How to Open a CD Account


CD is short for certificate of deposit, which is a deposit account offered by financial institutions such as banks. With a certificate of deposit, you put money in the account and are not allowed to take it out before the maturity date unless you pay a hefty early withdrawal penalty. In return for leaving the money in the account, the bank offers a higher interest rate on the money. To open a CD, you need your identifying information.

  • Decide how much money you can afford to invest in the certificate of deposit. You might receive a higher interest rate for larger deposits. However, you should be careful not to invest money you will need before the certificate of deposit matures.

  • Determine how long you can do without the money. Certificates of deposit can range from a week to ten years or longer. Longer terms will generally yield higher interest rates.

  • Search for the best CD rates by calling your bank or by searching online databases (see Resources) for offers. Many financial institutions will allow you to apply online.

  • Contrast the interest payment procedures for each of the accounts. Some accounts allow the interest to be paid out to you, which is beneficial if you are looking for a fixed income security, while others add the interest to the account, which then increases the amount of interest you earn in the future, which is beneficial for people viewing the CD as an investment.

  • Decide on the certificate of deposit that gives you the best interest rate for the maturity period you are comfortable with. For example, even though a 10-year CD might offer a four percent interest rate, compared to a three percent rate for a two-year CD, if you will need the money in two years, the three percent offer is a better deal.

  • Complete an application for a CD either in person or online, depending on the financial institution you choose. You will be asked for your identifying information, including your address and social security number, for record-keeping and tax purposes.

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