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A Certificate of Deposit (CD) is a savings account that holds a fixed amount of money for a fixed period, and in return, the issuing bank pays you interest.
In Depth
A Certificate of Deposit (CD) is a type of savings account offered by banks and credit unions. You deposit a set amount of money for a specific term, ranging from a few months to several years. In exchange for keeping your money locked up for that period, the bank pays you a fixed interest rate, which is often higher than a regular savings account. If you withdraw the money before the term ends, you typically pay a penalty.
Example
Sarah opened a 5-year Certificate of Deposit with $10,000 to earn a higher interest rate on her long-term savings.