what are cd accounts

1 year ago 55
Nature

A Certificate of Deposit (CD) is a type of savings account offered by banks and credit unions that allows you to save money at a fixed interest rate for a fixed amount of time, ranging from a few months to several years. CDs are considered low-risk because they are FDIC-insured up to $250,000. CDs generally allow your savings to grow at a faster rate than they would in a savings account. However, if you need to access your funds before the CD’s term ends, you are subject to an early withdrawal penalty, which can significantly reduce the interest you earned on the CD.

When you shop for a CD, you should compare different offers by looking at the term, the interest rate you earn, and the amount of the penalty for withdrawing money before the end of the term. CD laddering, buying multiple CDs of varying term lengths, can help address concerns about overall interest rates changing during your CD’s term. CDs can provide guaranteed returns without much risk and a safe place for savings earmarked for future use.

To open a CD, you deposit a specific amount of money into an account and agree to keep it there for a set amount of time in exchange for a set interest rate. Once your CD is established and funded, the bank or credit union will administer it like most other deposit accounts, with either monthly or quarterly statement periods, paper or electronic statements, and usually monthly or quarterly interest payments deposited to your CD balance, where the interest will compound.