What is a certificate of deposit (CD)?

A certificate of deposit (CD) is indeed a savings product that offers a higher interest rate compared to typical savings accounts and comes with fixed terms. When individuals invest in a CD, they agree to deposit their money for a specified period—ranging anywhere from a few months to several years. During this time, their funds typically earn a higher interest rate than regular savings accounts, providing a secure way to grow savings.

In this context, the fixed terms mean that the account holder cannot withdraw the money without incurring a penalty before the maturity date, which contrasts with other savings accounts where funds can be accessed at any time. The interest earned on CDs is often compounded and credited to the account at specified intervals, such as monthly or annually.

This understanding underscores the advantages of CDs as a stable investment option for individuals looking to save money while earning a guaranteed return over a predetermined timeframe.