Situations When You Can't Open a Certificate of Deposit (CD)

There are some requirements that may prevent you from opening a CD account

Banker discussing account options with customer
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Certificates of deposit, or CDs, are a type of savings account that offers a set interest rate for a predetermined time on a fixed amount of money. CDs are popular because they present a guaranteed return on your investment. In addition, since they’re insured by the FDIC, you can be sure your money is safe.

But there are some restrictions that might prevent you from opening a CD account, like not being of legal age or not having a bank account. We’ll look at some of the most common restrictions that apply to this type of savings account and also discuss what options you have if one of them applies to you.

Key Takeaways

  • A certificate of deposit (CD) is a type of savings account that offers a fixed interest rate for a set time period.
  • There are some reasons why you might not be able to open a CD account, including your age, not meeting minimum deposit requirements, or not having a bank account. 
  • There are some alternatives to CDs that still offer a good return on your investment, including high-yield savings accounts and money market accounts.

Reasons You Might Not Be Able To Open a CD Account

You’re Not of Legal Age

One of the most common restrictions on certificates of deposit is your age. When you open this type of account, you are entering a legal contract. To do that, you must be able to legally sign financial documents. In many states, the legal age is 18. 

If you’re not yet of age, you can ask your parents or another trusted adult to open a CD as a custodial account. This type of account allows an adult to deposit money and maintain the funds on your behalf.

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Acts (UTMA) accounts are two types of custodial accounts. These allow you to deposit money for beneficiaries, but withdrawals are restricted.

With a custodial account, parents or guardians have control over the CD until you're of age. At that time, you become the legal owner and can make your own decisions about the management of the funds.

Alternatively, you can wait until you can legally open your own account. Then you won’t have to worry about transitioning the account when you’re an adult. 

You’re Buying a CD for Someone Other Than Your Child

Giving someone a CD as a gift might seem like a nice gesture, but you can’t just open an account in someone else’s name without their knowledge. That’s because banks are required to verify the identity of the account owner.

Without the recipient being with you to provide their ID and Social Security number, the bank can’t complete this legal requirement. 

If you want to gift someone with a CD, here are two other options: 

  1. Open a joint account. Many banks allow CDs to be created with two people’s names on the account, so you can open the account in both of your names. Upon maturity, your intended recipient, as a joint owner, can withdraw the CD with the earned interest. 
  2. Fund their CD account. Go to the bank together and explain that you want to fund a CD that your recipient is going to open, or give them cash to open the account themselves. 

You Don’t Have the Minimum Deposit Amount

While there are no federal requirements, most banks and credit unions require a minimum deposit amount to open a CD. Often you're required to fund your CD with at least $250. Other institutions might have a higher minimum, such as $500 or even $1,000 or more.

Jumbo CDs and Super Jumbo CDs may also be out of reach as these require much greater deposits, such as a $95,000 minimum deposit.

If you don't have enough money saved up to open a certificate of deposit, you might want to consider other options for your savings. Then when you have enough money saved, you could transfer it to a CD account if you feel like you wouldn’t need the money for a while. 

You Don’t Have an Account With a Bank or Credit Union

Some banks may require you to have another type of account with them before you open a CD. If you’re not already a customer, ask the bank about its requirements. 

To open an account, you'll need to meet your bank's requirements and prove your identity. Here's a list of items that are typically required:

  • Valid ID, such as a driver's license or passport
  • Social Security number or another government-issued identification number
  • Your address and phone number
  • Minimum deposit amount, which varies by bank

If you’re trying to open an account at a credit union, there may be additional requirements. For instance, you might have to work in a certain industry or live in a specific county. Check with your credit union for eligibility rules

You Have a Bad Banking History

Because a CD is a deposit product, you may not be allowed to open a CD account if you have a negative banking history or have active reports with ChexSystems or Early Warning Services.

For example, if you've been charged with bank fraud or have had multiple overdrafts on your checking account, a financial institution may view you as a high-risk customer and elect not to allow you to open an account.

But even if you are allowed to open the CD, your financial history may impact your interest rate. You may earn a lower yield on your investment compared to someone who has a clear ChexSystems report.

Should You Open a CD Account?

Just because you qualify for a CD account, doesn’t mean opening one is the right financial decision for you. Before you open one, here are some factors to consider. 

CDs might be a good option if you:

  • Have enough money saved to meet the minimum deposit requirement
  • Want your money to grow in an FDIC-insured account
  • Are looking for a fixed rate of return on your investment

But CDs aren't always the right choice because:

  • Once your money is deposited in one, you can't withdraw it until the maturity date without incurring a penalty fee. If you think you might need to access your funds before then, you don't want to tie them up in a CD.
  • The interest rate on CDs is typically low compared to other investments. If you want your money to grow at a faster pace, consider other options.

Think about your financial goals, how much risk you're willing to take, and how long you're planning to let your money grow. Once you have a better idea of what you're looking for, you can decide if a CD is an appropriate investment for you.

Frequently Asked Questions (FAQs)

When you open a CD account, can you add money into the account after the initial deposit?

Unless it’s a specific add-on CD, once you fund a CD account, you typically can’t add money to it until the maturity date. If you want a savings option where you can frequently add funds, a money market account might be a better option. 

How do you open a CD account?

Opening a CD account is usually a simple process. Depending on your bank, you may even be able to open one online. You'll need to meet the account requirements and have the minimum balance ready to deposit. Then you can choose your CD terms. Once it's set up, your money stays in the account and continues to grow until it reaches maturity.

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Article Sources

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  6. Brio Direct. “High-Yield CDs.”

  7. Consumer Financial Protection Bureau. “Checklist for Opening a Bank or Credit Union Account,“​ Pages 1-2.

  8. Bank of America. “Deposit Agreement and Disclosure.”