Banks and Credit Unions Are Your Main Sources

You can buy a certificate of deposit (CD) from any bank or credit union that offers them. Most national banks — Bank of America, Chase, Wells Fargo, Citibank — sell CDs in their branches and online. Credit unions often offer higher rates than banks, so it is worth checking what your own credit union offers before you look elsewhere.

The process is straightforward: you walk into a branch or log into the bank's website, tell them you want to open a CD, choose how long you want to lock your money away (the term), and deposit your cash. The bank holds the money for that term and pays you interest. You get your principal back when the term ends, plus the interest earned.

Online banks — Ally, Marcus, Discover, American Express — typically offer higher rates than brick-and-mortar banks because they have lower overhead costs. You open an account entirely online, transfer money from another bank account, and the CD begins when ready. These banks are FDIC-insured just like traditional banks, so your money is protected up to $250,000 per account.

Key Takeaways

  • National banks, credit unions, and online banks all sell CDs, with online banks usually offering the highest interest rates.
  • You can open a CD in a branch, by phone, or online, and you need only the cash you want to deposit and a valid ID.
  • FDIC insurance protects your money up to $250,000 per bank, whether you buy from a large national bank or a smaller online lender.
  • CD rates change daily, so comparing rates across several banks before you commit can add hundreds of dollars to your return over the term.
  • Some banks charge early withdrawal penalties if you need your money before the term ends, so read the terms before you deposit.

How to Compare Rates Across Banks

CD rates vary by bank and change almost daily. A 1-year CD at one bank might pay 4.5 percent annual percentage yield (APY), while another pays 4.8 percent. Over a year, that 0.3 percent difference means real money — on a $10,000 deposit, it is the difference between $450 and $480 in interest earned.

Use a rate-comparison site like Bankrate, DepositAccounts, or NerdWallet to see what banks are offering on the term length you want. These sites pull current rates from hundreds of banks and update them regularly. You can filter by term (3 months, 6 months, 1 year, 5 years) and see which banks are paying the most right now.

When you compare, look at the APY, not just the interest rate — APY accounts for how often the bank compounds interest, so it is the true number you will earn. Also check whether the bank requires a minimum deposit. Some banks want $500 or $1,000 to open a CD; others have no minimum.

What You Need to Open a CD

You need very little to open a CD. Have your Social Security number, a valid ID (driver's license or passport), and proof of your current address (a recent utility bill or bank statement works). If you are opening the CD online, you may be able to verify your identity without mailing anything in.

You also need the cash you want to deposit. Most banks have a minimum deposit — often $500 or $1,000 — but some online banks have no minimum at all. If you are opening a CD at a bank where you already have a checking or savings account, the process is usually faster because the bank already has your information on file.

If you want to open a CD at a credit union, you may need to become a member first. Some credit unions are open to anyone in a certain geographic area; others are restricted to employees of a company, members of a profession, or people who live in a specific county. Check your credit union's membership rules before you go in.

Online Banks Versus Traditional Banks

Online banks consistently offer higher CD rates than traditional banks because they do not pay for physical branches, tellers, or as much staff. An online bank's 1-year CD might pay 4.8 percent APY while a major national bank pays 3.5 percent on the same term. Over five years, that gap compounds into a significant difference in what you earn.

The trade-off is convenience. With an online bank, you cannot walk into a branch to deposit cash or ask a teller questions in person. You manage everything by website or phone. If you are comfortable with that, the higher rates make online banks worth the switch. If you prefer face-to-face service, a traditional bank or credit union may be worth the lower rate.

Both online and traditional banks are FDIC-insured, so your money is equally safe either way. The insurance covers up to $250,000 per depositor per bank, so if you have $250,000 in a CD at one bank and another $250,000 at a different bank, both are fully protected.

Early Withdrawal Penalties and What Happens at Maturity

When you open a CD, you agree to leave your money in the account for the full term. If you withdraw it early, the bank charges a penalty — usually a certain number of months of interest. A 1-year CD might have a 3-month interest penalty, meaning if you withdraw after 6 months, you lose 3 months of the interest you would have earned.

Read the penalty terms before you open the CD. Some banks charge a flat dollar amount; others charge a percentage of the deposit. A few banks offer "no-penalty" CDs that let you withdraw without a penalty, but they pay lower rates to offset that flexibility.

When your CD term ends, the bank sends you a notice. You then have a window — usually 7 to 10 days — to decide what to do. You can withdraw the money, open a new CD at the same bank, or move the money to a different bank. If you do nothing, many banks automatically "renew" the CD at the current rate, which may be higher or lower than what you were earning.

Special CDs: Bump-Up and Step-Up Options

Some banks offer variations on the standard CD. A bump-up CD lets you request one rate increase during the term if rates go up. If you open a 2-year bump-up CD at 4.0 percent and rates rise to 4.5 percent a year later, you can ask the bank to bump your rate up to 4.5 percent for the rest of the term.

A step-up CD automatically increases your rate at set intervals. For example, a 5-year step-up CD might pay 3.5 percent in year one, 3.75 percent in year two, 4.0 percent in year three, and so on. These CDs protect you against the risk that rates will rise while your money is locked in, but they usually start at a lower rate than a standard CD.

Both options cost you something — the starting rate is lower than a standard CD, or the rate increase is smaller than the current market rate. Use them only if you think rates will rise significantly during your term and you want some protection against being locked in at a low rate.

CDs at Brokerage Firms

You can also buy CDs through a brokerage firm like Fidelity, Charles Schwab, or E-Trade. These firms do not issue CDs themselves; instead, they connect you with banks that do. The advantage is that you can see CDs from many banks in one place and compare rates side by side.

Brokerage CDs are still FDIC-insured, but the insurance works differently. If you buy a CD through a brokerage, the FDIC insures it as a separate account at the issuing bank, so you can have $250,000 in a CD issued by Bank A through the brokerage and another $250,000 in a CD issued by Bank B through the same brokerage, and both are fully covered.

One drawback: brokerage CDs are sometimes harder to sell before maturity if you need the money. A bank CD you can usually withdraw from (with a penalty), but a brokerage CD may require you to sell it on the secondary market, which can be complicated and may result in a loss if rates have risen since you bought it.

Frequently Asked Questions

Can I buy a CD with money from another bank?

Yes. You can transfer money from a checking or savings account at any bank into a CD at a different bank. Most banks let you link an external account and transfer funds electronically, which usually takes one to three business days. You can also deposit cash in person at a branch if the bank has physical locations.

What is the difference between a CD and a savings account?

A CD locks your money away for a set term and pays a fixed interest rate. A savings account lets you withdraw money anytime without penalty, but it pays a lower interest rate. CDs pay more because you are giving the bank the certainty that your money will stay there for months or years.

Do I have to buy a CD for a full year?

No. Banks offer CDs with terms as short as 3 months and as long as 10 years. Shorter terms usually pay lower rates; longer terms pay higher rates. Choose the term based on when you think you will need the money.

What happens if a bank fails and my CD is there?

The FDIC insures your CD up to $250,000. If the bank fails, the FDIC pays you back in full, including any interest earned up to the date of failure. You do not lose money on an FDIC-insured CD, even if the bank goes under.

Can I open multiple CDs at the same bank?

Yes. Each CD is insured separately up to $250,000, so you could open five $50,000 CDs at the same bank and all five would be fully insured. This is useful if you want to ladder CDs — opening several with different maturity dates so money becomes available at different times.