Certificate of Deposit [CD]

A Certificate of Deposit (CD) is a savings product offered by banks and credit unions that provides a fixed interest rate for a specific term in exchange for leaving funds untouched. Terms range from one month to five years or more, with higher rates for longer terms. For example, a 1-year CD might offer 5.5% while a 5-year pays 4.5% (inverted during rate-cutting cycles). CDs under $250,000 are FDIC-insured, making them virtually risk-free. Early withdrawal typically incurs penalties of several months’ interest. Jumbo CDs (over $100,000) offer slightly higher rates and are negotiable (can be sold in secondary markets). Brokered CDs, sold through brokerages, offer convenience of holding multiple banks’ CDs in one account. CD rates closely follow Fed policy – banks raise CD rates to attract deposits when rates rise. During the 2023 rate hiking cycle, CD rates exceeded 5% for the first time since 2007. CDs suit conservative investors seeking guaranteed returns.