What does a Certificate of Deposit (CD) typically offer compared to a regular savings account?

A Certificate of Deposit (CD) is a time deposit offered by banks and credit unions that typically offers higher interest rates compared to regular savings accounts. This is primarily because a CD requires the depositor to leave their money in the account for a fixed period, which can range from a few months to several years. In exchange for agreeing to keep the funds untouched for this duration, the financial institution rewards the customer with a higher interest rate.

This higher rate is advantageous for individuals who can afford to set aside their money without needing immediate access, making CDs an appealing choice for those looking to grow their savings over time. In contrast, regular savings accounts generally provide lower interest rates, more flexible access to funds, and the ability to make frequent withdrawals without penalties, but they lack the higher returns associated with CDs.