What are certificates of deposit (CD)?
Before 1975, when you asked if your bank or credit union offered certificates of deposit, you might have been greeted by quizzical looks or total mystification. Few financial institutions offered this new, “revolutionary” savings certificate. Skyrocketing interest rates in the early 1970s – as the prime rate approached 20% in a runaway inflation environment – threatened many financial institutions with disaster. Enter the certificate of deposit. Technically, CDs were “created” in 1961, but their popularity didn’t widely expand until the early to mid 1970s, primarily because of inflation problems. A certificate of deposit is a “time deposit” that carries an interest rate often higher than typical savings accounts. CD rates normally follow and mirror inflation rates. How does a typical CD work? Typical CDs provide that you agree to keep your deposit with your institution for three, six, or nine months, or from one to five years. Your interest rate is typically increases with the amount o
