Certificates of Deposit Explainer
A certificate of deposit, or CD, is a bank time deposit that generally offers interest in exchange for leaving money on deposit for a stated term. At maturity, the depositor can withdraw principal and interest, renew, or move the funds according to the account agreement.
Traditional CDs may carry fixed rates and early-withdrawal penalties. Other products can have variable rates, step-up features, call provisions, or returns linked to a market measure. Automatic renewal rules and grace periods matter because an unnoticed renewal can lock funds into a new term at a different rate.
Deposits at an FDIC-insured bank are insured up to applicable limits per depositor, per insured bank, and ownership category. The limit combines principal and accrued interest with other covered deposits in the same category. A bank-sounding company or investment product is not automatically insured.
Brokered CDs introduce an intermediary and may need to be sold in a secondary market rather than redeemed early. Their price can fall when rates rise, and deposit-insurance coverage depends on proper placement and records. Buyers should verify the issuing bank, insurance status, term, penalty, call feature, settlement, and total deposits at that institution.
The depositor commits funds for a stated term in exchange for interest.
Early access may carry a penalty.
Coverage depends on bank, ownership category, and total deposits.
Not every CD-like product is an insured deposit.
They may trade in a secondary market and can lose value before maturity.
The broker is not the issuing bank.
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