What Are Certificate of Deposits?
A certificate of deposit (CD) is a note issued by a bank when an individual makes a deposit to the bank, often for a particular length of time. Basically, investors are lending money to the bank for a specified period. In return, the bank offers a higher interest rate to the investor than compared to a savings account or money market account. The higher interest rate is in exchange for not withdrawing the money from the bank for the period listed.
CDs offer a low risk method of investing. They are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000, so if your financial institution fails, your money is safe. Also, the length of term of a CD can be anywhere from a few weeks to a few years, making the funds as liquid as required. It is worth noting that deposits for longer usually have higher interest rates, as do larger deposits.