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Certificate of Deposit CD

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Definition of 'Certificate of Deposit CD'

See CD for other definitions of the acronym CD. In the finance world a CD can stand for Certificate of Deposit or Cumulative Delta. Here we are defining Certificate of Deposit.

A certificate of Deposit or CD is a time deposit. This is a financial product commonly offered to consumers by banks, thrift institutions, and credit unions.

CDs are similar to savings accounts in that they are insured and therefore close to risk-free. CDs are insured by the FDIC for banks or by the NCUA for credit unions.

The main difference between a CD and a savings account is that you can typically withdraw your money from a savings account at any time whereas with a CD you only get your money (plus interest) back when the CD matures. The CD will have a specific, fixed term which is usually one of:
  1. three months
  2. six months
  3. one year
  4. two years
  5. three years
  6. four years
  7. five years
)Most of the time a CD has a fixed interest rate and it is the intention of the issuer that it be held until maturity. On the maturity date the money may be withdrawn together with the accrued interest.

In exchange for keeping the money on deposit for the agreed-on term, institutions usually grant higher interest rates than they do on accounts from which money may be withdrawn on demand.

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