Do you have money that you want to invest or keep safe? You have several options for how to protect and grow your money and certificates of deposit (CDs) are among them. CDs have several advantages to offer investors, as well as some downsides to consider, including minimum deposit requirements in many cases.
You open a CD through a bank by depositing cash for a set time, and then you earn interest on that deposit. When the CD term expires, you receive your money back, plus the interest that accrued.
Not all banks, however, have the same minimum deposit requirements for CDs. Let’s look at how minimum deposits are set, the typical minimums deposits for opening a CD, and potential extra costs associated with investing in this asset.
- Minimum CD deposits are set by the banks that issue the CDs, not by federal regulations.
- CDs generally are considered safe investments, in part because they are FDIC insured for up to $250,000.
- Some banks will allow you to open a CD without any minimum deposit.
- Most banks will charge you a penalty fee for withdrawing money from your CD before the term expires.
Who Sets CD Deposit Minimums?
Banks set their own minimum deposit requirements for CDs—there are no federal regulations that set one standard. This means minimum deposit requirements can vary widely, with some banks having no minimum and others requiring $500, $1,000, or more.
The amount of money you deposit and the CD’s term generally affects the interest rate you receive. The more you deposit and the longer the bank holds the funds, generally the higher your interest rate.
What Are Jumbo CDs?
Some standard CDs may not have minimum deposit amounts, but most jumbo CDs will. Jumbo CDs require a much larger cash deposit than regular CDs, but they also offer greater returns. It’s not uncommon to find minimum deposit requirements of $100,000 or more.
Typical Minimum Deposit Requirements for CDs
Banks set different minimum deposit requirements for their CDs, so you’ll find a wide range depending on the bank and other factors.
Generally, CD minimums begin at around $1,000, but they will vary depending on the type of CD you choose. Some banks offer a variety of CDs with different terms and returns to meet the needs of their customers. Some CDs may offer special features, such as an increasing rate, no penalties for withdrawals, or high yields.
CDs are considered safe investments as far as protecting your principal because they are insured by the FDIC for up to $250,000.
Here are some examples of standard CDs along with their rates for their lowest minimum deposit and shortest length of time, as of April 2022.
|Name||Minimum Deposit||Minimum Interest Rate||Minimum Length of Time|
|Capital One 360||$0||0.80%||12 months|
|Chase Bank||$1,000||0.02%||1 month|
|U.S. Bank||$500||0.05%||1 month|
|Bank of America||$1,000||0.03%||28 days|
|Ally Bank||$0||0.15%||3 months|
Beyond standard CDs, plenty of banks offer specialized CDs that can include higher interest rates, penalty-free withdrawals, interest-rate changes, and the ability to contribute additional money.
Ally Bank, for example, offers a “Raise Your Rates” specialty CD that allows you to change your rate if the interest rate rises during your CD’s term. This can be done once with a two-year CD or twice with a four-year CD.
California Coastal Credit Union offers a “Take 5 Certificate.” This CD's minimum deposit can range from $500 to $5,000 and the term length is only five months—but the interest rate is 5%.
Extra Costs When Investing in CDs
Along with minimum deposit requirements, also factor in any additional costs associated with opening and using a CD. Let’s look at some of those costs in more depth.
Early Withdrawal Penalties
Since certificates of deposit have fixed end dates, you’ll usually pay a fee if you withdraw your money before this date. The fee will depend on the bank and the length of your CD term.
For example, the Capital One 360 CD has the following penalties based on your withdrawal:
- For a CD with a 12-month or shorter term, the penalty is three months of interest, no matter when you redeem the account before maturity.
- For a CD with a term greater than 12 months, the penalty is six months of interest, no matter when you redeem the account before maturity.
- The CD can be redeemed without penalty if the owner dies or is declared mentally incompentent at any point.
In many cases, penalties will take a portion of the interest you earned. In some cases, the penalties can be larger than the total interest, which means you will lose some of your principal.
Along with standard CDs, you may be able to purchase a brokered CD. These CDs generally are offered by stockbrokers or other investment professionals.
These can be more complex and may have a longer holding time than a standard CD. And brokered CDs may have a trading fee as either a percentage of your investment or as a fixed amount. Before buying a brokered CD, you’ll want to ensure the interest you’re earning on your CD is worth the fee.
How To Minimize Fees When Investing in a CD
If you want to reduce the fees you pay on your CD, you have a few options, each with its own pros and cons.
Opening Specialty CDs
Specialty CDs are CDs that offer unique terms such as increasing interest rates or the option of adding more money to the CD. One type of specialty CD charges no penalty fees for withdrawals.
Double-check the interest rates on your specialty accounts because they could be lower as a result of the unique terms.
Holding to Maturity
A sure way to avoid early withdrawal fees on your CD is to simply invest your money until the CD has matured. At the maturity date, you can cash out and reinvest it, along with any interest you earned.
Keep in mind that the time you have to withdraw your funds before they are locked into another CD may be limited. Many banks automatically roll over a CD then offer a grace period, such as 10 days, to make changes such as withdraw your funds, add additional deposits, or change the term.
Brokered CDs are CDs you buy from a stockbroker who bought them from a bank. Brokered CDs typically have longer terms as well as trading fees, although not all do. You may also see minimum deposits of $10,000 or more.
Consider avoiding brokered fees unless you’re a savvy investor. Some brokered CDs may not be FDIC insured.
Frequently Asked Questions (FAQs)
How does a certificate of deposit (CD) work?
A certificate of deposit (CD) is an investment vehicle. You can open a CD online through a bank. You’ll choose how much money you want to keep in a CD and the length of time you’d like it in the CD. Once you’ve deposited your funds, you typically won’t be able to withdraw your funds without penalty until the term ends.
When is a certificate of deposit (CD) the best banking choice?
A certificate of deposit (CD) may be a good option if your priority is to protect your principal but you would like to earn profits. A CD typically earns more interest than a standard savings account, but it doesn’t offer the potential for as high of returns as other investments such as stocks.
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U.S. Bank. “Certificates of Deposit - Flexible CD.”
Bank of America. “CD Accounts - Certificate of Deposit (CD).”
Capital One. “Online CD Savings Accounts & Interest Rates.”
Ally Bank. “High Yield CD: Great CD Rates, CD Calculator.”
Ally Bank. “Raise Your Rate CD: Flexible 2 & 4 Year CD Rates.”
California Coastal Credit Union. “Take 5 Certificate.”
Capital One. “360 CD Account Disclosures.”
FINRA. “Certificates of Deposit (CDs).”