The basic steps to purchase a CD

To buy a CD, you pick a bank or credit union, choose the term length and amount you want to deposit, and complete the purchase through their website, app, or in person. The bank holds your money for the agreed period—anywhere from a few weeks to five years or longer—and pays you a set interest rate. You do not need to do anything after you buy it; the bank manages the account until maturity.

The process takes minutes if you already have an account at the bank. If you are opening a new account, you will need to provide your Social Security number, proof of identity, and your initial deposit amount. Most banks let you fund a new CD from an existing bank account via transfer or ACH payment.

Key Takeaways

  • You can buy a CD online, by phone, or in person at any bank or credit union that offers them, and the process usually takes less than 10 minutes.
  • The CD term (how long your money is locked) and the interest rate are set when you purchase; they do not change, even if rates rise or fall later.
  • Early withdrawal before the maturity date typically costs you a penalty equal to a few months of interest, so only lock up money you will not need.
  • Your CD is insured up to $250,000 per depositor per bank by the FDIC (or NCUA at credit unions), so the principal is protected even if the bank fails.

Decide on the term length and amount

The term is the length of time the bank holds your money. Common terms are 3 months, 6 months, 1 year, 2 years, 3 years, and 5 years. Longer terms usually pay higher interest rates, but your money is locked away longer. Shorter terms let you access your cash sooner, but the rate is lower.

Decide how long you can afford to leave the money untouched. If you might need it within a year, a 1-year or shorter CD makes sense. If you are saving for something five years away, a 5-year CD locks in a higher rate for the full period. The amount you deposit can be as little as $500 at some banks or as much as you want, but remember that FDIC insurance covers only up to $250,000 per account holder per bank.

Compare rates across banks

Interest rates on CDs vary by bank and by term. A 1-year CD at one bank might pay 4.5% while another pays 4.0%. Over a year, that difference adds up. Spend 10 minutes checking rates at your current bank, online banks, and local credit unions before you commit.

Online banks often pay higher rates than brick-and-mortar banks because they have lower overhead costs. Credit unions sometimes offer competitive rates to their members. Use a rate comparison site or call banks directly to see current rates for the term you want. Rates change frequently, so check the day you plan to buy, not a week earlier.

Open or use an existing account

If you already have a checking or savings account at the bank, you can buy a CD through that same bank. Log into your online banking portal or call the customer service number on the back of your debit card. Ask to open a CD, and the bank will walk you through the options.

If you do not have an account at the bank offering the best rate, you will need to open one first. This takes about 5 to 10 minutes online. You will provide your name, address, Social Security number, and date of birth. The bank will verify your identity and may run a soft credit check (which does not affect your credit score). Once the account is open, you can immediately fund the CD from another bank account via ACH transfer or wire.

Fund the CD and confirm the terms

Choose how you want to fund the CD. If you are buying through an existing account, you can transfer money from your savings or checking account at the same bank. If you are buying at a new bank, you can link an external account and transfer money in, or you can mail a check. ACH transfers usually take 1 to 3 business days; wire transfers are faster but may cost a fee.

Before you confirm the purchase, the bank will show you a summary: the amount you are depositing, the interest rate, the term end date, and the maturity value (what you will have when the CD matures). Read this carefully. Once you confirm, the rate and term are locked in. You cannot change them, even if rates drop or you change your mind.

Understand what happens at maturity

When the CD term ends, the bank will send you a notice a few weeks before the maturity date. At that point, you have a choice: withdraw the money, or let the bank automatically renew the CD for another term at the current rate (which may be higher or lower than your original rate).

If you do nothing, most banks automatically renew. If you want to withdraw the money or move it elsewhere, you must contact the bank before the maturity date and tell them not to renew. There is no penalty for withdrawing when the CD matures. If you withdraw before maturity, you will owe an early withdrawal penalty, usually equal to 3 to 6 months of interest.

Know the early withdrawal penalty

If you need your money before the CD matures, the bank will charge you a penalty. The penalty amount varies by bank and by term—a 3-month CD might have a 1-month interest penalty, while a 5-year CD might have a 6-month penalty. The bank subtracts the penalty from your interest earnings first; if the penalty is larger than the interest you have earned, it comes out of your principal.

Before you buy, ask the bank what the early withdrawal penalty is for the specific CD you are considering. Write it down. This is the cost of accessing your money early, so only buy a CD if you are confident you will not need the money until maturity.

Frequently Asked Questions

Can I buy a CD with money from another bank?

Yes. Link your external bank account to the new bank's website, and transfer money via ACH (takes 1 to 3 business days) or wire (faster, may cost a fee). You can also mail a check, though this is slower. The bank will give you instructions when you open the account.

What if I need the money before the CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty is usually a few months of interest. Ask the bank for the exact penalty before you buy. If the penalty is steep and you think you might need the money, choose a shorter-term CD instead.

Is my money safe in a CD?

Yes, up to $250,000 per depositor per bank. The FDIC (Federal Deposit Insurance Corporation) insures bank CDs, and the NCUA (National Credit Union Administration) insures credit union CDs. If the bank fails, you get your money back. If you have more than $250,000, spread it across multiple banks to stay fully insured.

Can the bank change the interest rate after I buy?

No. The rate you see when you buy is the rate you earn for the entire term. It does not change if market rates rise or fall. This is why longer-term CDs lock in a rate—you are protected if rates drop, but you miss out if rates rise.

What happens if I do not withdraw the money when the CD matures?

Most banks automatically renew the CD for another term at the current rate. If you do not want to renew, contact the bank before the maturity date and ask them not to. There is no penalty for withdrawing or declining renewal at maturity.