Where to buy a CD and what you need to start

You can buy a CD from a bank, credit union, or brokerage firm. Most people start at their own bank because it's the simplest route — you walk in, call, or log into your online account and request one. You'll need a valid ID and enough money to meet the bank's minimum deposit, which ranges from $500 to $100,000 depending on the institution and the CD term.

Credit unions often offer higher rates than banks and may have lower minimums. Brokerages like Fidelity, Charles Schwab, and Vanguard give you access to CDs from hundreds of banks and credit unions in one place, which makes rate shopping easier. The tradeoff is that brokered CDs have different rules about early withdrawal and FDIC insurance that you need to understand before you buy.

You don't need a checking account at the bank to open a CD there. You can fund it with a wire transfer, ACH transfer from another bank, or a cashier's check. Some banks let you fund it online immediately; others require you to mail in a check or visit in person.

Key Takeaways

  • Banks, credit unions, and brokerages all sell CDs, and you choose based on the rate offered and how much money you want to lock up.
  • You'll need a valid ID and a minimum deposit amount, which varies by institution but typically starts at $500.
  • The CD term — how long your money stays locked in — ranges from three months to five years, and longer terms usually pay higher rates.
  • If you withdraw money before the term ends, you'll pay an early withdrawal penalty that the bank discloses before you buy.
  • FDIC insurance covers up to $250,000 per depositor per bank, so splitting money across multiple banks or CDs protects larger amounts.

Choosing a CD term that matches your timeline

The term is how long you agree to leave your money in the CD. Common terms are three months, six months, one year, two years, three years, and five years. Longer terms pay higher rates because the bank gets to use your money for a longer period. A five-year CD might pay 4.5%, while a three-month CD might pay 3.8%.

Pick a term based on when you'll actually need the money. If you're saving for a down payment in two years, a two-year CD makes sense. If you might need the money sooner, a shorter term is safer because the early withdrawal penalty will be smaller. Some banks charge three months of interest as a penalty; others charge six months or a flat fee. Always ask what the penalty is before you buy.

A few banks offer no-penalty CDs, which let you withdraw your money early without losing interest. The rate is lower than a standard CD, but you get flexibility. These work well if you're unsure about your timeline but want a may provide return.

How rates work and when they lock in

The rate you see advertised is the rate you get for the entire term. Once you buy the CD, that rate is locked in — it won't go up or down, even if market rates change. This is the main reason people buy CDs: certainty. You know exactly how much money you'll have when the term ends.

Rates change daily based on what the Federal Reserve does and what other banks are offering. If you see a rate you like, you can usually lock it in by opening the CD that day. Some banks let you reserve a rate for a few days while you think about it, but most don't. If rates are rising and you think they'll keep rising, you might wait. If rates are falling, locking in today protects you from a lower rate tomorrow.

When your CD matures — the term ends — the bank will either automatically renew it at the current rate or return your money plus interest to your account. Check your CD documents to see what your bank does. If you don't want to renew, you can withdraw the money penalty-free during the grace period, which is usually seven to ten days after maturity.

Understanding FDIC insurance and how much to deposit

The FDIC (Federal Deposit Insurance Corporation) insures deposits at banks up to $250,000 per depositor per bank. This means if the bank fails, you get your money back. Credit unions are insured by the NCUA with the same $250,000 limit. This protection covers your CD and the interest it earns.

If you have $500,000 to invest in CDs, you can't put it all in one bank and expect full coverage. You'd split it: $250,000 in a CD at Bank A and $250,000 in a CD at Bank B. Each deposit is insured separately. Some people open multiple CDs at the same bank to stay under the limit — for example, a one-year CD and a two-year CD at the same bank are both insured up to $250,000 combined, not each.

Brokered CDs have different insurance rules. A brokerage buys CDs from multiple banks and sells them to you. Each underlying bank's portion is insured separately, so a $500,000 brokered CD ladder across ten banks gets full FDIC coverage. Ask your broker how the insurance works before you buy.

The step-by-step process to open a CD

Start by deciding where to buy. If you're comparing rates, use a CD rate tracker or call three to five banks and credit unions. Write down the rate, term, minimum deposit, and early withdrawal penalty for each. This takes 20 minutes and can save you hundreds of dollars in interest over the CD's life.

Once you've chosen, contact the bank or log into your account online. You'll provide your name, address, Social Security number, and date of birth. The bank will verify your identity and check for any existing accounts. You'll specify the term, the amount to deposit, and how you want to fund it — wire transfer, ACH, or check.

After you fund the CD, you'll receive a confirmation with the rate, term, maturity date, and early withdrawal penalty. Save this document. Some banks mail a physical CD certificate; most just keep a record in your account. Your money is now locked in and earning interest.

What happens when your CD matures

On the maturity date, your CD stops earning interest. The bank will either automatically roll the money into a new CD at the current rate or deposit it into your linked savings or checking account. Check your CD agreement to see which option your bank uses.

If you don't want to renew, you have a grace period — usually seven to ten days — to withdraw the money without penalty. After that period, if the bank renewed it automatically, you'll have to pay the early withdrawal penalty to get your money out. If you want to avoid this, set a calendar reminder for one week before maturity and contact your bank to confirm what will happen.

If rates have risen since you bought your CD, renewing at maturity locks in a higher rate. If rates have fallen, you might move the money to a savings account or money market account instead. Compare your options before maturity arrives.

Brokered CDs versus bank CDs

A brokered CD is sold through a brokerage like Fidelity or Schwab, not directly from a bank. The brokerage buys CDs from multiple banks and resells them to customers. The advantage is convenience — you see hundreds of rates in one place and can compare terms and rates without calling multiple banks.

Brokered CDs often have higher rates than bank CDs because brokerages shop aggressively for the best deals. They also have lower minimums, sometimes as low as $1,000. The downside is that you can't withdraw early without penalty, and the penalty structure is different. With a bank CD, you lose a set amount of interest. With a brokered CD, you lose principal if you sell before maturity because the price fluctuates with interest rates.

If you think you might need the money before the term ends, a bank CD is safer. If you're confident you'll hold it to maturity and want the highest rate, a brokered CD often wins. Make sure you understand the early withdrawal terms before you buy.

Frequently Asked Questions

Can I add money to a CD after I open it?

No. A CD is a fixed contract — you deposit a set amount at the start, and that's it. You can't add money later. If you want to invest more, you'd open a separate CD. Some people open multiple CDs with staggered maturity dates so they have money coming available at different times.

What happens if I need the money before the CD matures?

You can withdraw it, but you'll pay an early withdrawal penalty. The penalty is disclosed before you buy and is usually three to six months of interest, or a flat fee. Calculate whether the interest you've earned so far covers the penalty. Sometimes it does; sometimes it doesn't. If you're unsure about your timeline, a shorter-term CD or a no-penalty CD is safer.

Is a CD better than a savings account?

CDs pay higher rates than savings accounts because you're locking your money away. A savings account gives you flexibility to withdraw anytime without penalty. If you have money you won't need for at least six months, a CD usually pays more. If you might need it sooner, a high-yield savings account is better.

Do I have to pay taxes on CD interest?

Yes. CD interest is taxable income in the year you earn it. The bank will send you a 1099-INT form at tax time showing how much interest you earned. You report this on your tax return. This is true even if you don't withdraw the money — you owe taxes on the interest as it accrues.

Can I buy a CD for someone else?

Yes, but it has to be in their name. You can fund it with your money, but the CD belongs to them legally. This is common for parents opening CDs for children. Make sure you understand the FDIC insurance rules — a CD in a child's name is insured separately from a CD in the parent's name at the same bank.