What is a Bank CD?
certificate of deposit A debt instrument issued by a bank that usually pays interest. Institutional CDs are issued in denominations of $100,000 or more, and individual CDs vary in price. Maturities range from a few weeks to several years. Interest rates are set by competitive forces in the marketplace.
The bank CD, or certificate of deposit, is a simple but useful means of creating financial security for the future. As a money market instrument, the rate of interest earned on a bank CD is based on current money market rates. Many people consider the bank certificate of deposit to be among the safest investment opportunities available today. Setting up a bank CD involves depositing money into a special account with a banker. This deposit remains in the account until a pre-determined maturity date is reached. In return for leaving the money in the CD account until maturity is reached, the bank applies a specific or fixed rate of interest to the funds deposited. It is possible to set up a bank CD with a duration of anywhere between one year to five years. In the event that the depositor chooses to withdraw funds from the CD account before the maturity date is reached, most banks will assess severe penalties. The penalties are often enough to offset any returns that would have been reali
