10 Potentially Money-Saving Questions To Ask Before Opening a CD

One safe way to grow your money is to open a new bank account that pays a high rate on savings. Another option is to purchase a certificate of deposit, commonly referred to as a CD.

Before selecting a CD, it's critical to ask the right questions. Here are some important questions to ask before you open your next CD.

1. Is it possible to open more than one CD?

Generally, you will be able to open multiple CDs through the same financial institution.

In many cases, financial institutions offer a range of CD terms. That gives you the ability to set up a CD ladder.

Essentially, a CD ladder lets you tuck funds into CDs of various term lengths. Each time a CD matures, you'll have access to the funds without having to pay an early withdrawal penalty. And, of course, you'll have the option to roll the funds into a new CD if you prefer.

2. What interest rates do you offer on your CDs?

The interest rate attached to a CD dictates how much you can earn on your savings. Generally, it's best to opt for a CD with the highest possible interest rate.

Although most banks offer CDs with an interest rate that does not change, some CDs come with variable rates that could shift up or down throughout the CD term. Make sure you clarify how your CD's interest rate will work before you purchase the CD.

3. How long does the term last?

CDs typically come in terms that last anywhere from a few months to several years before the CD matures. In many cases, you cannot access your cash during this period without paying a penalty.

So, it's important to find out what the term length is on a CD. If you might need the funds before the term ends, consider seeking out a shorter CD term or opting to put your money into a high-yield savings account.

4. How can I protect myself against inflation?

CD interest rates may or may not keep pace with inflation. If inflation eclipses the CD's rate of return, your money could lose purchasing power by the end of the CD's term.

If interest rates are rising, consider opting for a shorter term. If interest rates are falling, consider locking in a higher rate for the long term.

5. Are there early withdrawal penalties?

Many CDs come with an early withdrawal penalty. That means you will lose some of your cash if you withdraw the money before the end of the CD's term.

Before putting your funds into a CD, make sure you understand the early withdrawal penalties involved.

6. Is there a minimum deposit requirement?

A minimum deposit requirement represents the minimum amount of money you must fork over to open a CD. This requirement varies based on the bank or credit union.

Many institutions offer CDs with a small minimum deposit requirement. Others require you to deposit more money in a CD.

7. What happens at the end of the term?

Each financial institution has its own protocol for what happens when a CD matures. Some automatically roll the funds into a new CD while others deposit the funds into your checking or savings account.

Check with your financial institution to see which options it offers and make sure they are the right fit for you.

8. Do you offer no-penalty CDs?

A no-penalty CD allows you to withdraw funds at any time without incurring an early withdrawal fee. For many, this added flexibility makes a no-penalty CD a better option than a traditional CD.

Not all financial institutions offer no-penalty CDs, however. So, make sure to ask your bank whether this option is available. Just be aware that no-penalty CDs often come with lower rates of return.

9. Do you offer jumbo CDs?

Jumbo CDs typically require large minimum deposits. In some cases, the interest rates attached to jumbo CDs are higher than those you would get with a standard CD.

Generally, jumbo CDs require a minimum deposit in the range of $100,000. For savers who want to make a hefty deposit, finding a jumbo CD with a higher rate could lead to significantly higher earnings over the CD's term.

10. What other types of CDs do you offer?

Many other types of CDs might be available. One example is a CD that lets you bump up the rate once during a CDs term.

Another type of CD known as a "callable CD" offers higher rates in exchange for giving the institution the option to end the CD before the term is up.

Bottom line

Building your savings is an important step in beginning to move beyond living paycheck to paycheck. Tucking your hard-earned funds into CDs offers one way to grow the money over time.

However, get familiar with all the fine print and ask the right questions before opening a CD. Doing so can help you choose the CD that best fits your needs and your desire to grow wealth.