Certificate of Deposit (CD)

A certificate of deposit (CD) is a special type of savings account offered by banks or credit unions. A CD is also called a “time deposit.” You generally must keep your funds in the CD for a specified period of time to avoid penalties. The end of that time period is called the “maturity date.” The size of the penalty you will pay if you remove money from a CD before the maturity date will vary.

You can find out what the penalty is before you purchase a CD. Some institutions may agree in advance to waive the penalty for withdrawing the money from the CD before its maturity date if you have held the CD for a minimum period of time. CDs offered by banks are insured (up to $250,000) by the Federal Deposit Insurance Corporation (FDIC), while those offered by credit unions are insured up to $250,000 by the National Credit Union Administration (NCUA).

Select your CD maturity date based on your expected needs. For example, if you will need the money you are going to invest in a CD in five years, you should compare the terms of CDs offered on the assumption that you will withdraw the money at that time.