How Can I Invest my Money in a CD Account?

Online banks often have the best CD rates.
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If you have cash you won't need for a while, you can stash it in a CD. A CD, or certificate of deposit, ties up your money and pays interest for a set time. When the time's up, you can take the money out of the account or reinvest it, but you usually must pay a penalty to cash out early. If a CD fits the bill for you, it's not hard to invest in one.

Amounts and Terms

Decide how much money you can afford to tie up and for how long. You don't want to be caught short, but it's to your advantage to choose a longer term when interest rates are falling, according to "The Wall Street Journal." Go short-term if rates are rising so you can reinvest later at higher rates.

Banks normally advertise two different interest rates, the APR and the APY. The APR is the straight annual percentage rate, but you earn a higher rate -- the annual percentage yield, or APY -- if you leave the interest in your CD to earn more interest, which is referred to as compounding.


It's not all or nothing when choosing a CD investment. You can divide your money into a CD ladder, which means you buy separate CDs that mature at different times. For example, if you expect a tax bill once per year, buy CDs that mature in one year, two years and three years. If you aren't sure which way interest rates are heading, you can hedge your bets by investing half your cash for one year and half for three years or more. You can also choose special CDs with fluctuating market interest rates or CDs that allow withdrawals with no penalty.


Compare CD rates, minimum deposits and terms at different institutions to get the best deal. Compare your current bank with ones that advertise in newspapers or online, and also check CDs rates online at Contact the bank to find out the penalty for early withdrawal. Some institutions have penalties that much higher than other banks charge. To protect your funds from a bankruptcy, choose a bank insured by the Federal Deposit Insurance Corp. or a credit union insured by the National Credit Union Administration. You can also buy a CD through a middleman, called a broker. Pick a broker you trust, and make sure your savings are insured in your name.

Opening a CD

Once you have selected a savings institution, go to the branch near you or open your CD online. You'll need a check, cash or electronic transfer and a driver's license or other identification. You'll also need to provide a Social Security number or taxpayer identification number and fill out a signature card. Choose whether to keep the interest in your CD, receive it by check or have it automatically deposited in another account. However, you'll take a small hit in interest if you take it out because you'll earn the lower APR.

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