How to open a certificate of deposit

Opening a CD takes about 15 minutes online or in person at a bank or credit union. You choose how long to lock your money away (the term, usually three months to five years), the bank tells you the interest rate for that term, you deposit your cash, and the bank holds it until the term ends. When it matures, you get your principal back plus the interest earned. The main decision is picking which bank and which term length — the rate and the rules differ between them.

You do not need perfect credit, a minimum account history, or any special paperwork beyond an ID and proof of address. Most banks let you open a CD entirely online without visiting a branch. Some require you to already have a checking or savings account with them; others let you open a CD as your first account.

Key Takeaways

  • You can open a CD online or in person by providing your ID, proof of address, and the amount you want to deposit.
  • Different banks offer different rates for the same term length, so comparing rates across three or four banks before you commit is worth the time.
  • The term (how long your money stays locked) determines your rate — longer terms usually pay more, but your money is unavailable until maturity.
  • If you withdraw money before the term ends, you pay an early withdrawal penalty that reduces your earnings or eats into your principal.
  • Some banks let you open a CD without an existing account; others require you to be a customer first.

Decide on a term length and compare rates

The first step is choosing how long you can leave your money untouched. Common terms are three months, six months, one year, two years, three years, and five years. Longer terms almost always pay higher rates because the bank keeps your money longer. A five-year CD might pay 4.5%, while a three-month CD at the same bank might pay 3.8%. The trade-off is that you cannot touch the money without paying a penalty.

Once you know your term, check rates at three or four banks. Rates change weekly, and a difference of 0.25% or 0.5% adds up over time. A $10,000 CD at 4.5% for one year earns $450; the same CD at 4.0% earns $400. Online banks usually offer higher rates than brick-and-mortar branches. Credit unions sometimes offer competitive rates to members. Use a rate-comparison tool or call banks directly to see what they are offering today.

Gather your ID and proof of address

You will need a government-issued photo ID (driver's license, passport, or state ID) and proof of your current address. Proof of address can be a recent utility bill, lease, mortgage statement, or bank statement with your name and address on it. If you are opening the CD online, you may be able to upload these documents or answer verification questions instead of mailing them in.

Some banks ask for your Social Security number to run a credit check, though opening a CD does not require good credit — they are just verifying your identity. If you do not have a Social Security number, ask the bank whether they accept an Individual Taxpayer Identification Number (ITIN) instead.

Open the CD online or in person

Most banks let you open a CD on their website without leaving home. Go to the bank's website, find the CD product page, and click the button to open one. You will enter your personal information, choose your term and deposit amount, and review the terms. Read the early withdrawal penalty section carefully — it tells you how much you lose if you need the money before maturity.

If you prefer to open a CD in person, visit a branch with your ID and the cash or a check. A banker will walk you through the same choices and print the CD agreement for you to sign. In-person opening takes longer but may feel more familiar if you are new to CDs.

Fund your CD

You can fund a CD with cash, a check, or a transfer from another account. If you are opening online, the bank will give you instructions to transfer money from your checking account or another bank. This usually takes one to three business days to complete. If you are opening in person, you can hand over cash or a check on the spot.

Some banks have a minimum deposit amount — often $500 or $1,000, though some allow $100 or less. A few banks let you add money to a CD after you open it, but most do not. Check the bank's rules before you commit.

Understand what happens at maturity

When your CD term ends, the bank sends you a notice (usually 10 days before maturity) telling you what happens next. You have a choice window — typically 7 to 10 days — to decide whether to withdraw the money, roll it into a new CD at the current rate, or move it elsewhere. If you do nothing, many banks automatically roll your CD into a new one at the same term length, though the rate will be whatever they are offering that day.

The money you get back includes your original deposit plus all the interest earned. That interest is taxable income in the year you receive it, so you will get a 1099-INT form from the bank for your tax return.

Know the early withdrawal penalty

If you need your money before the term ends, you pay an early withdrawal penalty. This penalty varies by bank and by term length. A three-month CD might have a penalty of one month's interest; a five-year CD might have a penalty of six months' interest or more. The penalty comes out of your earnings first, and if the penalty is larger than your earnings, it eats into your principal.

Before you open a CD, read the disclosure document that shows the exact penalty. Some banks calculate it as a number of months of interest; others use a percentage of the deposit. Knowing this upfront helps you decide whether a CD is right for you or whether a savings account (which has no penalty) makes more sense.

Frequently Asked Questions

Can I open a CD if I don't have a bank account?

Yes, many banks let you open a CD as your first account with them. You do not need an existing checking or savings account. However, some banks require you to be a customer first, so call or check the website before you start the process.

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

You can withdraw it, but you pay an early withdrawal penalty. The penalty is usually several months of interest. If your earnings are smaller than the penalty, the bank takes the difference from your principal. Read the penalty terms before you open the CD so you know the cost.

Do I pay taxes on CD interest?

Yes. The interest you earn is taxable income in the year you receive it. The bank sends you a 1099-INT form showing how much interest you earned, which you report on your tax return. This is true even if you roll the CD into a new one instead of withdrawing the money.

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

Most banks do not allow additional deposits to an existing CD. You can open a second CD if you have more money to deposit. Some banks offer "add-on" CDs that let you deposit more during the term, but these are less common and may have different rates.

What's the difference between a CD and a savings account?

A CD locks your money for a set time and pays a higher rate in exchange. A savings account lets you withdraw anytime with no penalty but pays a lower rate. If you might need the money within a year or two, a savings account is safer. If you can leave it alone, a CD usually earns more.