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Even if you’re not a professional banker, you don’t have to navigate how to open one as well as choose the account type that’s best for you. With both regular banking and online banking now readily available, the number of options is overwhelming. Whatever your savings goals are, if you’ve opened a certificate of deposit, it’s good to know the next steps.
Overview of CDs
CD accounts are interest-guaranteed and insured by the FDIC just like traditional savings, checking, or money market accounts. CDs are considered fixed deposits because they are purchased for a specific period of time, such as 12 months or 5 years. If you redeem your CD before maturity, you will typically pay an early withdrawal fee based on the CD terms set by your financial institution.
How to open a CD account step by step
Opening a CD account is very easy. Here’s how to open it in four easy steps.
- Find a bank or credit union that offers CDs.
- Choose the CD type that best suits your needs.
- Please apply for the desired CD account.
- Make your first deposit into your account.
1. Find a bank or credit union that offers CDs
Most major credit unions or banks offer CDs, but some do not. If your current bank does, and you have a checking or savings account with the same institution, opening a CD account may qualify you for the relevant rate.
2. Choose the CD type that best suits your needs
It is not possible to withdraw funds from a CD without the risk of penalties, so it is important not only to choose the right type of CD account, but also the right duration that suits your financial needs, schedule and goals. am.
Compare CD terms and interest rates before choosing which one to use. These factors may vary depending on which bank or credit union you are using.
- No Penalty CD: There are no fees for early withdrawals from this CD, but generally low interest rates overall.
- High Yield CD: These CDs usually have the highest interest rates available on the market, but usually come with longer term requirements.
- Jumbo CDs: This CD requires a much larger investment, averaging closer to $100,000, but pays a higher interest rate, resulting in greater returns.
- Bump Up CD: If interest rates rise, this CD will allow you to raise to a higher market interest rate. This is a good offer, but keep in mind that typically only one price increase is allowed during the CD period.
- Step Up CD: This CD allows you to set a fixed interest rate for a period of time, after which the interest rate increases.
- Intermediary CD: Open this CD through a stockbroker, online brokerage, or other investment professional. You will be charged a flat fee or a percentage of your investment amount.
Common Duration Option for CD
Choosing the length of your term is an important part of your financial planning, as you have both short-term and long-term options. Note that whichever period you choose will result in a period during which you will not be able to access your money. Here are some common term length options:
- 3 months CD
- 6 months CD
- 1 year CD
- 3 year CD
- 5 year CD
3. Apply for a Priority CD Account
Once you know the type of CD you want to open and for how long, you can apply directly to your local bank or credit union, by phone or online. Many online banks also have a CD and you can apply through their website. Once your application is complete and approved, you can create an account and choose your interest payment method. In general, you can choose to pay periodically or pay at the end of the CD term.
4. Fund your account with your first deposit
You can fund your account by sending money online, sending a check, or paying in person. An initial deposit is the only requirement and unlike other accounts you don’t have to keep adding to your CD. Just put the money in and let it sit while the interest accrues until the account matures.
How CDs work
How different types of CDs work and how much you can earn depends on many factors, including the length of the CD term and the annual yield your bank offers. Considered one of the least risky forms of investment, CDs can safely grow your funds for a variety of goals, from emergency funds to retirement funds.
Here’s a breakdown of how CD accounts work:
- Make your first deposit into your CD account. No additional deposit required.
- Do not access money during the CD period.
- Once the account reaches maturity, the money and interest will be returned.
CDs are considered one of the safest forms of investment. They offer higher interest rates than traditional savings accounts, lower risk, more predictable returns, and you only have to pay a fee if you try to access your money before the account expires.
Final: Making CDs Worth Your Investment
If you are seriously considering opening a CD account, think about your purpose. This allows you to decide how long you want to use and how much you will earn when the period ends. More money doesn’t necessarily mean more problems.
Frequently Asked Questions
Here are answers to frequently asked questions about CD accounts.
- How much money do I need to open a CD account?
- Some banks do not have minimum deposit requirements, but an average initial deposit of $500 or $1,000 is required to open a CD account.
- What are the requirements to open a CD account?
- The basic requirements for opening a CD account are:
- -Make an initial deposit of $500 or $1,000 into your account.
- – No additional deposit required.
- – Do not access money during the CD period.
- – Get back your money and earned interest when your account reaches maturity.
- The basic requirements for opening a CD account are:
- Can I borrow CDs from any bank?
- Most major banks, online banks, credit unions, or other financial institutions offer CD accounts. However, some do not have this feature, so be sure to check before you go out to invest.