Opening a CD Account in 5 Steps

Opening a certificate of deposit is a solid way to get guaranteed returns on your money with little risk. CDs tend to have the highest interest rates among bank accounts and are federally insured, unlike investments kept in stocks and bonds. Here’s a step-by-step guide to opening a CD.

A good starting point is to compare CD interest rates online across federally insured banks and credit unions and keep three other factors in mind: CD term, CD type and who owns the CD.

• CD terms generally range from three months to five years, so decide how long you want to commit to locking up your money. (See how to choose a CD term.)

• CD types also have variety, but regular CDs are the most common. You generally must seek out which banks offer specialty CDs such as no-penalty or add-on CDs. (Learn about nine types of CDs.)

• Single or joint account. As with other bank accounts, you can open a CD by yourself or with someone else, such as a spouse. Note that the insurance limit for the Federal Deposit Insurance Corp. (for banks) and National Credit Union Administration (for credit unions) is generally $250,000 per person, and it’s doubled for joint accounts^[0]

  Federal Deposit Insurance Corp. Joint Accounts. Accessed Feb 9, 2024.

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Note: Credit unions refer to CDs as share certificates or certificates, and the earnings are called dividends instead of interest^[0]

Depending on the bank, you can open a CD online, over the phone or in person at a branch. Some banks encourage you to apply online, and others require that you visit a branch. If you’re able to apply online, the application process can take five to 20 minutes, though this may vary. If you’re an existing customer, the process can be easier. But if you’re missing any required information, you might need to finish the process in person if the bank has a branch network.

Expect to give one or two forms of ID, plus your residential address — which usually has to be in the U.S. — and contact information, including a phone number and email address.

Many financial institutions offer two options: receive all interest at the end of a CD’s term, which is more common, or disburse interest as regular payments, such as monthly or annually. If you want to maximize interest by compounding, opt to receive it at the end.

Unlike with a savings account, you generally won’t be able to add money to a CD more than once. You’ll put down a set amount and leave it untouched until your CD’s term ends. Funding methods can include linking to another bank account and transferring money, mailing a check or depositing a check when opening a CD at a branch.

» Ready to compare? Check out NerdWallet’s list of the best CD rates this month

• Look at annual percentage yield, not interest rate, when comparing rates. APY shows the interest earned including compound interest; an interest rate doesn’t include compounding, which factors in the initial deposit plus previous interest earned into the CD^[0]

  Consumer Financial Protection Bureau. Appendix A to Part 1030 — Annual Percentage Yield Calculation. Accessed Feb 9, 2024.

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• If you choose a credit union, you’ll have to become a member first. Credit unions, the not-for-profit equivalent of banks, require membership to open an account. To be eligible for membership, you might have to live in a specific geographic area, have a certain employer or make a small donation to an affiliated nonprofit organization, among other things. You also generally must open a regular savings account (or “share account”) with a minimum deposit, which can range from $5 to $25, as a membership requirement.

• Deciding the right amount for a CD or CDs depends on your goals. On the lower end, CDs have a minimum deposit requirement, which typically ranges from $0 to $10,000. CDs are federally insured up to $250,000 per account holder (excluding CDs as trusts or joint accounts). Learn more about how much to put into CDs.

• Your CD’s rate stays constant. Unlike a regular savings account, a CD has a fixed rate once you fund it. (Two exceptions are step-up and bump-up CDs.) Banks and credit unions change their rates on new CD offerings in response to changes from the Federal Reserve’s rate, among other factors. (Learn more about the role of the Fed in our explainer on how Fed rate increases affect CDs.)

• Know what your CD’s early withdrawal penalty is. Ideally, you won’t need to break the seal on your CD before it matures, but if you do, know what it will cost you. Most CDs have a penalty of several months’ to a year’s worth of interest. (See penalties at various banks.)

• Create a reminder for the CD’s maturity date. Typically, there’s a short window of seven to 10 days after the CD’s term ends for you to get your money back penalty-free. Otherwise, your CD may automatically renew for the same term but with a new rate, which will likely match what the bank is offering on new CDs of that or a similar term. Explore the next steps for when a CD matures.

• If you're worried about missing higher rates later, consider a CD ladder. When rates are low or on the rise, a CD ladder might be a good option. You open several CDs of different terms — say, one year, two years and three years — and each time one CD matures, put the money into a new long-term CD. Or you can withdraw after a CD term ends. The strategy gives you regular access to part of your CD funds and lets you take advantage of higher rates.