A Certificate of Deposit (CD) is a time deposit offered by banks that typically offers higher interest rates than savings accounts. When you invest in a CD, you agree to leave your money in the account for a set period, known as the maturity period (ranging from a few months to several years). In exchange, the bank pays you interest over that period, which can be compounded or paid out at maturity.
CDs are low-risk investments and are insured by the FDIC (in the U.S.), making them a safe choice for conservative investors. However, withdrawing funds before the maturity date typically results in a penalty, which can reduce or eliminate the interest earned.
A CD is a time deposit offered by banks that pays a fixed interest rate in exchange for locking your money for a specific period.
You deposit a sum of money into a CD for a fixed term, and in return, the bank pays interest. You are required to leave the funds in the account until maturity, and early withdrawal typically results in penalties.
CDs offer higher interest rates than regular savings accounts and are low-risk, making them a good option for conservative investors seeking stable returns.
If you withdraw money early, you will likely face a penalty, which could reduce or even eliminate the interest earned.
Typically, once a CD is opened, you cannot add additional funds. However, some banks offer “add-on” CDs that allow you to make additional deposits during the term.
When your CD matures, the bank typically offers you the option to withdraw the principal and interest or roll it over into a new CD. If you don’t take action, the bank may automatically renew the CD at the prevailing interest rate.
CDs can be a safe option for conservative retirement savers, but they may not provide enough growth to outpace inflation over the long term. Consider diversifying with other investment vehicles for long-term retirement planning.
When choosing a CD, consider the interest rate, the term length, and any penalties for early withdrawal. It’s also important to compare rates across different banks and financial institutions.
