The basic steps to open a CD

Opening a CD takes about 15 to 30 minutes and involves three things: choosing the term length you want, depositing your money, and signing the CD agreement. You start by contacting your bank—in person, by phone, or online—and telling them you want to open a CD. They will show you the rates they offer for different term lengths (3 months, 6 months, 1 year, 5 years, and so on). You pick the one that matches when you think you'll need the money. Then you transfer money into the CD from a checking or savings account you already have at that bank, or you bring a check or wire the funds in. The bank gives you a document that states the rate, the term, the amount, and the maturity date—the day your CD ends and the money becomes available again. That document is your CD agreement, and you keep it.

The whole process is straightforward because the bank handles most of it. You are not filling out a loan application or proving your income. The bank just needs to know you have the money to deposit and that you understand the terms.

Key Takeaways

  • You can open a CD at any bank where you have a checking or savings account, or at a new bank if you want to shop for a better rate.
  • The bank will show you available term lengths and rates before you commit, so you can compare what they offer for 6 months versus 1 year versus 5 years.
  • You need to have the money ready to deposit—either in another account at that bank, or as a check or wire transfer from elsewhere.
  • The bank will give you a written agreement showing your rate, term length, deposit amount, and maturity date; keep this document until the CD matures.
  • If you withdraw the money before the maturity date, the bank will charge you an early withdrawal penalty, which reduces what you get back.

Where to open a CD

You can open a CD at any bank or credit union. If you already have a checking or savings account somewhere, that is often the easiest place to start—you can walk in, call, or log into your online banking and request a CD without having to provide new identification or proof of address. The bank already has your information on file.

If you want to shop around for a better rate, you can open a CD at a different bank. You will need to provide your Social Security number, a government-issued ID, and your address, just as you would when opening any new account. Some banks let you do this entirely online; others require you to visit a branch or mail in documents. Ask the bank what they need before you start.

Online banks and credit unions often offer higher rates than large national banks, so it is worth checking what they have available. The trade-off is that you cannot walk into a branch if you have a question, but most online banks have phone support and email.

How much money you need to deposit

Every bank sets its own minimum deposit for a CD. Some banks let you open a CD with as little as $500 or $1,000. Others require $10,000 or more. A few banks have no minimum at all. You will see the minimum listed when you look at the bank's CD rates, so you know before you commit whether you have enough.

The minimum does not affect the interest rate you receive—a $500 CD earns the same percentage as a $50,000 CD at the same bank for the same term. The minimum just determines whether the bank will let you open one at all. If a bank's minimum is higher than you have available, you can either save up or look for a different bank with a lower minimum.

Choosing a term length

The term is how long your money stays locked in the CD. Common terms are 3 months, 6 months, 1 year, 2 years, 3 years, and 5 years. Some banks offer terms as short as 1 month or as long as 10 years. The longer the term, the higher the rate the bank usually offers—a 5-year CD typically pays more than a 1-year CD at the same bank.

Pick a term based on when you think you will need the money. If you are saving for a down payment on a house in 2 years, a 2-year CD makes sense. If you are building an emergency fund and might need the money sooner, a shorter term like 6 months or 1 year is safer. If you choose a term that is too long and you need the money early, you will pay an early withdrawal penalty.

The penalty varies by bank and by term length. Some banks charge a flat fee like $25. Others charge a certain number of months of interest—for example, 3 months of interest if you withdraw early from a 1-year CD. The bank will tell you the penalty before you open the CD, so read the agreement carefully.

What happens on the maturity date

When your CD reaches its maturity date, the bank will notify you a few days or weeks beforehand. At that point, you have choices. You can withdraw the money and the interest you earned. You can move it to a savings or checking account. Or you can let the bank automatically renew the CD for another term at whatever the current rate is—this is called an automatic renewal.

Automatic renewal happens unless you tell the bank otherwise. If you do not want to renew, contact the bank before the maturity date and tell them you want to withdraw the funds. If you miss the window and the bank renews it automatically, you usually have a short grace period (often 7 to 10 days) to withdraw without penalty. Check your CD agreement for the exact grace period at your bank.

The interest you earned is added to your deposit, so when the CD matures, you get back your original deposit plus the interest. The bank will send you a 1099-INT form at tax time if the interest was $10 or more, because you owe income tax on the interest you earned.

Understanding the interest rate and how it is calculated

The rate a bank offers is called the Annual Percentage Yield, or APY. This is the percentage of your deposit you will earn over one year. If you open a 1-year CD with a $10,000 deposit at 4.5% APY, you will earn $450 in interest (before taxes) by the time the CD matures.

For CDs shorter than one year, the bank calculates how much interest you earn based on the fraction of the year. A 6-month CD at 4.5% APY earns about $225 on a $10,000 deposit. A 3-month CD at the same rate earns about $112.50. The bank does this math for you—you do not have to calculate it yourself.

The APY is different from the interest rate you might see advertised. APY includes the effect of compounding (interest earning interest), while a simple interest rate does not. Banks are required to show you the APY, so that is the number to use when comparing CDs at different banks.

Documents you will need

If you are opening a CD at a bank where you already have an account, you typically do not need any documents—the bank already has what it needs. If you are opening a CD at a new bank, you will need a government-issued photo ID (a driver's license or passport) and proof of your current address (a recent utility bill, lease, or bank statement). Some banks also ask for your Social Security number, which they use to check your identity and report the interest to the IRS.

If you are opening the CD online, you may be able to upload photos of these documents or answer security questions instead of mailing them in. Ask the bank what method they accept. If you are opening it in person at a branch, bring the originals or copies with you.

Frequently Asked Questions

Can I open a CD with money from another bank?

Yes. You can wire the money from another bank, mail a check, or transfer it electronically if both banks are connected through the same network. The bank opening the CD will give you instructions on how to send the money. Wire transfers usually arrive within one business day; checks take longer.

What if I need the money before the CD matures?

You can withdraw it, but the bank will charge you an early withdrawal penalty. The penalty is usually a certain number of months of interest or a flat fee. For example, if you withdraw from a 1-year CD after 6 months, you might lose 3 months of interest. The penalty is deducted from what you get back, so you may receive less than you deposited.

Do I have to open a CD at the same bank where I have my checking account?

No. You can open a CD anywhere. Many people shop around because different banks offer different rates. You can have CDs at multiple banks if you want. Just keep track of the maturity dates so you know when each one is coming due.

Is my money safe in a CD?

Yes, if the bank is insured by the FDIC (Federal Deposit Insurance Corporation). Most banks are. The FDIC insures up to $250,000 per depositor per bank, so as long as your CD is under that amount, it is fully protected if the bank fails. Check the bank's website or call and ask if they are FDIC-insured.

Can the bank change the rate after I open the CD?

No. The rate you lock in when you open the CD stays the same for the entire term. If interest rates go up or down, your rate does not change. That is the whole point of a CD—you know exactly what you will earn from day one.