How Does A Certificate Of Deposit Work?

A CD or a certificate is a type of a time deposit that is a financial product that is usually offered to consumers by financial institutions like banks and credit unions.

These types of CDs resemble savings accounts in that they are insured and hence almost free of any kind of risk. It is practically 'money in the bank'. However, they differ from savings accounts in that the certificate of deposit has a fixed time period, it may be six months, or even five years. The certificate of deposit also has a predetermined interest rate. The intention of the CD is that it be held up till maturity, at which time the amount can be withdrawn along with the accrued interest.

The consumer who opens a CD may get a passbook or a paper certificate, but nowadays it has become common practice for CD to include just a book entry and an item that is denoted in the periodic bank statements, hence there is normally no actual certificate.