What are certificates of deposit (CDs)?

Certificates of deposit (CDs) are time deposits offered by banks that come with fixed interest rates and specific maturity dates. When an individual invests in a CD, they agree to deposit a certain amount of money for a predetermined period, during which they cannot withdraw the funds without incurring penalties. At the end of this term, the bank returns the principal along with the accrued interest, which is typically higher than what is available from traditional savings accounts.

The fixed interest rates make CDs appealing for individuals looking to secure a guaranteed return over the investment period. Additionally, since they are considered low-risk investments, they are often used by those seeking stability in their portfolio. CDs differ from other financial products such as short-term loans or checking accounts, which do not offer the same structure or benefits. Their design prioritizes capital preservation and predictable returns, distinguishing them clearly from other forms of deposits or loans.