Takeaways
- Certificates of deposit offer a fixed interest rate and set terms for investors.
- Certificates of deposit vary in required deposit, term length, and annual percentage yield (APY).
- Certificates of deposit are used to house emergency and slush funds.
- Certificates of deposit are effective investments for fixed-income investing.
- Certificates of deposit are often part of a well-diversified investment portfolio's asset allocation.
Opening a certificate of deposit, also known as a CD, account can be a smart way to grow your savings with low risk. CDs offer fixed interest rates over a set period, making them popular for investors who want predictable returns without market volatility.
>> Our Picks: Best Certificates of Deposit 2025
Take the Next Step:
What Is a Certificate of Deposit (CD)?
A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a set term and earns a fixed annual percentage yield. In exchange for keeping your money in the account for the agreed time, the bank or credit union pays you interest. When the CD matures at the end of its term, you get to withdraw your original deposit plus your accumulated interest.
There are many different types of CDs. They are offered in various terms, ranging from a month or two to several years. Generally speaking, CDs offer higher interest rates than regular savings accounts. However, withdrawing your funds early usually results in a penalty, so it is important to plan not to access your CD before locking in your investment.
>> Want regular interest income? Consider building a CD Ladder
CD Calculator
Calculator
Certificate of Deposit
7 Steps to Open Your CD Account
If you are ready to open a CD, here are the seven steps you need to take to open an account and get started:
1. Decide How Much to Invest
Before opening a CD, decide how much money you want to invest. Most banks and credit unions require a minimum deposit ranging from $500 to several thousand dollars. For example, Alliant Credit Union requires a $1,000 minimum deposit on its regular CD.[1] Think about your financial goals and how long you can leave the funds untouched. Since withdrawing early may result in fees, only invest money you will not need until the CD reaches maturity.
>> Read More: 9 Low-Risk Investments
2. Find the Perfect CD
Not all CDs are the same. There are several types of CDs available to meet whatever your financial goals are. Below are some variables when analyzing CDs:
- CD Type: The type of CD you select depends on your risk tolerance and investment horizon. Here are three to consider:
- Traditional CDs offer a fixed rate for a set term.
- No-penalty CDs allow you to withdraw money early without a fee.
- Bump-up CDs let you take advantage of rising interest rates by increasing your rate once during the term.
- CD Term: CD terms typically range from 3 months to 5 years. The average term length in 2023 was 10.38 months.[2] Shorter terms offer quicker access to your money, while longer terms often offer higher interest rates. Match your term length with your financial timeline.
- Jumbo CD: If you have a large amount to invest—typically $100,000 or more—you may qualify for a jumbo CD, which usually offers higher interest rates than standard CDs. These are ideal for high-net-worth savers seeking better yields with minimal risk. (Read more about Jumbo CDs).
3. Decide How to Apply
Once you have chosen the right CD, decide how you want to open the account. Most banks offer various application methods:
- Online: Quick and convenient, often with higher rates.
- In-Person: Human interaction is helpful if you prefer face-to-face support or have nuanced questions.
- By Phone: A good option if you want assistance without visiting a branch.
4. Get Your Documents Ready
To streamline the process, gather the necessary documents and information before applying. Here’s what most accounts will require:
- Government-issued ID (driver’s license or passport)
- Social Security number
- Current address
- Contact information
- Banking details if funding from an external account
5. Select How to Receive Interest
Next, decide what you want to do with the interest your CD earns. You typically have two options. You can reinvest the interest, allowing it to compound within the CD and earn more over time. Alternatively, you can transfer it to another account and receive interest payments in a savings or checking account at regular intervals, such as monthly or annually.
Your choice will depend on your investment portfolio and goals. If you do not need immediate income, reinvesting may help your savings grow faster.
Get Smart With Your Money
Fresh weekly articles delivered straight to your inbox.
Enter your name and email for free tips and tricks.
6. Open Your Account
Once you have everything in place, it is time to open your CD account. During this step, you will fill out the application, review and agree to the CD’s terms and conditions, and finally, fund the account with your selected amount.
Make sure to read the fine print. Understand the interest rate, maturity date, and any early withdrawal penalties. This is also a good time to set up account alerts or online access to monitor your investment.
7. Choose How to Reinvest
When your CD reaches maturity, you will have several options. Some banks automatically renew CDs unless you request otherwise, so it is essential to decide in advance what you want to do.
Be aware of the grace period, typically 7 to 10 days after the CD matures. During this time, you can make changes without a penalty.
Here’s what you can do with your original principal and interest income:
- Renew into a new CD: Want to take advantage of compound interest? You can roll your funds into another CD, either with the same or a different term. (This is similar to dividend reinvestment programs).
- Withdraw your funds: Once you have your original deposit plus your earned interest, you can withdraw your money.
- Move your money: You can wire or transfer your funds into another savings account. From there, you can use the funds to invest in stocks, bonds, cryptocurrency, or real estate.
Smart Summary
A certificate of deposit is a safe, predictable way to grow your savings. By locking in a fixed interest rate for a set term, you can earn more than a traditional savings account with minimal risk. Opening a CD is straightforward when you follow the right steps. Once your account is active, you can watch your savings grow and plan ahead for what to do when it matures.
You Might Also Like
Smart Money requires our expert writers to rely on trusted primary sources—academic research, government reports, expert interviews, original reporting, and peer-reviewed data—to deliver precise and up-to-date content. All of our content is thoroughly fact-checked. We also incorporate relevant research from reputable publishers when it aligns with our editorial focus. For a closer look at our rigorous journalistic standards, explore our editorial guidelines.
(1) Alliant Credit Union. Certificate of Deposit. Last Accessed April 23, 2025.
(2) Alkami. Certificate of Deposit Term Lengths Trended Shorter as Interest Rates Rose. Last Accessed April 23, 2025.
