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Certificate of deposit (CD)

A certificate of deposit, or CD, is a savings product offered by banks and credit unions. It is a time deposit, which means you agree to leave a fixed sum with the institution for a set term. Terms commonly range from a few months to several years.

In exchange for locking the money for the full term, a CD pays a fixed interest rate that is set when you open the account. That rate is often higher than a standard savings account, and it does not change as market rates move during the term. When the term ends, the CD matures and you can withdraw the principal plus the interest it earned.

CDs at insured institutions are covered by federal deposit insurance up to legal limits. The main trade-off is access. Taking money out before the maturity date usually triggers an early-withdrawal penalty, which can reduce the interest earned.

Related terms: Savings account · High-yield savings account · FDIC insurance

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