What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is essentially a savings certificate offered by banks and credit unions that pays a fixed interest rate for a specified term, which can range from a few months to several years. When you invest in a CD, you agree to lock in your funds for that term and, in return, you earn a higher interest rate than what is typically offered by regular savings accounts. The terms of a CD are important because they outline the duration for which the money must remain untouched in order to avoid early withdrawal penalties.

This type of investment appeals to individuals looking for a safe place to park their money while earning interest, as CDs are often insured by federal agencies up to a certain limit. Thus, the fundamentals of a CD—a fixed interest rate and a committed time period—make it a suitable option for those seeking security and predictable growth in their investments.