Where to buy CDs: your main options

You can buy a CD from a bank, credit union, or online bank. Banks and credit unions let you open an account in person or online; online banks operate only through their website or app. Each route has different minimum deposit amounts, interest rates, and terms available.

Banks you already use often have CDs, but they may not offer the highest rates. Credit unions typically pay more than traditional banks on the same term length. Online banks almost always pay the most because they have lower overhead costs, though you cannot walk in and speak to someone face-to-face.

You can also buy CDs through a brokerage account at firms like Fidelity, Charles Schwab, or Vanguard, which gives you access to CDs from many different banks in one place. This route is useful if you want to compare rates across institutions without opening separate accounts.

Key Takeaways

  • Online banks pay higher interest rates on CDs than brick-and-mortar banks because they have lower operating costs, though you manage everything through a website or app.
  • You need to choose a term length (3 months to 5 years are common) and a deposit amount before you buy, because withdrawing early usually costs you interest.
  • The interest rate is locked in when you open the CD, so rates available today may be different next week.
  • You can compare rates across multiple banks using CD rate comparison sites, or buy multiple CDs from different banks to spread your money and lock in different rates.

Steps to open a CD at a bank or credit union

First, decide how long you can leave the money untouched. Common term lengths are 3 months, 6 months, 1 year, 2 years, 3 years, and 5 years. Longer terms usually pay higher rates, but your money is locked up for that full period. Write down the terms that fit your situation.

Next, find the current rates. Visit the websites of banks or credit unions you are considering, or use a CD rate comparison site to see what multiple institutions are offering right now. Write down the rate, the term, and the minimum deposit required for each one that interests you.

Once you have chosen a bank or credit union and a term, you will open an account. If you are opening at a bank or credit union you already use, log into your online banking and look for the CD option, or call and ask to speak with someone about opening a CD. If you are opening at a new institution, go to their website and select "open a CD" or "new account". You will need to provide your name, address, Social Security number, and information about how you want to fund the account (usually a transfer from another bank account).

After you submit your information, the bank or credit union will verify your identity and process your application. This usually takes one to three business days. Once approved, your CD opens and your money is deposited. Your interest will begin accruing on the date the CD opens.

Using a brokerage to buy CDs from multiple banks

A brokerage account lets you buy CDs issued by many different banks without opening separate accounts at each one. You open one account at the brokerage, fund it, and then search for CDs by rate, term, and issuing bank.

The process is similar to opening a regular CD: you provide your name, address, and Social Security number, and fund the account by transferring money from your bank. Once your account is open and funded, you can browse available CDs, select one, and the brokerage handles the purchase on your behalf.

One advantage of this route is that you can see all available rates in one place and compare them side by side. Another is that if you want to buy multiple CDs with different terms or from different banks, you do not have to open multiple accounts. The main disadvantage is that if the brokerage itself fails, your CDs are still protected by FDIC insurance (up to $250,000 per bank per term length), but the process of recovering your money may take longer than if you owned the CD directly at the bank.

What happens when your CD matures

When your CD reaches the end of its term, it matures. The bank will notify you a few days before the maturity date, usually by email or mail. At that point, you have a choice: let the bank automatically renew the CD for another term at the current rate, or withdraw the money.

If you do nothing, most banks will automatically renew your CD for the same term length at whatever rate they are offering at that time. That new rate may be higher or lower than what you earned on the first CD. If you want to avoid automatic renewal, log into your account or call the bank before the maturity date and tell them not to renew.

If you withdraw the money, it will be transferred back to the bank account you used to fund the CD, usually within one to three business days. You can then deposit it elsewhere, spend it, or buy a new CD at a different rate.

Early withdrawal penalties and what they cost

If you withdraw money from a CD before the term ends, the bank will charge you an early withdrawal penalty. The penalty is usually a certain number of months of interest. For example, a 1-year CD might have a 3-month interest penalty, meaning if you withdraw after 6 months, you lose 3 months of the interest you earned.

The exact penalty depends on the bank and the term length. Banks with longer terms usually have larger penalties. Before you open a CD, read the disclosure document or ask the bank what the early withdrawal penalty is. Write it down so you know what it will cost if you need the money before the term ends.

Some banks offer no-penalty CDs that let you withdraw without a penalty, but these pay lower interest rates than regular CDs. A no-penalty CD makes sense if you are not sure you can leave the money alone for the full term.

How to compare CD rates and find the best deal

CD rates change daily, so the rate available today may be different tomorrow. When you are ready to buy, compare rates across at least three to five institutions to see what is currently available.

Use a CD rate comparison site to see rates from many banks at once. These sites show the rate, the term, the minimum deposit, and the early withdrawal penalty for each CD. You can filter by term length or minimum deposit to narrow down your options.

Pay attention to the annual percentage yield (APY), not just the interest rate. APY includes the effect of compounding and tells you the true return on your money. A CD with a slightly lower APY but lower minimum deposit might be a better fit than one with a higher APY that requires $25,000 to open.

Also check whether the bank or credit union is FDIC-insured (for banks) or NCUA-insured (for credit unions). This insurance protects your money up to $250,000 if the institution fails. All legitimate banks and credit unions carry this insurance, but it is worth confirming before you deposit your money.

Frequently Asked Questions

Can I buy a CD if I do not have a bank account?

Yes. You can open a CD and a checking or savings account at the same time, or you can open just a CD. You will need to provide identification and a Social Security number, and you will need a way to fund the account, usually by transferring money from another bank account or by mailing a check.

What is the minimum amount I need to open a CD?

Minimum deposits vary by bank and by term length. Some banks require as little as $500, while others require $2,500 or $10,000. Online banks often have lower minimums than brick-and-mortar banks. Check the specific bank's website to see what minimum applies to the term you want.

Can I add money to a CD after I open it?

No. A CD is a fixed deposit for a fixed term. Once you open it, you cannot add more money to that CD. If you want to invest more, you would need to open a separate CD. Some banks let you open multiple CDs at the same time.

What if I need the money before the CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty is usually a few months of interest. Before you open a CD, confirm what the penalty is so you know the cost. If you think you might need the money, consider a shorter term or a no-penalty CD instead.

Is my money safe in a CD?

Yes, as long as the bank or credit union is FDIC-insured or NCUA-insured. These agencies protect deposits up to $250,000 per person per institution per term length. If the bank fails, your money is returned to you. All legitimate banks and credit unions carry this insurance.