What are certificates of deposit (CDs)?

Certificates of deposit (CDs) are time deposits offered by banks and credit unions that allow individuals to invest a specific sum of money for a predetermined period, which can range from a few months to several years. When you invest in a CD, you agree to leave your money untouched for the length of the term in exchange for a higher interest rate compared to regular savings accounts. This fixed interest rate is agreed upon at the time of investment and will not change until the CD matures. At maturity, you receive your original investment plus any earned interest.

This structure makes CDs a low-risk investment option, appealing to conservative investors looking for stable returns. They are insured up to certain limits by the FDIC in the United States, which adds a layer of financial security. The other types of financial instruments listed, such as stocks, loans, and bonds, operate under different mechanisms and risk profiles, which do not align with the characteristics of a CD.