Opening A CD Account: 5 Simple Steps

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.

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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.

When Can I Open a CD Account?

Generally speaking, you can open a CD account at any time, assuming you’re 18 years old or older with valid identification and can meet minimum deposit requirements. Deciding when to open a CD account can depend on how you answer these questions:

• What’s my goal for saving?
• How long do I plan to save?
• How comfortable am I locking money into a CD?
• What’s happening with interest rates?

That last question is particularly important as changes to interest rate policy can directly affect the CD rates you earn. Should the Federal Reserve introduce new rate hikes, CD rates may climb even higher than where they are currently. A rate cut, on the other hand, could result in lower CD rates. But remember, most CDs earn fixed interest, so rate trends only impact new accounts.

Can I Open Multiple CD Accounts?

You can open multiple CD accounts if you have the funds, and doing so can be a useful strategy for spreading your savings around. As mentioned, laddering CDs with varying maturity dates and APYs can help you maintain some liquidity with your savings. CD ladders also make capitalizing on rising rates easier, should CD rates increase.

However, it’s important to consider how much of your savings it makes sense to allocate to CDs, especially if you could be earning higher returns elsewhere. You’ll also have to be able to meet the minimum deposit requirements for each CD you open.

Putting large amounts of money into multiple CDs at the same bank may put you at risk of exceeding FDIC coverage limits too. The FDIC insures deposit accounts up to $250,000 per depositor, per account ownership type, per financial institution. If you plan to keep a sizable amount of savings in multiple CD accounts, you may need to consider opening CDs at different banks so you don’t leave some of your deposits unprotected.

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)