CD prices start at $500 or $1,000 at most banks, though some online banks accept $100

The amount you need to open a CD depends on the bank. Large national banks like Chase, Bank of America, and Wells Fargo typically require a minimum of $1,000 to $2,500. Smaller regional banks and most online banks are lower—often $500 or $1,000. A handful of online banks will let you start with $100 or even $250, though these are less common.

This is the money you deposit upfront. It is not a fee. You get it back at the end of the CD term, plus the interest the bank has promised you. The bank holds your money for a fixed period—anywhere from three months to five years—and pays you a set interest rate in return.

If you withdraw the money before the term ends, you pay an early withdrawal penalty. That penalty varies widely: some banks charge three months of interest, others charge six months or a flat dollar amount. The penalty is deducted from your balance, so you may get back less than you put in if you withdraw early.

Key Takeaways

  • Most banks require $500 to $2,500 to open a CD, though online banks often accept $100 or $250.
  • The amount you deposit is your principal—the bank returns it plus interest when the term ends, assuming you do not withdraw early.
  • Early withdrawal penalties vary by bank and can range from three months of interest to a flat fee, and they reduce what you get back.
  • The interest rate you earn depends on the term length, the bank, and current market conditions—longer terms usually pay more.
  • You can open multiple CDs at the same bank or spread money across different banks to work around deposit minimums.

How the interest rate affects what you earn

The amount you deposit is only half the picture. The other half is the annual percentage yield (APY)—the interest rate the bank pays you. A $1,000 CD earning 4.5% APY for one year will pay you $45 in interest. The same $1,000 at 2.0% APY pays $20. That difference compounds over longer terms.

APY varies by bank and by how long you lock your money away. A three-month CD typically pays less than a one-year CD at the same bank. A five-year CD usually pays the most. Online banks tend to offer higher rates than brick-and-mortar banks because they have lower overhead costs.

The rate you see advertised is the rate you get for the full term—it does not change. If you open a one-year CD at 4.5% APY, you earn 4.5% for the entire year, even if the bank's rates drop to 2.0% the next month.

What happens to your money at maturity

When your CD term ends, the bank sends you a notice—usually 10 to 30 days before the maturity date. At that point, you have choices. You can withdraw the full amount (principal plus interest) with no penalty. You can let it renew into a new CD at whatever rate the bank is currently offering. Or you can move the money elsewhere.

If you do nothing and the bank's renewal terms are not attractive, you may miss the window to withdraw penalty-free. Some banks automatically renew CDs into a new term if you do not act by the maturity date. Read the renewal terms in your CD agreement before you open the account.

Deposit insurance and how much the FDIC covers

The Federal Deposit Insurance Corporation (FDIC) insures CDs up to $250,000 per depositor, per bank, per account ownership type. If you have $100,000 in a CD at Chase and $100,000 in a CD at Bank of America, both are fully covered because they are at different banks. If you have $300,000 in CDs at the same bank, only $250,000 is covered.

This matters if you are depositing large amounts. If you have $500,000 to invest in CDs, you can open accounts at two different FDIC-insured banks and stay fully protected. Credit unions offer similar coverage through the National Credit Union Administration (NCUA), also up to $250,000 per account.

Comparing CD costs across different banks

The real cost of a CD is the opportunity cost—what you could have earned elsewhere. A $5,000 CD earning 2.0% APY for one year nets you $100 in interest. The same $5,000 in a high-yield savings account earning 4.5% APY would net you $225. That $125 difference is what you give up by choosing the lower rate.

Online banks and credit unions typically offer the highest rates because they pass savings to customers. Banks with physical branches charge more to maintain them, so they offer lower rates. Compare rates across at least three banks before you decide. Websites like Bankrate and DepositAccounts list current rates and let you filter by term length and minimum deposit.

What to watch for when opening a CD

Read the early withdrawal penalty before you commit. Some banks charge a flat fee—say, $25. Others charge a percentage of interest earned or a number of months' worth of interest. If you think you might need the money, a bank with a lower penalty is worth choosing, even if the rate is slightly lower.

Check whether the bank compounds interest daily, monthly, or at maturity. Daily compounding means you earn interest on your interest more often, which slightly increases your total return. The difference is small on short terms but adds up over five years.

Confirm the renewal terms. Some banks automatically renew at the current rate; others send you a check. Know what happens on maturity day so you are not surprised.

Frequently Asked Questions

Can I open a CD with less than the minimum deposit?

No, the minimum is a hard requirement. However, you can open multiple CDs at different banks to spread your money. If you have $1,500 and one bank requires $1,000 minimum, you could open a $1,000 CD there and a $500 CD at a bank with a lower minimum.

What happens if I need my money before the CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty is deducted from your balance, so you may receive less than you deposited. The amount of the penalty depends on your bank and the CD term—check your agreement for the exact figure.

Do I pay taxes on CD interest?

Yes. The interest you earn is taxable income in the year you earn it, even if you do not withdraw the money. The bank will send you a 1099-INT form at tax time showing how much interest you earned. This is one reason some people prefer CDs with shorter terms—you pay taxes on the interest sooner, but you also get access to your principal sooner.

Is my money safe in a CD?

Yes, as long as the bank is FDIC-insured and your total deposits at that bank do not exceed $250,000. The FDIC may provide covers the principal and all accrued interest. Even if the bank fails, you get your money back up to the insurance limit.

Can I shop around for better rates after I open a CD?

You can look, but switching costs money. If you withdraw early to move your money to a higher-rate CD elsewhere, you pay the early withdrawal penalty at your current bank. That penalty often eats up several months of the higher interest you would earn. It usually makes sense to wait until maturity unless the rate difference is very large.