Purchasing Cds With Chase You Invest: A Step-By-Step Guide

A certificate of deposit (CD) is a stable, short-term cash investment, similar to a traditional savings account or money market fund. CDs are a type of federally insured savings account where you invest funds for a specified period of time and earn interest during that period. CDs are commonly purchased through financial institutions like banks and credit unions. When you buy a CD, you are essentially loaning money to the financial institution, which then pays you back in fixed, regular payments. The original investment is typically returned in a lump sum on the CD's maturity date. CDs are typically viewed as a “set it and forget” investment, meaning no ongoing monitoring is required. They offer investors a safe place to earn a predictable income stream, particularly if using a CD ladder strategy.

Pick a type of CD

Picking the right type of CD is the first step to saving. There are many types of CD accounts to choose from, each with its own features and characteristics. Here are some factors to consider when choosing the right CD for you:

CD Term Length

The term length of a CD refers to how long your deposit is held in the account. Typically, banks and credit unions offer CD terms ranging from a few months to several years. Longer-term CDs tend to offer higher interest rates than shorter-term CDs. So, if you're planning to save for a longer period, a longer-term CD may be ideal. On the other hand, if you're looking for a short-term savings goal, a short-term CD might be more suitable.

CD Rates

Interest rates are a crucial factor in choosing a CD. The annual percentage yield (APY) provides a clearer picture of potential returns than a flat interest rate by considering compound frequency. Higher interest rates generally mean higher earnings. However, it's important to understand how often interest is paid on previously accrued interest (compounding frequency) as this can impact your overall earnings.

Early Withdrawal Penalties

Most CDs come with penalties for withdrawing funds before the end of the term. These penalties can vary, so understanding the terms and conditions of the CD is essential. Some CDs, such as liquid or no-penalty CDs, allow you to withdraw funds early without penalties, offering more flexibility.

Minimum Opening Deposit Requirements

Some CDs have minimum opening deposit requirements, so it's important to be aware of these requirements before choosing a CD. A Jumbo CD, for example, typically has a higher minimum deposit requirement but may offer higher interest rates due to the larger deposit.

Step-up and Bump-up CDs

Step-up and bump-up CDs allow you to increase the interest rate if interest rates rise during the term period. The difference is that with step-up CDs, the interest rate increase follows a predetermined schedule set by the bank, while with bump-up CDs, you can choose when to request a rate increase.

Add-on CDs

Add-on CDs provide the flexibility to make additional deposits during the term. This type of CD can be useful if you're saving for a specific goal, such as buying a home or a car, as it allows you to grow your savings. However, add-on CDs typically have early withdrawal penalties similar to other CDs.

By considering these factors and understanding your financial goals and priorities, you can choose the CD that best aligns with your savings plan and helps you maximize your savings.

Research banks and institutions

When researching banks and institutions, it is important to keep in mind the following factors:

• FDIC Insurance: Ensure that the bank or financial institution you choose is insured by the Federal Deposit Insurance Corporation (FDIC). This provides protection for your deposits up to $250,000 per depositor per bank.
• Promotional CD Rates: Some banks may offer promotional CD rates that are higher than standard rates if certain requirements or transactions are met. Compare the promotional rates offered by different institutions.
• Convenience: Consider the accessibility and customer support provided by the bank. Choose an institution with easily accessible services and a reputable customer support system to help you manage your CD account effectively throughout its term.
• Quontic Bank: Offers CD terms ranging from 3 months to 5 years, with a minimum deposit of $500.
• Popular Direct: Requires a minimum deposit of $10,000 and offers CD terms from 3 months to 5 years.
• Vio Bank: Features a low minimum deposit of $500 and provides CD terms ranging from 6 months to 5 years.
• America First Credit Union: Offers a wide range of CD terms from 3 to 60 months, with competitive rates, and a low minimum deposit of $500.
• Sallie Mae Bank: Provides 11 CD terms, a savings account, and money market account. The minimum deposit requirement is $2,500.
• Synchrony Bank: Offers a no-penalty CD and a bump-up CD, in addition to regular CD terms ranging from 3 months to 5 years. There is no minimum deposit requirement.
• Marcus by Goldman Sachs: Provides a variety of CD terms and types, including no-penalty and rate-bump CDs. The minimum deposit is $500.
• Barclays Bank: An online bank offering CD terms from 6 months to 5 years, with no minimum deposit requirement.
• Capital One: Features CD terms from 6 months to 5 years, with no minimum opening deposit.

