What Is a Certificate of Deposit (CD)?
A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer CDs, although it’s up to each bank which terms it wants to offer, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties it applies for early withdrawal.
- Top-paying certificates of deposit pay higher interest rates than the best savings and money market accounts in exchange for leaving the funds on deposit for a fixed period of time.
- Traiditional CDs are considered a safer and more conservative investment than stocks and bonds, offering lower opportunities for growth, but with a non-volatile, guaranteed rate of return.
- Virtually every bank, credit union, and brokerage firm offers a menu of CD options.
Understanding Certificates of Deposit (CDs)
A Financial Element, similar to a literary element, refers to components of a Financial Narrative. Understanding the financial elements can help us in creating and planning Your Financial Narrative. We will continue to look at various other financial elements each week as a part of the Financial Fridays