If you have funds you’re willing to put away for a while, a Certificate of Deposit (CD) account is a great way to safely store and grow your savings. A CD is a special type of savings account that helps your money grow over a specific period of time with a guaranteed interest rate.
You deposit funds for a period of time ranging from six months to five years during which your CD earns a fixed rate of interest. The interest rate is usually higher than what you’d earn with a conventional savings account. You must wait until the CD matures, otherwise, you’ll pay an early withdrawal penalty. Once the CD account matures, you can cash in your funds plus the interest earned or renew it for another term.
You can open a CD account with a bank or credit union. Besides providing your personal information, there are a few other requirements for opening a CD account. Learn more about what you need to open a CD, the minimum deposit requirement, and where you can open this type of account.
- A Certificate of Deposit is a type of secured time deposit where funds stay in your account for a specific period earning a guaranteed return.
- Opening a CD is similar to signing up for any other financial product—you must provide your personal information.
- Some institutions require no minimum deposit to open or maintain a CD account.
What You’ll Need To Open a CD
As with other financial products, you’ll need to provide your issuing institution with documentation to help verify your identity. If you don’t already have an account, you’ll need to create one with the issuing institution in order to have a funding source for your certificate of deposit. For starters, you typically must be a U.S. citizen and at least 18 years old. Additionally, here’s the information you may need to open a CD account online:
- Your name
- Physical address
- Social Security number or your individual tax identification number.
- A valid government-issued ID
- Date of birth
- Phone number and email address
- An opening deposit
You can also open a CD account by visiting your bank or credit union's local branch. A banking representative should help you decide on the best CD account for your needs.
CDs offer a higher rate of interest than regular savings accounts as an incentive for leaving your money untouched for a specific period.
Minimum Deposits for CD Accounts
In most cases, you’ll need money in hand to fund your new CD accounts. The minimum deposit requirements vary depending on the issuing institution, with some requiring no deposit. The minimum deposit can be as low as $500 up to a staggering $100,000 for jumbo CDs.
If you buy a CD from a third-party broker rather than directly from the bank, you’ll be relying on the broker to fund and acquire the CD. The FDIC doesn’t insure your money if your broker fails to deposit the funds into a CD.
Here are some examples of the minimum deposit requirements for different institutions:
- First Citizens Bank offers different CD terms—from six months to five years—with a minimum opening deposit ranging from $500 to $5,000.
- The U.S. Bank offers multiple CD account types that require a $1,000 minimum deposit.
- The Texas Dow Employees Credit Union (TDECU) standard CDs offer 3- to 60-month terms with a $1,000 minimum deposit. It also offers an Elements Teen Club CD that requires a $100 opening deposit.
- Chase CDs require a $1,000 minimum deposit to open. Visit your local branch to open a CD greater than $1 million.
Some banks require no minimum deposit to open or maintain a CD account. In some cases, your CD account may not exceed $1 million.
Where Can You Open a Certificate of Deposit?
You can open a CD account with a bank or credit union. Most banks and credit unions are federally insured, so all deposits up to $250,000 are protected by the FDIC or NCUA. You can verify that your bank is insured on the FDIC’s website.
You can also open a CD account through a brokerage firm or a sales representative other than your bank. This type of account is known as a brokered certificate of deposit. Brokered CDs typically yield higher than regular CDs and may have longer holding periods. On the flip side, brokered CDs may not always return the value invested if you cash in your CD before maturity.
Although brokered CDs are not FDIC-insured, a broker’s underlying CD purchase from the issuing bank is insured.
Before opening a CD account, start by ensuring the product is issued by a federally insured institution. You also want to understand how the account pays interest payments. Some CDs may carry variable interest rates based on a pre-set schedule or linked to the performance of market indices. Interest on market-linked CDs accrues only when the CD matures and not daily or monthly.
Check whether the CD automatically renews at the maturity date if you don’t liquidate your account. If it renews automatically, find out whether the renewal is at the old interest rate or the prevailing rate at the time of renewal. You don’t want to renew at the old rate if market rates have risen.
How To Open a CD
The first step toward opening a CD account is ensuring that the issuing financial institution is federally insured. This protects your deposits should the issuing institution go bankrupt. There’s no one-size-fits-all CD, so you’ll need to identify the right product for your needs.
Next, you need to pick a term length. With a longer term length, your funds are locked in longer which generally means you’ll earn a higher interest rate. You can choose to have your interest paid out monthly or annually, or have it held in your CD until maturity. Leaving your interest untouched to take advantage of compounding helps you maximize your returns.
You can submit your application for a CD account online or at your local branch. As with any other financial product, you’ll provide your name, physical address, Social Security number, physical address, and a valid ID to verify your identity. You can then fund your CD from an existing account with your issuing bank or transfer money from a different bank. Note the minimum opening deposit requirement since some banks may have no minimum.
Frequently Asked Questions (FAQs)
How do you choose a certificate of deposit?
Multiple factors go into choosing a CD to meet your needs. Start by choosing the term—how long you want to lock up your money. Don’t forget to look at the minimum deposit requirement. Other aspects to consider when choosing a CD are the early withdrawal penalty and federal insurance.
What is the interest rate on a CD?
Your CD’s issuer pays interest on the funds in your account. Interest could be added to your account daily, monthly, or annually. If your money earns interest daily, you’ll gain more over time than if you earn interest annually. Always compare products for the best CD rates.
Why is a CD considered such a safe investment?
A certificate of deposit is considered a safe investment because it’s insured by the federal government. Also, the issuing institution guarantees to return the principal plus interest accrued upon maturity.
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