Certificates of Deposit

Certificates of Deposit (CDs) are a type of time deposit account offered by banks and credit unions. They are a safe and low-risk investment option for individuals who want to earn a fixed interest rate on their savings.

When you invest in a CD, you agree to keep your money with the bank or credit union for a specific period of time, known as the term of the CD. This term can range from a few months to several years, depending on the institution and the type of CD you choose.

During the term of the CD, you cannot withdraw your money without paying a penalty. This means that CDs are not as liquid as other types of bank accounts, such as savings accounts or checking accounts. However, the longer the term of the CD, the higher the interest rate you will earn.

CDs are generally FDIC-insured, which means that if the bank or credit union fails, the government will guarantee your deposit up to a certain amount (currently $250,000 per depositor per institution).

There are several types of CDs, including:

  1. Traditional CDs: These are the most common type of CDs. They offer a fixed interest rate for a specific term, usually ranging from 3 months to 5 years.
  2. Callable CDs: These CDs allow the bank or credit union to call back your deposit before the end of the term, usually with a higher interest rate than traditional CDs.
  3. Brokered CDs: These CDs are sold by brokers and are often issued by multiple banks. They may offer higher interest rates than traditional CDs, but they are not FDIC-insured.
  4. Jumbo CDs: These CDs require a larger deposit than traditional CDs, usually $100,000 or more. They may offer higher interest rates than traditional CDs.
  5. Step-up CDs: These CDs offer a fixed interest rate that increases over time, usually every year. They may be a good option if you expect interest rates to rise in the future.

Overall, CDs can be a good investment option for individuals who want a safe and low-risk way to earn interest on their savings. However, it is important to consider the term, interest rate, and penalties before investing in a CD.