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Glossary

Certificate of Deposit (CD)

A Certificate of Deposit (CD) is a savings product that earns interest on a fixed sum of money for a set period, requiring funds to remain deposited until maturity to avoid penalties.

Luca Moschini

— 1 min read

Definition

A Certificate of Deposit (CD) is a type of savings product offered by banks and credit unions that accrues interest on a single deposit over a predetermined time period. The funds must remain deposited for the full term to earn the stated interest.

Unlike standard savings accounts, CDs restrict access to the deposited money until maturity, with early withdrawals typically resulting in penalties and lost interest.

How It Works

A CD begins with a one-time deposit that earns a fixed interest rate over a defined term. During this period, the principal generally cannot be accessed without incurring penalties.

At maturity, the depositor can withdraw the principal and interest, transfer the funds, or roll them into a new CD depending on the institution’s policies.

Why the Term Matters

Certificates of Deposit illustrate how liquidity, interest rates, and time commitments are balanced in savings products. They are commonly referenced when comparing conservative financial instruments with varying access and return characteristics.

  • Savings account
  • Money market account
  • Fixed interest rate
  • Early withdrawal penalty
  • Deposit maturity

FAQs

What is a Certificate of Deposit (CD)?
A Certificate of Deposit is a savings product that pays interest on a fixed deposit held for a specific period.

How does a CD differ from a savings account?
A CD requires funds to remain deposited for the full term, while savings accounts allow more flexible access.

What happens if money is withdrawn early from a CD?
Early withdrawal usually results in penalties and forfeited interest.

Do CDs have fixed interest rates?
CDs typically offer fixed interest rates for the duration of the term.

Are CDs offered by most banks?
Most consumer financial institutions offer CDs with varying terms, rates, and conditions.

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