Certificate of Deposit (CD) Definition
A Certificate of Deposit (CD) is a type of time deposit offered by banks, credit unions, and other financial institutions. It is a financial product that allows investors to deposit a sum of money for a fixed period of time, usually at a predetermined interest rate. At the end of the term, the investor receives the original deposit plus the accrued interest.
Certificate of Deposit (CD) Key Points
- CDs are a type of time deposit with a specific fixed term and usually a fixed interest rate.
- They are considered a safe investment, as they are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per individual.
- Early withdrawal from a CD can result in a penalty, often in the form of forfeited interest.
- CDs can be a good option for those looking for a low-risk, predictable return on their investment.
What is a Certificate of Deposit (CD)?
A Certificate of Deposit is a financial product that is offered by banks, credit unions, and other financial institutions. It is a type of time deposit, which means that the investor agrees to leave a certain sum of money in the account for a specified period of time. In return, the financial institution agrees to pay interest on the deposit at a predetermined rate.
Why use a Certificate of Deposit (CD)?
CDs are often used by individuals who want a low-risk investment with a predictable return. Because the interest rate is fixed, the investor knows exactly how much they will earn by the end of the term. Additionally, CDs are insured by the FDIC up to $250,000 per individual, making them a very safe investment.
When to use a Certificate of Deposit (CD)?
CDs can be a good option for individuals who have a lump sum of money that they do not need to access for a certain period of time. They can also be a good choice for those who are looking to diversify their investment portfolio with a low-risk option.
Who can use a Certificate of Deposit (CD)?
Anyone can open a CD, as long as they have a lump sum of money that they are willing to deposit for a fixed period of time. This can include individuals, businesses, and even non-profit organizations.
How does a Certificate of Deposit (CD) work?
When an individual opens a CD, they agree to deposit a certain amount of money for a fixed period of time. The financial institution then pays interest on this deposit at a predetermined rate. At the end of the term, the investor can withdraw the original deposit plus the accrued interest. If the investor chooses to withdraw the money before the end of the term, they may have to pay a penalty, often in the form of forfeited interest.
