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A bank product where you agree to leave money untouched for a fixed term in exchange for a fixed interest rate.
Why It Matters
A CD locks in a rate, which is useful when you know you will not need the money before the term ends and you want certainty. The cost of that certainty is access: withdrawing early usually triggers a penalty, which is why CDs sit awkwardly with emergency funds. No-penalty CDs exist and remove that objection, generally in exchange for a lower rate. CDs are FDIC insured within the standard limits.
Key Points
- Fixed rate for a fixed term — certainty in exchange for locking the money up.
- Early withdrawal usually costs a penalty; no-penalty CDs trade rate for access.
- FDIC insured, like other bank deposits.
Related Terms
Common Questions
A bank product where you agree to leave money untouched for a fixed term in exchange for a fixed interest rate. A CD locks in a rate, which is useful when you know you will not need the money before the term ends and you want certainty. The cost of that certainty is access: withdrawing early usually triggers a penalty, which is why CDs sit awkwardly with emergency funds.
A CD locks in a rate, which is useful when you know you will not need the money before the term ends and you want certainty. The cost of that certainty is access: withdrawing early usually triggers a penalty, which is why CDs sit awkwardly with emergency funds. No-penalty CDs exist and remove that objection, generally in exchange for a lower rate. CDs are FDIC insured within the standard limits.
Fixed rate for a fixed term — certainty in exchange for locking the money up.
Early withdrawal usually costs a penalty; no-penalty CDs trade rate for access.
FDIC insured, like other bank deposits.