How to Open a Certificate of Deposit (CD) Account

Key insights:

• A certificate of deposit (CD) can be a good way to earn interest on money you don’t need access to right away
• Opening a CD account online is usually easy, and can be done in just a few steps
• CDs typically have early withdrawal penalties and do not allow you to make additional deposits once they’re open, so it’s important to be confident in your decision before opening one

A CD is a type of savings account that lets you deposit your money for a specified period, known as a term. In exchange, you can typically earn a higher, fixed annual percentage yield (APY) than you would with a regular savings account. You can withdraw the funds, plus the earned interest, once the CD matures and the term ends.

Let’s examine how to open an account, including tips to choose the right CD for you and how many you can have.

1. Choose your CD type and term

There are several different types of CDs, including:

• Standard (fixed rate) CD: This common type of CD allows you to lock in your money for a set term at a fixed interest rate. An early withdrawal penalty may apply if you withdraw your funds before the CD matures.
• Step up CD: A step up CD locks in your money for a set term but includes guaranteed interest rate increases for each period during the term of the CD once it has been opened. These increases happen automatically on a pre-agreed schedule, such as every 12 months. Step up CDs may start at a lower interest rate than a standard CD, have fewer term lengths available and still come with an early withdrawal penalty.
• No penalty CD: This type of CD doesn’t charge an early withdrawal penalty if you withdraw your money after a few days of waiting period before the term ends. A no penalty CD may offer more flexibility, though the APYs are often lower than those for standard CDs.
• Add-on CD: Unlike other CDs, these allow you to add additional funds to your CD after you’ve opened the account. Rates, however, may be lower compared to those of traditional CDs.

CD terms can range from 1 month to several years. When thinking about how long you want to keep your money in a CD, consider how your overall finances will be affected if you can’t access that money for the term. Compare how much you'll earn in interest over different terms, and see if you may be able to secure a higher interest rate if you commit to keeping your money in a CD for a longer term.

2. Choose a financial institution

Not every financial institution offers every type of CD. When you know the CD type and term that works best for you, then it’s time to find a bank that meets your needs.

Most banks and credit unions offer CDs, but you’ll have to compare the types offered, as well as the APY and specific requirements, such as:

• Minimum deposit: CDs may require a minimum deposit amount, which can vary by financial institution.
• Early withdrawal penalties: Most CDs come with penalties for withdrawing your funds early. Read the fine print and make sure you understand the details before opening an account.

3. Apply for a CD account

You can usually open a CD account online or in person, depending on the financial institution. CD applications are usually straightforward, but gathering your documents ahead of time may help you complete your application faster.

In general, you need to provide:

• Name
• Contact information (such as address, phone number and email)
• Social Security number
• Date of birth
• Photo ID (such as a passport, driver’s license or other government-issued ID)
• Proof of address (such as a utility bill)

You’ll receive a disclosure for the CD account during the application process that explains how the CD works in full detail. Review the disclosure before funding your account.