Table of Contents

How to Open a Certificate of Deposit in Five Simple Steps

Do some comparison shopping before you commit your money

By

Matt Ryan Webber

Updated March 26, 2026

Reviewed by

Katie Miller

Fact checked by

Rukshani Lye

Male banker assists his customer in setting up her CDs — SDI Productions / Getty Images

Key Takeaways

CDs generally offer higher interest rates than savings accounts but lock up funds until maturity.
Consider a CD ladder strategy to spread risk and access funds at different intervals.
Withdrawals before a CD matures usually incur early withdrawal fees.
Banks typically require a minimum balance to open a CD.
You cannot add money to a CD after purchase, but you can buy multiple CDs.

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A certificate of deposit (CD) is a low-risk savings product that offers steady, guaranteed returns in exchange for keeping your money locked in for a set term. Opening one is straightforward: choose the CD type, select a bank or credit union, submit an application, decide how you want the interest paid, and fund the account. Because rates and terms vary, picking the right CD and provider can meaningfully affect how much you earn.

Choose the Right CD Type and Term Length

A CD is considered a low-risk investment choice that can help you grow your money. But not all CDs are the same. Your own financial goals and current situation will play a role in which type of CD and which term length may be right for you.

Type of CD: A standard CD has penalties for early withdrawal, whereas liquid CDs (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our CD Guide.
Length of CD: CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment.
Single or joint account: You can open a CD as a joint account as with other bank accounts. Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000.

Find the Best Bank or Credit Union for Your CD

Banks or credit unions are common choices for buying CDs, and you have plenty of options. Investopedia's regularly updated list of Best Bank CD Rates is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution:

Insurance coverage: Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered.
Interest rates: Shop around for the best interest rate. The top-paying CDs can pay three to five times the national average.
Early withdrawal penalties: If you access your money early, you will pay a penalty. Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can roll it over into a new CD when it expires.

Tip

Consider splitting your money among several CDs with different maturities in a CD ladder strategy. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need.

How to Apply for a Certificate of Deposit (CD)

The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution.

Choose Your Interest Payment Options

Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, take regular disbursements.

Final Steps to Fund Your CD

You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdraw your money or invest it in a new CD.

Is a CD Right for Me?

Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks.

What Is the Difference Between a CD and a Savings Account?

CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed return. However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money.

Which CD Term Should I Choose?

That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate.

Do CDs Have Fees?

You don't typically have to pay fees to open or hold a CD. However, if you withdraw funds before the CD term ends, you will likely face an early withdrawal fee.

What Is a Minimum Balance Requirement for CDs?

When you open a CD, the bank will require a minimum amount. That amount, also called the minimum opening amount, can range up to about $10,000 and will vary by bank. That balance will be locked up for the duration of the CD's term as it earns interest. If you withdraw the funds early, you'll face an early withdrawal penalty, which can also vary by bank.

Can You Add Money to a CD?

Usually, you cannot add money to a CD once you have purchased it. The amount you paid for the CD is essentially locked in as it earns interest. However, you can buy as many CDs as you'd like as long as you meet the minimum opening amounts for each.

The Bottom Line

CDs offer steady yields with low risk, making them appealing for savers who can leave their money untouched for a set period. Because rates differ widely across institutions, comparing options is important when choosing the right CD type and term for your goals.

CDs don't come with opening or maintenance fees, but early withdrawals can trigger penalties, so it's worth matching the term to how long you're comfortable keeping your funds locked in.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

National Credit Union Administration. "Share Insurance Fund Overview."
Federal Deposit Insurance Corporation. "Are My Deposit Accounts Insured by the FDIC?," Select "Individual Accounts" and "Joint Accounts."
FDIC. “Deposit Insurance FAQs.”
Office of the Comptroller of the Currency. "What Are the Penalties for Withdrawing Money Early from a Certificate of Deposit (CD)?"
Financial Industry Regulatory Authority. "Certificates of Deposit (CDs)."

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