Which of the following best describes a certificate of deposit?

A certificate of deposit (CD) is best described as a time deposit with a fixed interest rate. This means that when an individual invests in a CD, they agree to leave their money in the account for a specific period, known as the term. In return for this commitment, the bank offers a higher interest rate compared to regular savings accounts. The fixed interest rate guarantees the investor will earn a set return on their investment, making it a relatively low-risk option for saving.

The other options do not accurately represent the characteristics of a certificate of deposit. High liquidity refers to the ease of accessing funds, which is not the case for a CD, as there are penalties for early withdrawal before the term ends. A flexible savings account implies the ability to make withdrawals and deposits at any time without restrictions, which is contrary to the nature of a CD. Finally, a checking account is designed for everyday transactions and typically offers low interest or none, distinguishing it from the purpose and function of a certificate of deposit.