plenty of options. Investopedia's regularly updated list of Best Bank CD Rates is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution:

  • Insurance coverage. Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered by one or the other.
  • Interest rates. Shop around for the best interest rate. The top-paying CDs nationwide can pay three to five times the national average, so comparison shopping is well worth the effort.
  • Early withdrawal penalties. If you access your money early, you will pay a penalty. Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can always roll it over into a new CD when it expires.

Consider splitting your money among several CDs with different maturities. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need.

3. Complete the Application

The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution.

4. Indicate How to Receive Your Interest

Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, arrange for disbursements.

5. Fund the CD

You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdrawal your money or invest it in a new CD.

Is a CD Right for Me?

Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks.

What Is the Difference Between a CD and a Savings Account?

CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed return. However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money.

Which CD Term Should I Choose?

That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate.

The Bottom Line

Opening a certificate of deposit (CD) is easy, and choices are plentiful. Because interest rates vary widely from one financial institution to another, it pays to shop around. Investors should understand the type of CD they want and for how long they are comfortable having their money tied up in it.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. National Credit Union Administration. "Share Insurance Fund Overview."

  2. Federal Deposit Insurance Corporation. "Are My Deposit Accounts Insured by the FDIC?," Select "Individual Accounts" and "Joint Accounts."

  3. FDIC. “Deposit Insurance FAQs.”

  4. Office of the Comptroller of the Currency. "What Are the Penalties for Withdrawing Money Early from a Certificate of Deposit (CD)?"

  5. Financial Industry Regulatory Authority. "Certificates of Deposit (CDs)."

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