Certificate of Deposit

A certificate of deposit is a time deposit that pays a stated rate over a fixed term in exchange for limiting access to the funds until maturity.

It is a deposit product rather than a broad market investment vehicle. The core bargain is higher certainty in return for lower liquidity.

How It Works

The depositor commits funds for a stated period. In return, the bank offers a fixed or otherwise specified yield structure. Early withdrawal usually triggers a penalty unless the product is designed with more flexible terms.

Why It Matters

Certificates of deposit are commonly used by savers who want:

• principal stability
• predictable interest income
• a known term
• more yield than a highly liquid ordinary deposit account may offer

Related Terms

• Time Deposit: Broader category that includes certificates of deposit.
• Savings Account: More liquid but usually lower-yield deposit alternative.
• Money Market Account: Another deposit product with a different liquidity-yield tradeoff.
• Liquidity: Core tradeoff when comparing CDs with more accessible cash products.