What is a certificate of deposit (CD)?

A certificate of deposit (CD) is indeed a time deposit that comes with a fixed interest rate and a set term. This financial product is offered by banks and credit unions and is an attractive option for individuals looking for a safe investment vehicle. When a customer opens a CD, they commit to keeping their money deposited for a specific period, which can range from a few months to several years. In return for this commitment, the bank pays a higher interest rate compared to regular savings accounts.

The key characteristics defining a CD include its fixed term and interest rate, which provide predictability in returns for the investor. At the end of the term, known as the maturity date, the investor receives their principal amount along with the earned interest. This structure makes CDs particularly appealing for personnes who want to secure a safe return without the risks associated with stock market investments or the volatility of other financial instruments.

This type of financial product is primarily focused on savings, rather than loans or equity investments, which is why the other options are less applicable. The nature of a CD as a time deposit distinguishes it from more flexible options like traditional bank accounts or different types of investments.