What is a Certificate of Deposit (CD)?

A certificate of deposit is a type of savings account with a fixed interest rate and a set term. Banks and credit unions offer CDs.

Investing

A certificate of deposit is a type of savings account with a fixed interest rate and a set term. Banks and credit unions offer CDs. CDs typically have higher interest rates than normal savings accounts but also have strict penalties for early withdrawal. 

The FDIC (for banks) or the NCUA (for credit unions) insure CDs, making them a safe investment. CDs can be a good option for people seeking a higher interest rate on their savings and can afford to leave their money untouched for a set period of time.

Interest rates on CDs are generally fixed, meaning they will not change during the term of the CD. The term is the length of time that you agree to keep your money in the account. CD term lengths can be as short as a few months or as long as several years.

When you open a CD, you will need to deposit a minimum amount of money set by the bank or credit union. This amount is typically $500 or $1,000. You cannot withdraw from a CD until the term is up, but you can make deposits during the term.

You can choose to either withdraw your money or renew the CD for another term at the end of the term. If you renew, you will usually get the same interest rate. If money is withdrawn before the end of the term, you will typically pay a penalty.

CDs can be a good option for individuals seeking a higher interest rate on their savings and can afford to leave their money untouched for a set period of time, but you must remember that you will pay a penalty if you withdraw your money before the end of the term.

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