Banking

What is CD (Certificate of Deposit)?

A CD is a savings product where you lock your money away for a set term in exchange for a fixed interest rate, usually higher than a regular savings account. Under Regulation DD, banks must disclose early withdrawal penalties, which often consist of losing several months of interest if funds are withdrawn before maturity. CDs are FDIC-insured up to the $250,000 limit.

CDs offer higher interest rates than standard savings accounts because the depositor commits their capital for a fixed duration. At maturity, the depositor can withdraw the principal and interest or roll the balance into a new CD.

Quick Facts

Product ClassTime deposit with fixed term and interest rate

Early Withdrawal PenaltyDisclosed loss of interest under Regulation DD

Maturity EventWindow to withdraw or roll over funds (usually 7-10 days)

Insurance LimitFDIC insured up to $250,000 per owner

PRACTICAL EXAMPLE

You put $10,000 into a 12-month CD at 5.0% APY. If you need the money at month six and withdraw early, the penalty is 90 days of interest ($125). You get $10,125 instead of the full $10,500 you’d earn at maturity.

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Learn More Key Concepts

Savings AccountAn interest-bearing deposit account held at a financial institution, designed for accumulating funds with high liquidity.

APY (Annual Percentage Yield)The real annual rate of return earned on a deposit account, accounting for the compounding of interest over one year.

FDIC InsuranceU.S. government backing that protects deposit accounts at insured banks up to $250,000 per depositor.

Minimum BalanceThe minimum amount of money required in a bank account to avoid fees or qualify for a specific interest rate.

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