Step-by-step: How to open a CD account

If you want your money to go further, consider opening a certificate of deposit (CD). With a CD, you can enjoy peace of mind if you’re able to lock in your CD rate for a fixed term. Since it’s easy to estimate your earnings, opening a CD account could be just what you’re looking for to help you manage your money efficiently and save for your future.

Some people use the earnings from a CD to add to their Social Security and retirement income later in life. Others use a series of CDs, which is also called a CD ladder or CD laddering, to earn more interest than they could with a checking or savings account while still being able to access some of their money on a regular schedule.

Below, you’ll learn how to open a CD account and find answers to more of your questions about short- and long-term savings.

The process of how to open a CD account is like opening a checking or savings account. However, there are more moving parts to keep in mind. If you’re thinking about opening a CD account, consider these six steps:

1. Find a financial institution that’s insured by the Federal Deposit Insurance Corporation (FDIC). There are government institutions that insure banks. If you open a CD account, you can sleep easily at night knowing that if an insured bank fails, your FDIC-insured account will be protected up to $250,000 per depositor, per account ownership category.

2. Pick a type of CD. There are several types to choose from, like a standard CD with a fixed rate or a no-penalty CD that lets you withdraw money early without a fee. You’ll need to decide which type fits your goals and find a bank that offers it.

3. Choose your term. When you open a certificate of deposit, one of the first things you’ll need to choose is the length of your term. 

4. Decide how often you want to collect your interest payments. With your payout, you may have a range of options: You may receive your interest monthly or annually. You can also reinvest the interest payments back into the CD. Once the CD’s term ends, if you’ve received your interest as a monthly payment you’ll get your first deposit back, along with your final interest payment. If you opted to receive your interest once annually, you’ll get your first deposit back along with your total interest earned.

5. Create your account. Unless you already have one, you’ll need to create a new account with the issuing bank to open a CD account. You may have to share personal information such as your name, address, contact info and tax identification number (such as a Social Security number).

6. Fund the CD. The last step in the process of opening a CD account is to put money into it. Options may include linking another account and transferring money from the same bank where you’re opening your CD. You may also be able to make an external transfer from another bank, mail a check or use other methods, depending on your bank’s requirements.

After learning how to open a certificate of deposit, it’s a good idea to review the different features of CDs to see which one best fits your financial goals. There are some common features that could vary depending on the issuer and type of CD.

Here are a few features to consider when you open a certificate of deposit that may affect your earnings or expenses:

• Interest rate and annual percentage yield (APY). Similar to other types of savings accounts, the CD will pay you interest on the money in your account. Pay close attention to the APY. It takes into account compounding, which is when you earn interest on top of interest you’ve already earned. APY gives you a clearer picture of what you’ll actually make in a year. 

• Term. When you open a CD account, you may be able to choose from a variety of term lengths, depending on the financial institution. If you have a Capital One 360 CD, using the app can make it easy to seamlessly adjust your maturity plan, so you can decide exactly how you want your money handled once the CD term is up.

• Minimum deposit requirements. When you consider how to open a CD account, you should note that some CDs have a minimum funding requirement. That means you’ll need to deposit at least that much money to open a certificate of deposit there. It’s easy to start saving when there’s no minimum balance required. You can open a Capital One 360 CD account with any amount you’ve got.

• Early withdrawal penalty. CDs have a fixed term during which the owner can’t access their first deposit. However, you may be able to withdraw your money early but with a penalty. Keep in mind that the penalty could be several months’ worth of interest, wiping out some or all of what you earned.

• Other fees. They may be less common, but you should be aware of other potential fees if you’re thinking about opening a CD account. Some CDs may have monthly or annual maintenance fees, for example. In addition to an early withdrawal penalty, withdrawal or transfer fees may be applied. There are also brokers that charge you a fee if you purchase a CD through them.

While CDs can be a safe way to grow your savings, there are some potential risks when you open a CD account. Liquidity risk—the risk that you’ll need the money when it’s locked up in a CD—is an important one.

You can always consider putting money you’ll need in the short term in a savings account, where you can still earn interest.

There’s also a risk that interest rates may rise in the future. If that happens, your money could be locked in a CD and could possibly earning less interest than you’d get from a savings account.

Choosing the right CD can take a little planning. Understanding how CDs work and how to open a CD account before you apply can help you avoid surprises and make the most of your savings. With the right account, you can earn a predictable return while working toward your financial goals. 

Here are three things to keep in mind as you make your decision:

• Choose a CD term that matches when you’ll need access to your money. 

• Compare interest rates, minimum deposit requirements and other account features before applying. 

• Review the early withdrawal rules so you understand the costs of accessing your money before the CD matures.

Ready to open a CD? The Capital One 360 CD account lets you earn more money with a guaranteed return.