Certificate of Deposit (CD)
Definition
A time deposit offered by banks that pays a fixed interest rate for a specified term in exchange for keeping your money deposited.
Formula
Maturity Value = P × (1 + r/n)^(n×t)A Certificate of Deposit is a savings product offered by banks and credit unions that pays a fixed interest rate for a set period, typically ranging from three months to five years. CDs generally offer higher interest rates than regular savings accounts because you agree not to withdraw the funds until maturity.
CD rates are influenced by the Federal Reserve's interest rate policies and the term length. Longer terms usually offer higher rates, though this is not always the case in an inverted yield curve environment. Early withdrawal typically incurs a penalty equal to several months of interest.
A popular strategy is CD laddering, where you spread your deposits across CDs with different maturity dates. This provides regular access to portions of your money while still earning higher rates on longer-term CDs. CDs are FDIC insured up to $250,000 per depositor per institution.
Related Calculators
CD Calculator
Calculate Certificate of Deposit returns with compound interest and compare CD laddering strategies
Savings Interest Calculator
Calculate savings account growth with compound interest, APY comparison, and inflation-adjusted projections
Compound Interest Calculator
Calculate compound interest with contributions and visual growth chart
Related Terms
APY (Annual Percentage Yield)
financeThe effective annual rate of return on an investment or savings account, accounting for compound interest.
Compound Interest
financeInterest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.
FDIC (Federal Deposit Insurance Corporation)
financeA U.S. government agency that insures bank deposits up to $250,000 per depositor per institution, protecting consumers against bank failures.
Interest Rate
financeThe percentage charged by a lender on borrowed money or paid to a saver on deposited funds, expressed as an annual percentage.
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