What is a Certificate of Deposit (CD)? 

Learn if CD’s are the right investing choice for you.

Text CDS written on wooden cubes on top of dollar bills

Are you looking for a safe way to invest your money? A Certificate of Deposit (CD), commonly known as a CD, might be the choice for you! A CD is a financial tool that allows you to deposit your money with a bank or credit union for a specified period of time in exchange for a predetermined interest rate.

Unlike standard savings accounts, CDs require you to leave your money untouched for the agreed-upon time. The amount of time can range from months to several years. This agreement results in higher interest rates compared to traditional savings accounts, making CDs an attractive option for people looking to maximize their savings growth while maintaining a low-risk investment strategy.

The term "certificate" in CD refers to the formal documentation issued by the financial institution you choose to invest with. It outlines essential details such as the initial deposit amount, interest rate, maturity date, and terms of the agreement. This certificate serves as evidence of the contractual arrangement between you and the financial institution.

How do I open a CD?

Opening a CD involves selecting a suitable financial institution, completing the necessary paperwork, and making the initial deposit. It's important to note that most banks and credit unions impose minimum deposit requirements, which can vary depending on the institution and the type of CD being offered.

Other things to know before you open a CD:

  • CDs are distinguished by their fixed terms and interest rates. While fixed-rate CDs maintain a consistent interest rate, some institutions offer variable-rate CDs, where the CD interest rates may fluctuate based on market conditions.
  • Early withdrawal from a CD typically results in penalties, which typically equals the estimated interest income. Despite this, CDs are valued for their security and stability, as they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), which provide protection for your funds.
  • Upon the maturity of the CD, you have the option to withdraw the original investment amount along with any accrued interest. Or you can reinvest the funds into a new CD, continuing the savings cycle. 

In summary, CDs offer a reliable avenue for individuals to grow their savings with the assurance of a predetermined interest rate. Before investing in a CD, it's essential to carefully evaluate your financial goals, assess the terms and conditions, and find the best CD rates to ensure they align with your investment goals.

The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.