A certificate of deposit (CD) is one of the most straightforward savings products that exists. You deposit a lump sum, agree to leave it for a set term — anywhere from a few months to several years — and in return the bank or credit union pays you a fixed annual percentage yield (APY) on your money. At the end of the term (called the maturity date), you get your principal back plus all the interest you've earned.
Despite that simplicity, many first-time CD buyers hesitate because the process feels unfamiliar. This guide removes the mystery. By the end, you'll know exactly what to do — and what to watch out for.
Step 1 — Figure out how much you want to deposit and for how long
Before you shop for rates, answer two questions: How much money can you genuinely set aside without needing it? And for how long?
The first question matters because CDs typically charge an early-withdrawal penalty if you take your money out before maturity. That penalty — usually a set number of days' worth of interest — can wipe out a portion of what you've earned, and in rare cases even nick your principal if you exit very early in the term. As a general rule, only put money into a standard CD that you won't need until after the maturity date.
The second question shapes which term makes sense. Common CD terms include 3 months, 6 months, 1 year, 2 years, 3 years, and 5 years. Longer isn't always better — rates aren't always higher for longer terms, and your needs matter more than chasing the last fraction of a percent.
Step 2 — Compare CD rates across institutions
This is the step most first-timers skip — and it's where the biggest gains are. CD rates vary enormously between institutions. A large national bank might offer an APY several times lower than an online bank or credit union on the exact same term. The rate your local branch pays is rarely the highest available.
When comparing, always use APY (annual percentage yield) rather than the stated interest rate. APY accounts for compounding — how often interest is calculated and added to your balance — and gives you a true apples-to-apples comparison between institutions.
Because cd rates change constantly, any specific number cited in an article may be outdated by the time you read it. The most reliable approach is to check a live comparison tool. You can see current rates across multiple institutions at /preview/secure-returns/compare/ — always confirm directly with the institution before committing.
Step 3 — Choose the right type of institution
CDs are available from three main sources: traditional brick-and-mortar banks, online banks, and credit unions. Each has tradeoffs.
- Traditional banks: convenient in-person service, but CD rates are often the lowest of the three options.
- Online banks: lower overhead means they frequently pass savings along to depositors in the form of higher CD and high-yield savings account rates. No physical branches, but account management is fully digital.
- Credit unions: member-owned nonprofits that often offer competitive CD rates, especially for shorter terms. Deposits are insured by the NCUA (up to $250,000 per member, per institution, per ownership category) rather than the FDIC, but the coverage structure is essentially equivalent.
- Brokered CDs: purchased through a brokerage firm rather than directly from a bank. Can offer access to a wide range of issuers in one place, but have their own nuances — see the guide at /secure-returns/learn/brokered-vs-bank-cd-which-is-right-for-you/ for details.
If finding the highest cd rates available nationally is your priority, online banks and credit unions are usually where to look first. If you'd prefer to find competitive cd rates near me at a local institution you can walk into, search your state's credit union directory or community bank listings alongside any national comparison.
Step 4 — Verify FDIC or NCUA insurance before you open the account
Before depositing a dollar, confirm that the institution is covered by FDIC insurance (for banks) or NCUA insurance (for credit unions). This protects your deposit — principal and accrued interest — up to $250,000 per depositor, per institution, per ownership category, in the event the institution fails.
You can verify FDIC membership at fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ or by using the FDIC's BankFind tool. NCUA membership can be confirmed at ncua.gov. If you are depositing more than $250,000, consider spreading your money across multiple institutions or ownership categories to maintain full coverage. The guide at /secure-returns/learn/fdic-insurance-explained/ explains how to maximize coverage.
Step 5 — Open the account and fund it
Most CD applications today are completed entirely online and take less than ten minutes. Here's what to have ready:
- Government-issued photo ID (driver's license or passport).
- Your Social Security number (required for tax reporting of interest income).
- Bank account and routing number for the external account you'll fund from.
- The amount you plan to deposit — make sure it meets any minimum deposit requirement.
Once your application is approved and your transfer clears — usually one to three business days — your CD begins earning interest. The institution will provide a disclosure document stating your exact APY, term, maturity date, and early-withdrawal penalty terms. Read it. That document is the contract.
Step 6 — Understand what happens at maturity
On your maturity date, most banks give you a grace period — typically seven to ten calendar days — during which you can withdraw your funds, change your term, or add to your deposit without penalty. If you do nothing during that grace period, the CD usually auto-renews into a new CD of the same term at whatever rate the bank is currently offering. That new rate may be significantly different from your original rate.
Set a calendar reminder two to three weeks before your maturity date. That gives you time to check whether the current rate at that institution is still competitive, or whether you should move your money elsewhere. This single habit can prevent you from sitting in a low-rate auto-renewal for a full term without realizing it.
A note on taxes
Interest earned on a CD is generally taxable as ordinary income at the federal level, and often at the state level too, in the year it is credited to your account — even if you don't withdraw it. The issuing institution will send you a Form 1099-INT each tax year in which you earn $10 or more in interest. For questions about your specific tax situation, consult a qualified tax professional.
Ready to find your rate?
Now that you know the process, the next step is straightforward: compare live CD rates across institutions to find the term and yield that matches your goals. Use the rate comparison tool at /preview/secure-returns/compare/ to see current offerings — and always confirm the rate directly with the institution before opening your account, since rates can change daily.
This article is for general educational purposes only and does not constitute personalized financial, tax, or legal advice. Consult a qualified professional for guidance tailored to your individual situation.