Certificates of Deposit

Certificates of deposit (CDs) are low-risk deposit accounts that offer low but guaranteed rates of return but may charge a penalty if you withdraw the money before the CD matures.

The Basics and Nuances of certificates of deposit

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Frequently Asked Questions
  • What kind of penalties do CDs have?

    The financial institution offering your CD typically charges you a fee if you decide to withdraw funds from your CD before it matures. These fees are usually equal to the interest you've earned over a certain number of months.

  • Why do CD rates change so much?

    CD rates change based on the length of maturity and the current interest rate environment. If the rate environment is volatile, interest rates can change on a weekly basis.

  • Do credit unions offer CDs?

    Yes, credit unions offer CDs, and they often have some of the highest interest rates.

  • Do banks offer no-penalty CDs?

    Yes, there are several banks and credit unions that offer penalty-free CDs, also known as "liquid CDs." Typically, you'll be able to withdraw some (not all) of your deposit before maturity without paying a fee.

  • Who invests in CDs?

    CDs tend to be a good investment for people who want stable, low-risk investments. This could include first-time investors, people who are close to retirement, or those who want to earn more interest on their cash than what they'd get in a high-yield savings account.

Key Terms

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