How to Start Using CDs

Contact your bank or credit union if you choose to open a CD with your local financial institution. Most banks will explain your options and allow you to make CD investments online. You also can call customer service or speak with a banker in person.

Explain how much you’d like to invest and ask about early withdrawal penalties and alternative CD products. The bank might have additional CD options that are a better fit for you. They might offer higher rates, more flexibility, or other features.

You’ll see a separate account on your statements or online dashboard after you move your money into a CD.

CDs may be held in almost any type of account, including individual retirement accounts (IRAs), joint accounts, trusts, and custodial accounts.

Just be sure to stick with CDs insured through the Federal Deposit Insurance Corp. or the National Credit Union Administration. Don’t be afraid to ask your banker for a better rate, especially if you do significant business with that bank or credit union

How Does a CD Work?

A CD is a form of “time deposit.”2 In return for a higher interest rate, you promise to keep your cash in the bank for a pre-determined amount of time. The bank agrees to pay you more interest than you’d get from a savings account in exchange for that agreement. You’ll receive a higher annual percentage yield (APY) on the funds you deposit because the bank knows that it can use your money for longer-term investments like loans and you won’t come asking for it next week.3

It’s up to you how long you want to keep your funds locked up when you open a CD. This time period is called the term.

CDs come in a variety of forms, and banks and credit unions continue to offer new options. Historically, CDs came with fixed rates that didn’t change, and you always would pay a penalty if you cashed out early. But that’s not necessarily the case anymore.