A certificate of deposit (CD) is a type of savings account that lets you deposit your money for a specified period, known as a term. CDs typically let you earn a higher fixed interest rate than a regular savings account. You can usually withdraw funds and interest earned in the account once the CD matures and the term ends.
Keep reading to learn more about the ins and outs of opening a CD.
Choose your CD type and term
There are several different types of CDs. Some common types include:
- Standard/fixed rate CD: This is the most common type of CD. You lock in your money for a set term at a fixed interest rate. You’ll most likely pay a few months’ interest as a penalty for withdrawing your funds early.
- Step up CD: A step up CD locks in your money for a set term, but includes guaranteed interest rate increases. These increases happen automatically on a pre-agreed schedule. 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 flexible type of CD doesn’t charge a fee if you withdraw your money before the term ends. A no penalty CD may be the right option if you want more flexibility than a standard CD.
Most CD terms range from a few months to a few 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. Think about how much you’ll earn in interest over different terms, and whether you can secure a higher interest rate if you commit to keeping your money in a CD for a multi-year term.
Settle on a financial institution
Once you decide on the best CD type and term for you, do some research to find a bank that meets your needs.
When choosing a financial institution, here are some details to consider:
- Types of CDs: There are several types of CDs. Decide what works best for you and find a bank that offers it.
- Withdrawal penalties: Most CDs come with penalties for withdrawing your funds early. Read the fine print and make sure you are very clear on the details before opening an account.
- Interest rates: Rates can vary depending on the type of CD, term length and financial institution.
- Terms: Decide what term length you want and find out which banks offer it.
Apply
CD applications are usually straightforward. You may be able to complete the application online or in person. You’ll want to get your documents in order ahead of time. Information you may need includes your:
- Contact information (such as address, phone number and email)
- Social security number
- Date of birth
- Identification (such as a passport, driver’s license or other government-issued ID)
Choose how you want to receive interest
When you open your CD, you may be able to decide how to receive interest. You may be able to receive payments at regular intervals, such as every year or quarter. You can also receive all the interest at once at the end of the term. The latter option allows all your interest to compound for the full term length, letting you earn more overall.
Deposit your funds
The final step is depositing your funds. You generally only deposit funds into a CD once when you open the account. You won’t be able to deposit more funds as you go (there are exceptions to this, like an add-on CD that lets you deposit funds during the term). You can usually deposit money with a check or electronic transfer.
This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
