What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is an investment product offered by banks and credit unions that requires the account holder to deposit funds for a fixed term, typically ranging from a few months to several years. In exchange for keeping the funds in the account for the agreed duration, the financial institution provides a higher interest rate compared to regular savings accounts. This feature of requiring the funds to be locked in for a specific period is what distinguishes CDs from other types of deposit accounts. Additionally, at the end of the term, the investor receives their principal plus the interest earned.

This structure allows for predictability in returns, making CDs a popular choice for conservative investors seeking a low-risk vehicle for savings. The interest rates on CDs can also vary based on the length of the term and prevailing market conditions, but the requirement of a fixed term is a fundamental characteristic of this investment instrument.