How to Open a CD Account: A Step-by-Step Guide

A certificate of deposit, or CD, is a type of savings account that holds your money for a fixed term, such as six months or three years. In exchange, you earn interest in the form of an annual percentage yield (APY).

Some of the best CD rates can earn you more in interest than if you stash your money in a traditional savings account or checking account. If you’re interested in opening a CD, we’ll walk you through each step, from choosing a term to depositing your funds.

1. Pick your CD type and term

Most banks and credit unions offer CDs, but each institution may have a different selection to choose from. Here’s a breakdown of the types of CDs you may find and how to choose the best term. 

Types of CDs

Rates, penalties and deposits may be different for each type of CD.

• Standard fixed-rate CD: A standard CD pays a fixed APY in exchange for locking up your funds the entire term, or length of time your money stays in the CD. 
• High-yield CD: A high-yield CD features a higher interest rate compared with the national average. The rate is fixed throughout the CD’s term.
• Step-up CD: A step-up CD usually offers a lower upfront APY and then increases it at set intervals throughout the term, such as once a quarter. 
• Bump-up CD: A bump-up CD, or a raise-your-rate CD, may also start with a lower rate. But if your institution increases the available APY on its account during the CD term, you can request a higher rate. 
• Add-on CD: You can add deposits to an add-on CD throughout the term, instead of just making one upfront deposit. 
• No-penalty CD: A no-penalty CD may come with a lower initial rate, but you can withdraw money before the account matures without paying a penalty for early withdrawal. Review our list of the best no-penalty CD rates.
• Jumbo CD: A jumbo CD usually works like a standard CD account, but it requires a large minimum deposit to open, such as $100,000. Review our list of the best jumbo CD rates.

CD terms

Your CD term length is the amount of time you agree to keep your funds in the account. Terms most commonly range from three months to five years, but you may find CDs with shorter or longer ranges, depending on the institution. In general, a longer CD term means a higher APY — in other words, more interest.

You can take out your money before the CD’s maturity date, but you’ll typically pay an early withdrawal penalty worth a few months’ interest unless you have a no-penalty CD. In this case, use a CD early withdrawal calculator to determine if the fee is worth it.

Consider your financial goals when choosing a term. If you plan to use the money in one year, for example, then take a look at 1-year CD terms. 

Another option is to create a CD ladder to benefit from competitive APYs while getting access to your funds at regular intervals.

2. Select a financial institution 

When choosing a financial institution to store your funds, research multiple banks and credit unions and compare top CD rates to find the best account for your needs. 

One way to narrow your search is to figure out whether you’d like to open an account with an online or brick-and-mortar institution. Online banks and credit unions lack the costs of supporting a branch network, so they typically offer higher APYs and require no minimum deposits for their CDs. (For recommendations, read our list of the best online banks.)

On the other hand, you may want to open a CD at a local branch if you’re more comfortable with in-person service. Credit unions often pay higher APYs compared with traditional banks, but you may have a smaller selection of CDs to choose from. You’ll also need to become a member of the credit union to open an account.

Brick-and-mortar banks usually pay lower APYs compared with online institutions. But they may have better digital tools than some credit unions. 

When you make a list of places you want to shop with, compare these features among their CDs:

• Types of CDs offered
• Interest earnings
• Early withdrawal penalties
• CD terms
• Minimum opening deposit requirements

Your CD funds will be safe if you choose a federally insured bank or credit union.

3. Complete the application 

Once you’ve chosen a financial institution and CD, you’ll open the account. While the exact details may vary between institutions, here are the general steps you’ll take:

• Gather your documents. Banks and credit unions usually ask for your name, contact information, address, and Social Security or tax identification number. The financial institution will also likely ask for a copy of your government-issued ID, such as a driver's license or passport. Having the information and documents ready before you start the application can smooth the process. 
• Prepare your deposit. Figure out how much you’d like to deposit and where the funds will come from. For example, if you plan to transfer funds from your checking account to the new CD, have the checking details handy. You’ll need to have enough to meet any minimum deposit required by the bank or credit union. 
• Open the account. You may be able to open the CD online, in person or by phone, depending on the financial institution. You’ll fill out an application, provide any documentation and read your account terms.

4. Choose how to receive interest 

CDs pay interest on your balance, and some accounts let you choose how to receive those CD payouts. Your options depend on your financial institution’s rules and the specific account. Options may include:

• Receive all interest at maturity: Interest usually compounds daily and credits to your account monthly. The interest is added to your balance and compounds throughout the term. At maturity, you receive your initial deposit along with the compounded interest.
• Receive periodic payouts: The interest compounds and then is disbursed to you regularly, such as monthly or quarterly. You may receive the payments as a check or a deposit into your bank account. At the end of your CD term, you receive your initial deposit along with the final interest payment. 

5. Fund the CD 

Most CDs allow you to make just one deposit, which you can do at account opening or within a certain time frame, such as 30 days. The initial deposit will need to meet any minimum requirements set by your institution. For instance, you may need to deposit at least $1,000 — or even up to $100,000 for a typical jumbo CD. 

But many banks and credit unions have no minimums at all, as long as you fund the account within the required time frame. Just make sure you choose an opening deposit that suits your budget and goals. 

You’ll also need to check how you can fund the account. You might be able to:

• Link to a checking or savings account and transfer the money
• Mail a check 
• Deposit a check if you’re at a branch

Once the money is deposited, you’ll leave it there until your CD’s term ends.

CD features to compare 

While you may be tempted to open the first CD account that catches your eye, take the time to consider your options (and CD “gotchas” to avoid). Compare APYs, terms, minimum deposit requirements and early withdrawal penalties with a few different banks and credit unions.

The extra research will pay off when you get the best CD rate on an account that fits your needs.