When comparing banks and institutions, be sure to consider their CD rates, minimum deposit requirements, early withdrawal penalties, and the convenience of their services.

Get your documents in order

To open a CD account, you'll need to have certain documents ready to ensure a smooth application process. While the exact requirements may vary between institutions, here's a list of documents typically needed to open a CD account:

Government-issued ID: This could include your driver's license, passport, or any other equivalent form of identification.

Tax identification number: You'll need to provide your Tax Identification Number, which is used by the Internal Revenue Service (IRS) for tax administration purposes. Common examples include your Social Security Number (SSN) or Individual Tax Identification Number (ITIN).

Proof of address: You will need to provide documentation that confirms your place of residence. This could include a recent utility bill or bank statement that clearly displays your name and current address.

Opening deposit: The initial deposit is typically the only deposit you'll make to your CD, unless otherwise specified. Minimum deposit requirements vary by institution and CD type, so be sure to review the terms and conditions of your chosen CD account.

Before applying for a CD account, it's important to understand the different types of CD accounts available and choose one that aligns with your financial goals. Consider factors such as the term length, interest rates, early withdrawal penalties, and minimum opening deposit requirements. Additionally, research different banks and institutions, taking into account factors like FDIC insurance, promotional rates, and convenience.

Apply for the CD account

Once you have done your research and chosen the CD account that best suits your financial goals, you can apply for the CD account. This is done by sending your application to your chosen financial institution. Many banks allow customers to open accounts both online and in person. During the application process, it is important to provide accurate and complete information and to ensure that you fully understand the terms and conditions of your CD account. This will help to prevent any unexpected surprises later.

As part of your application, you will need to provide various documents. While the exact details may vary between institutions, most banks and credit unions will typically require a government-issued ID (such as a driver's license or passport), your tax identification number (e.g. Social Security number or Individual Tax Identification Number), and proof of address (such as a utility bill or bank statement). You will also need to make your opening deposit, which is typically the only deposit you will make to your CD account unless otherwise indicated. Minimum opening deposits vary by institution and CD type, so carefully review the terms and conditions of your chosen CD to ensure you are prepared.

After you have finished the necessary paperwork, the final step is usually to fund the account. This means making your opening deposit to activate your CD account.

Consider more ways to save with CDs

Once you've opened your CD account, you may want to consider other ways to leverage the power of CD accounts and boost your savings. A CD ladder, for example, is a strategy that helps you net the higher interest rates of longer-term CDs while providing some added flexibility along the way. Depending on your financial goals, another option might be to consider opening multiple CD accounts. For some, separate CD accounts earmarked for specific savings goals can help keep your money organized and make it easier to track progress toward each goal.

Opening a CD account is similar to your usual savings account, but some added thoughts upfront can help tailor-cut a CD strategy to your own tastes and preferences. Considering the types of CD accounts, their terms, and the institution that suits you best, as well as gathering your documents before beginning the application process, may help ensure a streamlined account-opening experience. Once you're ready, you can start saving and exploring more ways to bolster your personal finances!

CD Ladder

A CD ladder involves opening multiple CDs with varying maturity dates. For example, you might have five or six CDs, one of which matures every six months. Using a CD ladder to save can help you make the most of interest rates when they're higher, while also insulating your money against rate drops. If rates go up, then when the next CD in your ladder matures, you can lock in that higher rate by rolling over to a new CD. If rates go down, you're still getting the benefit of higher rates on the CDs you already have open.

Multiple CD Accounts

Depending on your financial goals, you might consider opening multiple CD accounts. Separate CD accounts earmarked for specific savings goals can help keep your money organized and make it easier to track progress toward each goal.

Frequently asked questions