What is a certificate of deposit (CD)? | Consumer Financial Protection Bureau (2024)

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What is a certificate of deposit (CD)? | Consumer Financial Protection Bureau? ›

A Certificate Deposit, or CD, is a special type of savings account offered by banks or credit unions. You generally must keep your funds in the CD for a specified period of time to avoid penalties. A rollover or renewal can occur at the end of the term of a CD.

A certificate of deposit, or CD, is a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time. Withdrawing money early means paying a penalty fee to the bank.

Certificate of Deposit (CD) A certifiicate issued by a bank to a person deoposititng money for a specified length of time. Higher Rate then Regular Savings. Invest. Expend money with the expectation of achieving a profit or material result by putting it into financial schemes.

A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years, and in exchange, the issuing bank pays interest.

CD. noun. ˌsē-dē : a small plastic disk on which information (as music or computer data) is recorded digitally and read by using a laser.

Certificates of deposit (CDs) are bank deposit products that hold your funds for a set period of time, or term. In exchange, the bank pays you a fixed annual percentage yield (APY), making CDs a safe, reliable way to grow your money.

CDs are one of the safest ways to store money and earn a set rate of interest, which can help you better plan your finances. CDs opened at FDIC-insured banks, or credit unions backed by the NCUA, are guaranteed by the federal government.

CDs are like savings or money market accounts in that they allow you to put money away for a specific goal like a down payment on a house, a new car, or a vacation. Or, you may want to use a CD as an emergency funds that earns a guaranteed return.

Along with savings accounts and money market accounts, CDs are some of the safest places to keep your money. That's because money held in a CD is insured. So long as you purchase your CD account through an FDIC-insured bank, you're covered in case the bank shuts down or goes out of business.

CD-secured loans are loans that allow you to borrow money using a certificate of deposit (CD) as collateral. You can generally get low interest rates with CD-secured loans because they are fairly low risk for lenders.

How risky are certificate of deposits CDs? ›

The biggest risk to CD accounts is usually an interest-rate risk, as federal rate cuts could lead banks to pay out less to savers.

High-yield savings accounts

The best online banks offer APYs of 5.00% or more. If you deposit $500 in a high-yield savings account with a 5.00% APY, you could earn as much as $142 over five years — assuming you don't make anymore deposits and that the APY stays the same.

With a CD, you agree to leave your money in the account for a set period of time, which can range from a few months to a number of years. In exchange, the bank or credit union that issues your CD will pay you a guaranteed return on the money, typically higher than you'd get on a regular savings account.

In practice, however, most CDs compound either daily or monthly. The more frequent the compounding, the more interest your interest will earn. The frequency with which your CD compounds is reflected in the annual percentage yield (APY) that the CD's issuer promises you when you buy a CD.

CDs, called share certificates at credit unions, tend to offer higher interest rates than savings accounts and require you to lock in your money for a set period, or term. CD terms typically range from three months to five years.