Certificates of Deposit: Know the Basics
CDs are similar to a savings account, but you agree to lock in your deposit for a set term, usually between 6 months and 5 years. In return, institutions typically pay out a higher rate of interest, measured as an Annual Percentage Yield (APY), than they do on traditional liquid savings accounts.
People like CDs because they offer guaranteed interest. You can’t lose money on your deposit, unless you withdraw early, and FDIC-insured institutions protect investments up to $250,000 per depositor. If you leave your money in a CD for its entire term, you will get back your principal, plus interest.
While many banks offer CDs, they’re not all created equally. Pay particular attention to the APY offered, and any potential fees associated with the account, most commonly: early-withdrawal penalties. If you’re concerned about needing access to your funds, some banks—like PurePoint—are beginning to offer No-Penalty CDs, which allow you the freedom to remove your full balance if you need to, one time, without any penalties.