What is the definition of a certificate of deposit?
A Certificate of Deposit, more commonly known as a CD, is an investment instrument with low risk and a guaranteed return, assuming the conditions of the financial agreement are met.FeaturesAn investor purchases a CD to benefit from a fixed rate of return over a specific time. As long as the investor doesn’t withdraw the funds over the term of the agreement, he will profit from the full interest earned.Time FrameThe length of investment required for a CD varies depending on the lender and may range from three months to six years. However, the fixed rate of return generally increases along with the investment’s term.BenefitsCD’s are safe investments with little risk. They tend to offer higher rates of return than normal savings accounts. The FDIC also insures CD’s for up to $100,000, including principal and accrued interest.ConsiderationsWithdrawing funds from a CD before the agreed term will result in a substantial penalty.
