How to Open a CD Account

1. Choose a CD Type

There are several types of CDs from which you can choose, each one offering unique features that may benefit you in one way or another. Understanding your options can help you ensure you get the right CD for your financial goals. Here are some common options.

Traditional CDs

In their standard format, CDs are vehicles for saving and investing that provide a guaranteed rate of return. You'll need to keep your money in the account for a fixed term, which may range from one month to several years, and with a fixed interest rate. Otherwise, you may pay an early withdrawal penalty, which is calculated based on your account's term.

No-Penalty CDs

These CDs allow you to withdraw your entire balance (not a portion of it) as soon as a week after you've funded the account without a penalty. A no-penalty CD may come with lower rates, but it depends on the financial institution.

Jumbo CDs

A jumbo CD requires a much higher initial deposit, usually $75,000 to $100,000, but some financial institutions may go as low as $25,000. In return, you'll typically receive a higher interest rate.

Bump-Up CDs

A bump-up CD offers the opportunity to increase your interest rate if it's gone up since you first opened the account. You'll have to request the change, and it may only be available one time during your term. Also, you may receive a lower initial rate than you would on a traditional CD in exchange for this option. However, it may be worthwhile if you expect the Federal Reserve to raise interest rates during your CD term.

Step-Up CDs

Similar to a bump-up CD, a step-up CD incorporates the option to increase your interest rate throughout the term. But the financial institution will make the change automatically at predetermined times, such as every seven months over a 28-month term.

Brokered CDs

You can buy this type of CD through a brokerage firm, rather than a bank. A brokered CD often carries a higher interest rate and the option to get your money before the maturity date penalty-free. On the other hand, you may potentially pay extra fees and face the possibility the broker will "call" the CD, or end the CD's term early, requiring you to find another issuer and open a new CD.

IRA CDs

As part of your retirement savings strategy, you can invest in an IRA CD, which provides security in the form of guaranteed interest, making it a good option for people nearing or in retirement.

You can save in an IRA CD either as a standalone account or within your current retirement portfolio. But you'll miss out on potential greater returns from stock investing, so be sure to maintain a balanced individual retirement account portfolio that includes other investment options.

2. Compare CD Rates and Terms

Depending on the type of CD you choose, you may focus on different features as you compare your options. You can start by checking offers from your existing bank or credit union, then compare those terms to what you can find at other banks, credit unions, brokers and online institutions.

Here's what to keep in mind:

• Interest rate: Because a high interest rate is often the primary benefit of choosing a CD, compare rates among various CDs to find the best one. Rates can change often, so check back regularly. You may also find promotional CD rates, which are even higher than what the financial institution usually offers for a period of time. Remember, some CDs offer lower interest rates in favor of other features. Make sure the benefits outweigh the opportunity cost.
• Term length: Keep in mind that your rate will likely be higher the longer the term you choose, so identify how long you're comfortable keeping your money locked up. Make sure the provider you choose has the term you want.
• Minimum deposit: Some financial institutions have no minimum deposit requirement while others may require hundreds or even thousands of dollars. Choose the CD that works best based on your available funds.
• Early withdrawal penalty: It can sometimes be difficult to find this information, so if it's not readily available on the financial institution's website, don't be afraid to call. While you can always go for a no-penalty CD, you won't be able to access the highest possible rates that way.
• Other fees: If you're considering a brokered CD, make sure you understand trade fees and other costs associated with the account.
• Step-up schedule: If you're looking at step-up fees, make sure you understand the step-up schedule and that it works based on your interest rate expectations and maturity timeline.
• Bump-up options: If you're going for a bump-up CD, check to see how many times you can request a higher rate.

Learn more: Should I Put My Emergency Fund in a CD?

3. Apply for a CD

Depending on the financial institution, you may be able to apply for the CD you've chosen online, in person or by phone.

You'll start by choosing the type of CD you want and the term. You'll then typically need to provide the following information and documentation:

• Name
• Social Security number
• Date of birth
• Address
• Contact information
• Government-issued photo ID
• Proof of address

During the application process, you'll receive a disclosure statement with more details about how the CD works. Carefully review the terms to understand the unique features of your CD, such as early withdrawal penalties, call options and interest accrual.

Learn more: When Is the Best Time to Open a CD?

4. Choose How Interest Is Disbursed

Depending on the financial institution, you may have the option to receive interest disbursements monthly, annually or at maturity:

• Monthly: You'll receive your accrued interest once a month, paid to a linked account.
• Annually: You'll receive your accrued interest on the anniversary of your account opening date. This option is typically only available on terms of 12 months or more.
• At maturity: You'll receive the accrued interest and the original deposit amount when your CD matures, or you can roll them into a new CD.

Receiving your interest payments monthly or annually can be beneficial if you want to use that cash for other purposes. However, keeping the earned interest in your account allows you to reinvest your interest to compound your return on the account.

5. Fund the CD

The minimum deposit for a CD typically ranges from $500 to $2,500, but some go higher or lower. In fact, some financial institutions don't have a minimum at all.

Keep in mind that you typically can't add money regularly to a CD like you would to a traditional savings account. Deposit an amount that you're comfortable going without during the CD's term.

Depending on the institution, you may be able to fund the account with a bank transfer, a check, cash or other methods.

Learn more: How Much Money Should I Put in a CD?

Frequently Asked Questions

The Bottom Line

Saving in a CD is a smart way to earn more interest than you would if your money stayed in a traditional savings account, but it's also safer than investing only or primarily in stocks or other more volatile instruments. To best take advantage of a CD's unique features, open the CD that best fits your personal financial goals—in the type of CD, the length of the term, the type of interest rate and the method of renewal.