Introduction to Certificates of Deposit (CDs)

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A simple and straightforward investment, the CD is always popular among people looking to park their money.

What you will learn

  • Basic Information about Certificates of Deposit
  • Small-Savings CDs
  • Negotiable Certificates of Deposit
  • Specialty Certificates of Deposit

What do you know?

Introduction to Certificates of Deposit (CDs)

Banks issue short-term, interest-bearing certificates called certificates of deposit (CDs). Credit unions also do, but their certificates of deposit pay dividends rather than interest. Credit union certificates may be called certificate accounts, share certificates, or just certificates.

Certificates are timed deposits. If you place money into one, you must leave it there for a specific number of days to get a stated earnings rate (although some CDs have variable rates). You will receive both principal and interest/dividends at maturity.

CDs have two advantages over most other investments: you know exactly how much will be earned, and you know exactly when the money will be available to you. Certificates are popular among people who like their investments low-risk and straightforward.

Many advisors also consider CDs suitable tools for diversifying portfolios. While investors may devote some parts of their portfolios to growing in value, they often devote other parts to safety of principal. CDs come in handy for this.