Which financial product often has a fixed term and usually results in penalties for early withdrawal?

A certificate of deposit (CD) is a financial product that is typically offered by banks and credit unions, and it often features a fixed term, which can range from a few months to several years. During this term, the depositor agrees to leave their money in the account for the entire duration in exchange for a guaranteed interest rate, which is generally higher than what is offered by regular savings accounts.

One of the key characteristics of CDs is the penalty for early withdrawal. If a depositor decides to take out their funds before the end of the specified term, they usually incur a penalty that can be a portion of the interest earned or even a forfeiture of the principal under certain circumstances. This structure encourages savers to keep their money in the account for the full term, which benefits the bank as it can use those funds for lending and other investment activities.

In contrast, checking accounts provide easy access to funds without penalties, mutual funds are investment vehicles that typically allow buying and selling shares without a fixed term, and stock options are contracts that provide an option to buy or sell stock and do not entail fixed terms or penalties associated with early withdrawal. Therefore, the characteristics and implications of a CD, including fixed terms and penalties for early withdrawal, make