How to open a certificate of deposit (CD)

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If you want a guaranteed return on your savings, then opening a certificate of deposit may be a logical next step: CDs are a low-risk place to park cash. The time-deposit products offered by banks and credit unions tend to pay more interest than savings accounts because they’re less liquid.

Let’s take a closer look at exactly how to open a CD.

Determine your savings timeline

Before you open a CD, make sure that you have a goal in mind for these funds. Yes, you want to build your savings, but why? Are you planning to buy a car within the next few years or do you want to fund a vacation in a year? The reason behind your savings can help you pick the appropriate term for your CD. Common CD terms include: 3 months, 6 months, 9 months, 12 months, 18 months, 24 months, 36 months, 48 months and 60 months.

If you are hoping to use the funds within a few months, then a high-yield savings account or money market account is likely a better fit. With either of those options, you’ll have access to your money whenever you need to spend it.

With most CDs, you will not have access to the funds until the CD matures. Make sure that you are comfortable leaving the funds untouched for a specified period of time.

Gather these documents to open a CD

As with all financial products, you’ll need to provide documentation in order to open a CD.  The financial institution needs to verify your identity. Before you start the process of filling out an application for a CD, it is helpful to gather this information ahead of time. Otherwise, you might find yourself scrambling for paperwork while filling out your application.

Of course, the financial institution you work with might require different information. But here’s generally what you should have on hand:

  • Your Social Security number (or Individual Taxpayer Identification Number)
  • A valid ID, such as a driver’s license
  • The date of birth of all account holders, if you are opening a joint account
  • A physical U.S. address
  • A phone number
  • An email address
  • An opening deposit amount (and the funding account information)

Once you have this information easily accessible, the actual process of opening a CD should flow more smoothly.

How much money do you need to open a CD?

If you are ready to open a CD, you will need some savings on hand. Although some banks require no minimum deposit to open a CD, others require a $1,000 minimum deposit, if not more.

Let’s take a look at a few examples to better understand the range:

  • Synchrony offers a variety of CD terms — from three months to 60 months — that require a minimum deposit of $2,000.
  • Bank of America offers standard CDs that require a $1,000 minimum deposit. The big bank also offers featured CDs that require a $10,000 minimum deposit.
  • You can open a CD with Barclays bank for a variety of terms with no minimum balance required.

As you can see, there is a wide range of minimum deposit requirements. With so many options, you can find a CD with an opening deposit requirement that works well for your situation. In general, you should expect to have at least $1,000 on hand to open a CD with a competitive rate. Take the time to shop around to get the best rate for the amount you are willing to deposit.

Online vs. in-person

Finding the perfect CD to stash your savings requires research. Although you can do that chore quickly with Bankrate’s help, another way to narrow the search is to determine if you want an in-person or online-only experience.

An online bank, or direct bank, is a good option if you are chasing the highest APY. With lower overhead expenses than brick-and-mortar banks, online banks tend to offer more favorable yields. Plus, many online banks also offer low fees.

If you choose to work with an online bank, then you will not need to leave the comfort of your couch to open a CD. But you won’t have in-person access to a banker to answer any questions that pop up.

Whichever direction you take, make sure that the institution you are working with is a Federal Deposit Insurance Corp. bank. You can bank with peace of mind because deposits in FDIC banks are insured up to $250,000 per customer. If the bank fails, you will get your money back within the insurance guidelines.

Can you deposit and remove money from a CD?

The biggest upside of a CD is that your money will grow steadily at a guaranteed rate. In exchange for that certainty, you will not have access to your funds until the end of the term.

If you choose to withdraw your funds early, then you will likely be subject to an early withdrawal penalty, which could wipe out any of the interest earnings, and potentially, some of your principal. You can avoid this fee by choosing to open a liquid CD that offers no penalty fees if you need to withdraw your funds early.

Most traditional CDs will not allow you to add additional money after the initial deposit. However, an add-on CD is an exception to that general rule. An add-on CD will let you make several deposits over the course of the term. But there may still be limitations to the amount that you can add to a CD depending on the fine print.

Bottom line

Before you move forward with the decision to open a CD, it is important to comparison shop. The money you are putting into CDs will grow at a guaranteed rate. With that, you should seek out the best rate that you can find for your savings timeline.

Featured image by Chaay_Tee of Shutterstock.

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Written by
Sarah Sharkey
Contributing writer
Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips, homebuying, homeownership and personal finance.